Labor plots a new way of taxing your retirement savings after millions of Aussies enjoyed a ‘super surge’

Super balances have had their best year since 2021 as Labor devises a new way to increase taxes on pension savings.

Balanced super options, focused on growth assets, rose 11.5 percent in 2024, new SuperRatings data shows.

This was the best year since 2021, when Reserve Bank interest rates were still at a record low 0.1 percent, while the Australian stock market hit a record high in early December.

It was also almost double the annual average of 6.7 percent since 2000.

SuperRatings director Kirby Rappell said Australian super balances with higher equity exposure and a 60 to 76 percent orientation toward growth assets were doing particularly well.

“This year will be the second year in a row of strong returns as the funds continue to deliver long-term results for members,” he said.

‘We have continued to see strong performance in equity markets, which have been the main driver of these returns.

“The majority of this year’s returns have come from the stock markets, which are now priced at historic highs both in Australia and internationally.”

Balanced super options, focused on growth assets, rose 11.5 percent in 2024, new SuperRatings data shows (pictured)

The 2024 result marks a turnaround from the 4.8 percent slump in 2022, when the RBA began the first of its 13 rate hikes.

But the good news could be cut short with Labor still committed to doubling income tax to 30 per cent, up from 15 per cent, for pension balances above $3 million.

This would apply from July 2025 during the super savings accumulation phase, should the government reach an agreement with smaller parties in the Senate early next year.

That possible change would also take effect after the next elections, which are due to take place in May 2025.

Prime Minister Anthony Albanese and Treasurer Jim Chalmers also want to impose an additional 15 percent tax on unrealized profits above the $3 million threshold.

This means that funds like self-managed pension funds that had assets such as real estate above $3 million would be taxed on those assets before they were sold.

That’s a radical departure from the usual approach of taxing assets after they are forgiven.

Labour’s polarizing plans stalled when Parliament closed in November as the Greens felt the government’s super plans did not go far enough and wanted to lower the threshold to $1.9 million.

This was the best year since 2021, when Reserve Bank interest rates were still at a record low 0.1 percent, while the Australian stock market hit a record high in early December (Photo: An auctioneer at a Melbourne property)

The government could try to negotiate again with the Greens in February, in a bid to pass its bill on better-targeted pension concessions and other measures before parliament is dissolved for elections.

Mr Rappell said nervousness about the pace of rate cuts in Australia and the United States could make 2025 a tougher year for super funds.

“A correction in the stock markets would have a strong impact on members’ pension balances and members should be prepared to see ups and downs in the short term,” he said.

“Inflation, particularly in Australia, also remains persistent, with Australian interest rates likely to decline slowly over time and cost-of-living pressures remaining high.”

The mandatory employer contributions for the pension will increase to 12 percent as of July 1, compared to 11.5 percent now.

The futures market now expects three rate cuts in 2025, which would see the Reserve Bank’s cash rate fall from 4.35 percent to 3.6 percent for the first time since May 2023.