Superannuation changes explained: Why 80,000 retired and super-rich Aussies will pay more tax

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Key changes from July 1
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The federal government will introduce new tax measures targeted at high-value accounts or the richest retirement savers and increase the mandatory employer contribution rate. There are growing worries that the country's $4.1 trillion pension system is becoming a way for people to accumulate wealth.This will change Australia's superannuation system starting on July 1. The Labour Government called for making the system more equitable and sustainable.The Labor Party initially unveiled this proposal in 2023, saying that it wouldn't take effect until after the 2025 election. However, it was put on hold due to not getting the required support in the Senate This change came after the Labor Party's landslide victory last month, which has now paved the way for the bill to be prioritized in parliament in July.The mandatory employer contribution of the Superannuation Guarantee (SG) has increased from 11.5% to 12% of ordinary wages.A 30% tax will now apply to earnings on the portion of super balances above $3 million. This is in addition to the standard 15% tax that they, along with most Australian workers, usually pay on investment earnings in their superannuation accounts.Only the excess over $3 million is taxed at the higher rate.About 10,000 Australians with defined benefit pensions, mostly retired public servants, will also face the 30% tax. However, they can defer payment until benefits are accessed, with interest charged.The Labor government has said the changes are a step toward fairness and budget sustainability. Treasurer Jim Chalmers said it's 'hard to justify generous tax breaks on very large balances' when most Australians retire with much less. The government expects to raise approximately $2.7 billion annually, or $40 billion over a decade, helping to fund aged care and health services.Most Australians will benefit from the rise in employer contributions. A person earning $100,000 annually will see their super contributions grow from $11,500 to $12,000 annually. Over time, this translates to significant extra savings.Some employees on fixed 'salary plus super' contracts may see a slight reduction in take-home pay if their employer offsets the increased SG rate.Those who salary-sacrifice into super should also watch the new concessional cap, now set at $30,000, to avoid paying extra tax.Roughly 80,000 Australians with super balances exceeding $3 million will face the new 30% tax on earnings above that threshold. This change targets the ultra-wealthy, many of whom benefit significantly from the low-tax super environment.Notably, the tax also applies to unrealized capital gains. That means you may owe tax on the rising value of your investments even if you haven't sold them. Critics say this could hurt those with illiquid assets like property or private shares.The new rules also cover defined benefit pensions, which pay fixed retirement income rather than fluctuating investment returns. Those affected can defer the tax until they begin receiving payments, but interest will apply, currently around 4.5% per year.The reforms are unlikely to have a direct impact on younger workers right now. Most will take decades to accumulate even a fraction of $3 million in super.However, there's a long-term concern: the $3 million threshold is not indexed to inflation. Over time, more people, including younger Australians, could fall under the higher tax rate due to account growth. Some financial experts warn that if thresholds remain frozen, this could become a 'tax trap' decades later.Supporters of the reform argue it helps restore equity to a system increasingly skewed in favour of the rich. Prime Minister Anthony Albanese has called the changes "modest but meaningful," while Treasurer Chalmers says the goal is 'fiscal responsibility with fairness.'Critics, however, point to the lack of inflation adjustment and the taxing of unrealized gains as potential long-term problems. Opposition leaders have warned that younger workers may eventually be caught in a 'tax time bomb.'

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