Millionaires, superannuation and the pension: next federal election

Article published 3 March 2023

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PAY no attention to the huffing-and-puffing over the new $3 million super ‘cap’ in some sections of the media and the corridors of the Australian Parliament.

Apparently, the next federal election is going to be fought and decided over this. Really? With only half a per cent of superannuation accounts being affected?

What are the facts?

There are two types of super accounts:

An accumulation account is used to save up for retirement. A 15 per cent tax applies to initial deposits and ongoing earnings (interest, dividends etc)

A pension account is used to pay an income in retirement.

A superannuant can deposit up to $1.7 million per person in a pension account. Deposits and earnings are tax-free.

If a millionaire has deposited $1.7 million in their pension account and they have more, the millionaire can leave as much as they like in their accumulation account. Earnings there attract 15 per cent tax.

The change?

If a millionaire has more than $3 million in their accumulation and pension accounts combined, they will pay 30 per cent tax.

30 per cent on what?

On the earnings attributable to any amount the millionaire has over $3 million.

Say a millionaire’s pension and accumulation superannuation accounts combined hold $3.5 million at the end of a financial year.

Say those accounts combined earned $150,000 in income (less than 5 per cent).

Of that $150,000, $22,000 is attributable to the $500,000 by which the millionaire’s total balance exceeds $3 million.

30 per cent tax on that is $6,600.

Assuming $1.7 million is sitting in the millionaire’s tax-free pension tax account, the millionaire pays another $8,400 in tax (15 per cent) over the $1.3 million in their accumulation account.

Their total tax bill would be $15,000 over an income of $150,000.

Now, a younger person making a very good living (salary $150,000 a year, paying off a stupendously sized mortgage) pays $46,000 in income tax.

So, under the new, yet-to-be-voted-through rules, which are represented as an attack on super in some quarters, the retired multi-millionaire ($3.5 million) receives a tax break of $31,000 per year.

The single Age Pension stands at just under $27,000 a year.

So, even under the new rules, the millionaire gets more income support than the pensioner.

Maybe the next federal election should be fought over that!

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