In short, the ‘Fairer Super Plan’ is Labor’s attempt to address what it believes is an unfair superannuation system and one that favours the wealthiest Australians.
Despite the fanfare that accompanied its announcement, it is important that keep in mind that the changes proposed by Labor are unlikely to be enacted anytime soon. In fact, they may never see the light of day. While they have proposed introducing the plan from mid-2017, this timing is dependent on what happens at the next election.
High-income earners targeted
Predictably, the focus of Labor’s plan was squarely on the big end of town – high-income earners and those with millions in superannuation savings.
Specifically, the two measures proposed by Labor include taxing retirees 15% on superannuation earnings above $75,000 per year (instead of the current zero tax) and taxing workers earning more than $250,000 a year at 30% on superannuation contributions instead of the current rate of 15%.
The simple fact is most Australians would never feel the burden of the tax reforms proposed by Labor. The opposition itself estimated the changes would only affect 180,000 Australians.
Even for those who fall into the categories targeted by Labor, it is important to remember that even if super earnings are impacted by the higher rate of tax proposed by Labor, it is still likely to be more tax effective than if this wealth is held outside of super (where earnings may attract tax at up to 49%)
Be aware, not alarmed
Labor’s proposed plan raises a number of questions that it didn’t address in its announcement. Among them, whether the tax will be imposed at the super fund level or individual level, and if introduced at the fund level, how would it be imposed for individuals with multiple super funds.
Without this detail, it is difficult to make a full assessment of the potential impacts of the proposed changes. Regardless, it is a case of being aware, but not alarmed at this early stage as there is a long road ahead before these proposed changes are even close to being adopted.
The one risk of the announcement is that it could leave the door open to the current Government to make changes to super, sensing that there is an appetite for reform from the other side of politics. However, this has consistently been ruled out by the Abbott Government, even as recently as just a few days ago. Additionally, any changes to super are likely to be viewed with disdain by the general public, who are the same voters they are trying to rebuild trust with.
Superannuation has been an unbelievably good retirement vehicle for a long time, and despite an increasing likelihood of Governments tinkering with it in the coming years to claw back foregone income from super, it is still likely to remain a ‘good thing’ and the preferred vehicle to hold assets for retirement for the majority of Australians.
If you have any concerns about elements of Labor’s proposed super changes, or any other questions regarding your superannuation, please contact your local William Buck Office.