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Are retiring Boomers paying too much super tax?

Mark Bristow avatar
Mark Bristow
- 3 min read
Are retiring Boomers paying too much super tax?

More and more Australians are approaching retirement age, when it’s time to start accessing their superannuation savings. But many of these older Australians could be paying too much tax on their super investment earnings, which could be fixed by making one change.

At the annual superannuation lending roundtable hosted by the Australian Financial Review, current and former politicians voiced their concerns facing Australia's superannuation system, including an upcoming wave of retirements on the horizon.

“We’re at an inflection point where the Baby Boomers, my generation, are going to stop work, and they’re going to be looking for reliable income,” former Labor prime minister, Paul Keating said.

The current Federal Treasurer, Jim Chalmers, said that “the big challenge in the super system is the retirement phase and how we set up the phase to deliver better.”

“We’re trying to come up with products which maximise income, manage longevity risk and provide flexible access, so that people have a degree of comfort.”

One potential area of improvement could be raising awareness of the tax that Australians pay on the investment earnings from their super funds, and how this tax could be minimised to help change the lifestyle enjoyed in retirement.

As reported by the Sydney Morning Herald, about 140,000 members of AustralianSuper over the age of 65 have their super in accumulation accounts, and are paying 15% tax on their super’s investment earnings. For example, a 65-year-old who has $400,000 in their accumulation account and is earning 4% over a 12-month period pays 15%, or $2400, in tax on the earnings.

But switching your super from the accumulation phase to the pension phase could mean paying no tax on your super’s investment earnings.

According to the Sydney Morning Herald, many over-65s may be simply unaware that they can make this switch and avoid paying this tax, due to dwindling numbers and higher costs making it harder to access financial advisers. 

According to Treasurer Chalmers, he would soon issue a discussion paper looking at issues around problems with financial advice, customer service and retirement income strategies:

“…people are living more frugally than they need to. There’s not enough confidence in their balances, there’s not enough diversity or flexibility in products in the market or literacy or advice or strategies to match people with these products.”

Most super funds will only let you switch to a pension account once a condition of release is met, such as turning 65. You also aren’t required to stop working to open a pension account and start accessing your super as a lump sum or income stream.

Just keep in mind that making a change like this could affect your personal finances, including affecting your access to an age pension. Consider consulting your super fund and/or a financial adviser before making any changes to get a better idea if this strategy could help improve your financial situation.

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Product database updated 15 Jul, 2024

This article was reviewed by Personal Finance Editor Peter Terlato before it was published as part of RateCity's Fact Check process.