The proposal will see earnings on super balances above $3 million taxed at 30 per cent rather than the concessional rate of 15 per cent.
A $3 million super balance threshold appears colossal considering the average retirement balance in 2025 is just $300,000 for women and $401,600 for men. Today, the new tax only impacts our wealthiest individuals. However, thanks to long-term inflation and bracket creep, 30 years from now, we could see a much larger percentage of people with a superannuation balance of more than $3 million.
The government’s reliance on super tax revenue is a good reminder that most Australians – including younger generations – are overly reliant on super for their future.
It’s true that super’s historic low tax treatment has created a lack of competition for different savings products and has led to too much of the nation’s private savings being channelled into superannuation.
The result is that Big Super is now responsible for some $4 trillion in savings.
But what’s our plan for financing other costly life events that occur before we turn 65?
Every one of us – while not turning our backs on super – should be looking to diversify our savings approach to fund both retirement and other life events, such as buying a home, doing a renovation, starting a business, taking a holiday or undertaking further study.
Consideration must be given to other vehicles that offer tax benefits, investment diversity and growth, while helping people worried about continual government interference with their super find other options.
Friendly societies and mutuals are uniquely placed to step in and support Australians with tax-effective products such as investment bonds.
Today, investment bonds are offered by at least 10 active friendly societies, managing almost $15 billion for more than a million Australians.
Their products are also subject to regulation – the Australian Prudential and Regulation Authority supervises compliance to ensure they are fair and equitable for members and the Australian Securities and Investment Commission monitors disclosure and financial service licensing obligations under the Corporations Act 2001.
Investment bonds have some of the traits of both superannuation and managed funds: like super, bonds are tax paid. Earnings within the bond are taxed at the rate of 30 per cent which is higher on face value than super, yet friendly societies can sometimes reduce tax payable using franking credits and other tax management strategies.
Like super, investors can choose a range of options from conservative investments through to Australian and international shares with index options available too.
If you hold the bond for at least 10 years, withdrawals after this period are tax-free. And unlike super, they are not locked until preservation age or retirement, which means funds can be withdrawn at any time.
While there is never a guarantee about what governments will do to investment bonds in the future, there have been no material changes to the legislation on investment bonds for more than 20 years.
The government’s proposed tax on high super balances should be seen as an opportunity to review and diversify the savings of every Australian.
Superannuation plays a critical role in retirement planning – but there are other options to consider.
Friendly societies in Australia today blend historical community-minded principles with modern, tax effective, financial services.
We stand ready to help the many Australians who are now looking beyond their superannuation.
Adnan Glinac, executive general manager – Life at Australian Unity
