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Prime Minister Anthony Albanese‘s plan to double the tax rate for Australia’s richest super savers will affect 500,000 people – not 80,000 individuals as the government claims.

The Financial Services Council has released new modelling showing the $3million retirement saving cap will catch out six times more people than Labor is saying, with young workers set to be included in coming decades.

Of the 500,000 set to be affected by Labor’s policy, 204,000 of them are workers under 30.

The changes were announced after official banking regulator data showed Australia’s superannuation savings pool shrank by three per cent in 2022 as interest rates rose. 

Mr Albanese and his Treasurer Jim Chalmers have argued their plan to double the concessional tax rate on super concessions – to 30 per cent up from 15 per cent – from July 1, 2025 would only affect 0.5 per cent of the population.

This is part of a plan to save the Budget $2billion a year in forgone revenue. 

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The Financial Services Council has released new modelling showing the $3million retirement saving cap will catch out six times more people than Labor is saying, with young workers set to be included in coming decades (pictured is a woman in Sydney's city centre)

 The Financial Services Council has released new modelling showing the $3million retirement saving cap will catch out six times more people than Labor is saying, with young workers set to be included in coming decades (pictured is a woman in Sydney’s city centre)

But Blake Briggs, the chief executive of the Financial Services Council, said Labor’s refusal to index the $3million cap for inflation would mean 500,000 Australians now in the workforce would be affected in coming decades.

‘If the government does not index the proposed $3million superannuation balance cap, 500,000 Australian taxpayers will breach the cap in their life and face a 30 per cent earnings tax, including 204,000 Australians under the age of 30,’ he said.

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The Financial Services Council – which represents retail superannuation funds run by big corporations – said workers now in their 20s were likely to have $3million in super in four decades’ time as inflation and wages growth compounded retirement savings levels.

That means a 25-year-old IT technician earning $100,000 a year with just $35,000 in super now would reach the $3million threshold by age 65 – two years before this individual could qualify for the aged pension.

So would a 45-year-old school principal earning $150,000 who now has $650,000 in super or a 55-year-dentist earning $220,000 who now has $1.4million in super.

Anthony Albanese's plan to double the tax rate for Australia's richest super savers would affect 500,000 people - not 80,000 individuals as the government claimed (the Prime Minister is pictured centre with his girlfriend Jodie Haydon and Australian of the Year Taryn Brumfitt)

Anthony Albanese’s plan to double the tax rate for Australia’s richest super savers would affect 500,000 people – not 80,000 individuals as the government claimed (the Prime Minister is pictured centre with his girlfriend Jodie Haydon and Australian of the Year Taryn Brumfitt)

Who are the 500,000 Australians affected?

A 25-year-old IT technician earning $100,000 a year with just $35,000 in super now would have $3million in super savings by age 65.

 A 45-year-old school principal earning $150,000 a year with $650,000 in super now would have $3million in retirement savings by 65.

A 55-year-old dentist earning $220,000 with $1.4million in super now would have $3million in superannuation by 65. 

Source: Financial Services Council modelling on the Albanese Government’s plan to cap the 15 per cent super contribution tax to $3million account balances if the threshold is not indexed for inflation.

Dr Chalmers on Wednesday explicitly ruled out adjusting the $3million cap for inflation – a process known as indexation. 

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‘A future government may decide to change the $3million threshold – if some future government decides that they want to lift that, then they can pay for that,’ he said.

‘Obviously, as more people down the track save more than $3million in retirement, then they will become subject to still generous tax concessions but slightly less so.

‘People who’ve got more than $3million in their superannuation – and good on them –  we think that’s a good thing, people have got sufficient savings for a decent retirement.’

Australia’s superannuation pool shrank last year as the Reserve Bank raised interest rates eight times to deal with inflation surging to a 32-year high of 7.8 per cent.

The Australian Prudential Regulation Authority revealed total super savings in 2022 fell by three per cent to  $3,386.9billion, down from $3,489.9 billion.

Within that pool, default superannuation products – known as MySuper – were worth $917.3 billion, an annual fall of 3.1 per cent from $946.8 billion.

Self-managed super funds were worth $880.6 billion, a 2.4 per cent drop from $901.8 billion.

APRA blamed interest rate rises for super going backwards.

‘This reflected volatility in financial markets following aggressive monetary tightening by global central banks to curb inflation, which slowed economic growth,’ it said.

Australia’s economic growth, on a three-month quarterly basis, stood at just 0.5 per cent in the December quarter of 2022, a very sharp decline from the December quarter of 2021 when gross domestic product expanded by 3.7 per cent as lockdowns ended in Sydney and Melbourne.

GDP on a per capita basis – or the economic output for every individual – was flat despite migrant arrivals in 2021-22 climbing by 171 per cent to 395,000, up from 146,000.

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