By Lucas Baird and John Kehoe
The country’s two largest superannuation funds privately lobbied Jim Chalmers to tie proposed tax increases on retirement savings accounts with more than $3 million to inflation, warning the treasurer that they were concerned the policy would lead to instability and harm confidence.
Opposition to the removal of long-standing tax concessions for workers and retirees has grown since the federal election, which has created a path for the Albanese government to legislate the changes from July 1.
The Australian Financial Review has confirmed that AustralianSuper and the Australian Retirement Trust, industry superannuation funds that manage more than $600 billion in pension savings, raised their misgivings about the policy with Chalmers before the election.
The proposal will double the 15 per cent tax on super earnings in accounts with more than $3 million. That threshold will not be indexed and the tax will apply to unrealised gains, angering self-managed super fund lobbyists and cross-bench members who characterised it as “harmful and unfair”.
Labor said it would pursue the changes after its overwhelming win at the election this month. The party had claimed it would initially affect just 80,000 people, but Assistant Treasurer Daniel Mulino has since conceded that up to 1.2 million more Australians wouldbe affected over the next 30 years.
While AustralianSuper is broadly supportive of Labor’s policy, it has repeatedly said the government needs to index it to prevent future issues.
AustralianSuper chief executive Paul Schroder met Chalmers last year and again expressed concerns about the $3 million threshold not being indexed with inflation, an issue the fund had first raised in 2023, sources with knowledge of the confidential meeting who requested anonymity said.
Full coverage: Labor’s super tax
“Indexing the $3 million threshold to provide greater certainty and promote stability and confidence in the system, which is important given the long-term horizon of superannuation savings,” AustralianSuper chief strategy officer Paula Benson said in a consultation on the issue that year.
“Tax concessions, and their equitable distribution, are fundamental to Australia’s retirement income system. Superannuation tax concessions are provided to compensate members for delayed spending as part of a mandated system,” her signed submission continued.
AustralianSuper declined to comment.
Australian Retirement Trust, the nation’s second-largest super fund, also met Chalmers before the election and raised similar concerns.
ART referred to a previous statement when approached for comment, saying: “Like many other taxes, there should be a form of regular review mechanism or indexation in place to ensure the policy remains aligned into the future”.
A spokesman for Chalmers said he appreciated the funds’ views.
“This is all about making our superannuation system fairer.”
“We consulted on this modest change extensively over two years,” the spokesman said. “This is all about making our superannuation system fairer and more sustainable. It’s a change that will affect about half a per cent of people – 99.5 per cent of people will not be impacted.”
Financial Services Council chief executive Blake Briggs, which represents retail superannuation funds such as MLC-owner Insignia and AMP, said he had also repeatedly raised the issue with government.
“The FSC has made the same representations to government privately that we have in public. The FSC is concerned about the impact on consumer confidence in the superannuation system from not indexing the threshold and taxing unrealised capital gains,” Briggs said.
Up to 1.2 million to be hit by super tax hike
The tax, at least initially, will affect mostly people with their retirement money in self-managed vehicles. Of the 80,000 people Treasury estimated will be affected at the start of the new tax, more than 50,000 are expected to have a self-managed super fund.
Treasury also estimates that 10 per cent of taxpayers, or 1.2 million people, will be paying the tax in three decades if the $3 million threshold does not increase. On Monday, Mulino said that would still be a “small minority”.
The Financial Review revealed last year that former Labor prime minister Paul Keating warned the plan to double the tax on accounts of over $3 million could turn super into a low- and middle-income pension scheme and damage confidence in the $4 trillion savings system he created.
In private discussions late last year, Keating told industry super executives and union leaders that the government’s refusal to index the $3 million threshold to inflation was “unconscionable”, according to people familiar with the discussions who spoke on the condition of anonymity.
The controversial super tax is Labor’s major revenue-raising initiative for its second term of government and is forecast to rake in $2.3 billion a year initially. Chalmers intends to legislate the super tax from July 1.
Financial advisers say wealthy retirees have begun selling assets and restructuring their investment portfolios before the changes comes into effect, while venture capital funds have warned the plan to tax unrealised gains will discourage investment in start-ups.
While teal MPs Allegra Spender, Monique Ryan and Zali Steggall have called on the government to rethink the policy, Labor needs only the support of Greens senators to get the super tax changes through parliament.
New Greens leader Larissa Waters said the party would stick to its demands to have the tax apply to balances above $2 million, instead of the government’s preferred $3 million. She said lowering the threshold “wouldn’t impact that many extra people”.
