07 March 2023

Caps, caps and more caps! In my 23 years of providing advice to clients one thing is clear, changes will be made to superannuation.

On March 2nd the Treasurer Jim Chalmers announced a proposed additional superannuation soft cap of $3 million. We don’t have a name for this one yet, but it joins the concessional cap, the non-concessional cap, the total super balance cap, and the transfer balance cap (there are a few others too).

What does the proposed new superannuation cap mean?

The new cap means that any change in your portfolio value on a year to year basis on balances above $3 million will be taxed at a higher rate, which is proposed to be 30%. Balances between $0 and $3 million will continue to be taxed at 15% in the accumulation phase, and the general pension concessions of 0% tax will continue to apply.

There are still several things that need to be clarified by the government. Keep in mind that this is not intended for introduction until the 2025/26 financial year and that it needs to get through Parliament first.

How will the proposed new superannuation cap impact you?

The focus so far has been on those with balances of more than $3 million already inside their super fund. While these people represent the minority (less than 1%), they have invested their funds into superannuation based on the “rules of the day”, and this will continue to apply for those looking to contribute now and save for their retirement.

One of the other interesting things announced, which again is still subject to legislation passing, is that the $3 million cap will not be indexed. This is a significant devil in the detail, particularly for those that are perhaps aged in their 40s and looking to utilise superannuation as their primary retirement asset.

If inflation is assumed to run at the long-term average of 3%, the $3 million superannuation cap will reduce over time and in fact, be worth approximately $1.43 million in 25 years’ time when that 40-year-old reaches age 65. How much will the higher tax rate impact the ability for you to generate income in retirement; does it mean we need more; or do we need a new strategy?

Of course, if you can accumulate $3m for retirement you should be able to live a very happy and comfortable living standard in retirement, however, make no mistake it is getting harder every day to get there.

While there is bound to be many changes within superannuation over the next 20 years, it is very clear that if you are in your 40s or 50s and see superannuation as being your primary retirement asset, then it might be a good idea to speak to a financial adviser sooner rather than later. They can work with you to help ensure that you are utilising every strategy you can to increase your wealth. Maybe superannuation isn’t the only answer.

Speak to a Findex Wealth Management adviser today and ensure your retirement plan remains on track.

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March 2023