How Canberra is planning to steal more Superannuation from Australians

According to analysis by the Financial Services Council (FSC), around 500,000 Australians who are either saving for retirement or have already retired, are set to be impacted by the government's suggested unindexed $3 million superannuation cap.

A significant number of taxpayers are expected to breach the cap in their lifetime, resulting in a 30% earnings tax. Of those impacted, 204,000 will be under 30, while 135,541 will be between 30 and 34, and 65,126 will be between 35 and 39.

The FSC's analysis is over six times the current government estimates, which only consider balances currently exceeding $3 million. The CEO of FSC, Blake Briggs, expressed concerns about the intergenerational fairness of an unindexed cap. Caps in the superannuation system are typically indexed to ensure generational fairness so that each generation receives the same outcomes and benefits from the system and leaving the cap stuck at $3 million will mean that a 30-year-old in today's dollars will have a real cap of around $1 million, not at all equivalent to the current 1.7million dollar cap or that of previous generations.

The analysis showed that despite vastly differing current superannuation balances, workers of a variety of ages and incomes would all be in the same boat. By way of example, the report detailed that a 25-year-old IT professional earning $100,000 with a current superannuation balance of $35,000, a 45-year-old school principal earning $150,000 with a current superannuation balance of $650,000, and a 55-year-old dentist earning $220,000 with a current superannuation balance of $1.4 million, would all reach the $3 million threshold by the time they retire at age 65.

Plato Investment Management also criticised the proposal, describing the unindexed cap as an "enormous flaw." Plato's managing director, Don Hamson, pointed out that not indexing the cap is perplexing, given that inflation is currently sitting at 7.8%, which will erode the real value of the $3 million cap over time. Hamson explained that if inflation ran at only 4% per annum for the next 30 years, a $3 million cap would be equivalent to just $925,000 in today's dollars. He warned that inflation will mean that many more individuals will be hit hard by this cap in the future if it is not indexed to inflation.