Superannuation changes to hit 16,000 top earners

Updated

The Federal Government has announced much-anticipated changes to the superannuation system that it says will affect about 16,000 of Australia's highest earners in the first year.

From July next year, earnings of more than $100,000 on superannuation pensions and annuities will be taxed at 15 per cent instead of being tax-free.

The change will not apply at the accumulation stage.

Superannuation changes From July 1 2014, earnings on superannuation pensions and annuities of more than $100,000 annually will be taxed at 15 per cent, instead of being tax-free.

Superannuation earnings below $100,000 a year will remain tax-free and this threshold will be indexed to the Consumer Price Index.

The change will not apply at the accumulation stage.

The Government says around 16,000 people will be affected by this reform, which will save around $350 million over the four-year forward estimates period.

From 1 July 2013, people aged 60 and over will see increased concessional caps from $25,000 to $35,000.

Excess concessional contributions will be taxed at the individual's marginal rate, plus an interest charge.

The Government says this will mean individuals are taxed on excess concessional contributions in the same way as if they had received that money as salary or wages.

The Government will establish a Council of Superannuation Custodians.

Treasurer Wayne Swan says the move will improve the fairness and sustainability of the system, given Australia's ageing population.

At a rate of return of 5 per cent, the Government expects the change will only affect people with more than $2 million in superannuation assets.

Mr Swan says tax concessions for high-income earners are too generous.

"Why should someone who has millions of dollars in a superannuation account pay no tax on their earnings while someone on $80,000 pays a marginal tax rate of 37 cents in the dollar on every additional dollar they earn?" he said.

"So today's reforms address this imbalance."

Treasury estimates that about 16,000 people will be affected by the measures next financial year.

"There is something wrong in a system where working Australians on average wages are providing excessive support to people with millions in their superannuation account," Mr Swan said.

Superannuation Minister Bill Shorten says the Government will appoint a council of custodians to oversee the changes.

Opposition Leader Tony Abbott is not impressed with the plan.

"On balance, this is a $1 billion hit on people's retirement savings," he told the media in Melbourne.

"It is a $1 billion hit on savings that belong to the people, not the Government, and it shows that this is a government which is prepared to tax the people to fund its own spending."

Asked if he would reverse the changes if he won government in September, Mr Abbott replied: "On the indications from the Government this morning, they're not even going to take it to the Parliament, so what hasn't gone to the Parliament doesn't have to be reversed."

Financial Services Council chief John Brogden said he was pleased the Government had made the announcement as it would end uncertainty about the tax treatment of retirement savings.

"The lesson the Government should learn from this is that if you play politics with superannuation the public become very nervous and it damages confidence and certainty in superannuation," Mr Brogden said.

Earlier this week, he had warned that the superannuation industry would not rule out a mining tax-style campaign against any changes to super taxes if the Government did not provide certainty about its intentions.

David Whiteley, from Industry Super Network, which represents superannuation funds linked to the trade union movement, says the changes will make the system more fair.

The Government says the reforms will save around $900 million over the four-year forward estimates period.

Sorry, this video has expired Video: Abbott criticises superannuation changes (ABC News)

Topics: superannuation, business-economics-and-finance, federal-government, australia

First posted