New analysis of ATO data from the Financial Services Council (FSC) today shows over 500,000 current taxpayers will be adversely impacted by the Government’s proposed 30 per cent tax rate on balances above $3 million.
CEO of the FSC Blake Briggs said: “If the Government does not index the proposed $3 million superannuation balance cap, 500,000 Australian taxpayers will breach the cap in their life and face a 30 per cent earnings tax, including 204,000 Australians under the age of 30.
“500,000 impacted Australians is over six times the current Government estimates, which only takes into account balances that are currently over $3 million.
“Leaving the cap stuck at $3 million will mean that in today’s dollars a 30-year-old will have a real cap of around $1 million, calling into question the intergenerational fairness of an unindexed cap.
“Caps in the superannuation system are indexed to ensure generational fairness, so that each generation gets the same outcomes and benefits from the superannuation system.”
The modelling also produces real examples of actual taxpayer impacts. Examples include:
- A 25-year-old IT professional earning $100,000 with a current superannuation balance of $35,000 would reach the $3 million threshold by the time they retire at age 65.
- A 45-year-old school principal earning $150,000 today with a current superannuation balance of $650,000 would reach the $3 million threshold by the time they retire at age 65.
- A 55-year-old dentist earning $220,000 today with a current superannuation balance of $1,400,000 would reach the $3 million threshold by the time they retire at age 65.
The FSC will work constructively with the Treasury through the consultation process on details that still need to be resolved, including:
- The long-term impact if the $3 million threshold is not indexed;
- The interaction with the transfer balance cap;
- How investment earnings will be calculated and whether they will be applied to unrealised gains;
- Impacts on consumers in accumulation phase who are unable to adjust their super balances; and
- How contributions from structured settlements on personal injuries will be treated.
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Contact: Kylie Adoranti – 0423 715 955 – This email address is being protected from spambots. You need JavaScript enabled to view it.
About the Financial Services Council The Financial Services Council (FSC) has over 100 members representing Australia's retail and wholesale funds management businesses, superannuation funds, life insurers, financial advisory networks and licensed trustee companies. The industry is responsible for investing almost $3 trillion on behalf of more than 15.6 million Australians. The pool of funds under management is larger than Australia’s GDP and the capitalisation of the Australian Securities Exchange and is the fourth largest pool of managed funds in the world.
Table 1: Impact of a superannuation balance cap – number of people affected.
It is estimated that a $3 million cap not indexed to inflation will adversely impact around 500,000 individuals that are currently saving for retirement or have already retired.
|
Age Range |
Number of people affected at retirement age of 65 |
Total Individuals |
Percentage |
|
Under 30 |
204,092 |
3,943,904 |
5.2% |
|
30-34 |
135,541 |
1,942,745 |
7.0% |
|
35-39 |
65,126 |
1,830,875 |
3.6% |
|
40-44 |
19,403 |
1,610,058 |
1.2% |
|
45-49 |
13,973 |
1,644,205 |
0.8% |
|
50-54 |
12,694 |
1,494,169 |
0.8% |
|
55-59 |
7,849 |
1,430,428 |
0.5% |
|
60-64 |
15,555 |
1,189,344 |
1.3% |
|
65-69 |
18,148 |
863,531 |
2.1% |
|
70-74 |
17,260 |
584,916 |
3.0% |
|
75 and over |
16,425 |
502,931 |
3.3% |
|
Unknown |
4 |
100,468 |
0.0% |
|
Total |
526,071 |
17,137,574 |
3.1% |
|
|
|
|
|
Table 2: real value of the $3m cap for various age cohorts at the retirement age of 65
|
Age |
Real value of $3m cap at retirement age of 65 and inflation 4% |
Real value of $3m cap at retirement age of 65 and inflation 3% |
Real value of $3m cap at retirement age of 65 and inflation 2.5% |
|
25 |
$624,867 |
$919,671 |
$1,117,292 |
|
30 |
$760,246 |
$1,066,150 |
$1,264,113 |
|
35 |
$924,956 |
$1,235,960 |
$1,430,228 |
|
40 |
$1,125,350 |
$1,432,817 |
$1,618,172 |
|
45 |
$1,369,161 |
$1,661,027 |
$1,830,813 |
|
50 |
$1,665,794 |
$1,925,586 |
$2,071,397 |
|
55 |
$2,026,693 |
$2,232,282 |
$2,343,595 |
|
60 |
$2,465,781 |
$2,587,826 |
$2,651,563 |
Data Source
- ATO Taxation statistics 2019–20 Individuals:
Superannuation contributions, by total superannuation member accounts balance range, taxable income range and age range, 2019–20 financial year
Assumptions
- Start date of Projection – 1 July 2023
- Inflation – 2.5% per year
- Investment return on superannuation balance – 7.5% per year
- Effective tax on earnings – 7% per year
- Investment fee – 0.85% per year
- Administration fee – 1.01% of account balance + $74 (indexed by CPI) per year
- Insurance in superannuation fee - $214 (indexed to inflation) per year
- Investment earnings, fees and expenses are incurred halfway through the year
- Fees and expenses incurred by the superannuation fund are tax deductible
- With the exception of inflation (which assumes an additional 1.5% increase in costs each year due to rising living standards), the assumptions above are consistent to the ASIC Money Smart Superannuation Balance Calculator.
- Nominal salary growth of 3 per cent (0.5 per cent above inflation).
- Retirement Age - 65 years