New superannuation tax plan to target wealthy baby boomers: STEPHEN JOHNSON breaks down proposal that could hurt YOUR retirement

First, as property owners, they were hated for being able to afford a house in the 1980s, which created resentment among the younger generations.

And as Australia’s baby boomers retire, their finances are under further scrutiny – simply because they have them retirement savings with which they can earn money to finance their final years.

During the accumulation phase of super, employees pay a 15 percent tax on their earnings. But after a person turns 60 and stops working, their super income is tax-free on retirement savings of up to $1.9 million.

The reason for this is simple: older Australians have more money left over to cover their living costs after the end of their working lives, and are therefore less dependent on the old age pension.

But the Actuaries Institute – the peak body for mathematicians who calculate risk – wants to change that with a new 10 per cent tax on the retirement phase of super.

Based on this proposed pension tax workers would also pay a 10 percent tax during the accumulation phase of super instead of the existing 15 percent rate. So the idea is a flat tax of 10 percent both retirement life stages.

The biggest losers under such a proposal would be the boomers with the most retirement savings, who live off their super and receive no retirement pension.

Professor Robert Breunig, director of the Tax and Transfer Policy Institute at the Australian National University, tells me: ‘It would be a blow to those people compared to the current system.

“Those people will have a little less money to spend, but 10 percent is still quite small.”

Professor Breunig argues that the existing system is in fact too generous for those who retire with a lot of pension.

‘The question is: isn’t the current system overly generous? For people who have a lot of money in the super sector, there is a big advantage. I’m not sure there’s much benefit to Australian society,” he says.

Australia’s youngest boomers turned 60 this year and the Actuaries Institute admits their proposal to tax super income in retirement would hit this group the most – especially if they have more super income.

“A current 60-year-old couple who are closer to the retirement phase and therefore have lower compensation for the lower tax in the accumulation phase would be more affected than younger households,” the report said.

‘The biggest impact would be felt by members currently in the retirement phase as the change will simply be an additional tax on income as they are no longer in the accumulation phase.

‘Households with higher wealth would be proportionately harder hit, compared to households with lower wealth.’

The discussion paper Superannuation Tax Reform: Sensible Changes for a Fairer System argues that a super plan with a flat tax would ensure younger Australians have more superannuation savings at age 60 – the age at which someone can access their super plan.

“Retirees would pay higher taxes, but those who have not yet retired would retire with higher balances from which to finance this additional tax,” the report says.

The article also argues that a single tax rate for super, during the accumulation and retirement phases, would mean Australians would only need to have one superannuation account without having to switch at retirement – ​​benefiting both individuals and super funds.

“Introducing a uniform tax rate for accruals and pensions would also mean that all members could have a single account,” the report says.

‘Pensioners would no longer have to juggle two accounts with different rules and the significant complexity (and costs) of transfer balance limits would be removed.

“It would no longer be necessary to divide contributions into different types within fund accounts and track them over time. This would improve the simplicity of the system and finance business processes.’

The Actuaries Institute is calling for a flat tax on super 15 years after the former Chancellor of the Exchequer recommended the idea in a comprehensive tax review.

Under their plan, new retirees would have to pay tax on their super for the first time, but government revenues would not improve for 17 years.

“Initially less tax would be generated, but from 2042 there would be more tax than the current regime,” the report said.

Mandatory super debuted in 1992 when older baby boomers were in their mid-40s.

At the time, mandatory employer contributions were only three percent.

This meant that many of the boomer generation did not have generous retirement savings if they only started building their super 14 years before age 60.

Those who worked in unstable private sector jobs often had little retirement savings.

Many had to continue working until they could receive their old-age pension at age 65. This has since been increased to age 67 for those born from 1957 onwards.

Younger workers, on the other hand, have benefited from mandatory super contributions in double figures.

Since July 1, this percentage has been 11.5 percent and will grow to 12 percent in July 2025.

But Professor Breunig says the mandatory pension guarantee of 9.5 percent, which applied until June 2021, was a more appropriate level.

He argues that young workers would now be able to keep a greater share of their income, which could be used to buy a house.

“There are some deeper problems with the super system,” he says.

‘Is the pension guarantee too big? Are we causing people to save too much money, especially considering the fact that people in their thirties would like to use this money to buy houses?’

Australians have an average of just $164,126 in superannuation, based on tax authorities data.

By the time they reach their early 60s, men typically have $205,385 in super money, compared to $153,685 for women in the same age group.

This is well below the target of $595,000 that the Association of Superannuation Funds of Australia recommends for a comfortable retirement, provided one has paid off a mortgage.

The Actuaries Institute’s proposal could help younger Australians save for retirement and close this savings gap.

Poorer Australian retirees who have less in their savings could end up being more dependent on the age pension as a result of the new super tax.

Then there are those who accumulate too much pension and die with large retirement savings accounts.

“We see a lot of people who die with a lot of pension and we see a lot of people who don’t spend their pension,” says Prof. Breunig.

‘So there are a lot of people who have just as much super at 85 as they do at 65.’

Professor Breunig says a 15 per cent tax on both the accumulation and retirement phases of super therefore makes more sense.

‘That idea has advantages; I’m not sure 10 percent is high enough,” he tells me.

“I don’t think 15 percent is unreasonable.”