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Over 80 per cent of Australians aged 51 to 65 are unprepared for the looming tax on big super balances, according to Generation Life.
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Most pre-retirees in the dark on Div 296, report finds
20 November 2024
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A looming tax on high superannuation balances is set to reshape retirement planning, but the vast majority of pre-retirees are unprepared for it, according to research from Generation Life.
Insurance company Generation Life said an “alarming” 84 per cent of pre-retirees – aged 51 to 65 – did not understand how the government’s proposed Division 296 tax would impact their savings.
The tax, slated to take effect from July next year, would impose an additional 15 per cent levy on super balances exceeding $3 million.
Generation Life said the change raised questions about the viability of superannuation as a tool for wealth accumulation and transfer, with rules already limiting non-concessional contributions limits.
The Division 296 tax also came on top of the Division 293 tax, imposing a 15 per cent levy on high earners exceeding $250,000 in combined income and concessional contributions.
“The proposed Division 296 changes provide a dual problem,” Ben Nash, a financial adviser quoted in Generation Life’s Not Tomorrow’s Problem Guide 2024, said.
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“I believe most people don’t know what they are, and they also have the potential to have the greatest impact on the population.”
Generation Life said 84 per cent of pre-retirees lacked an understanding of how the superannuation change would affect them.
Additionally, only 16 per cent of pre-retirees without financial advisers were confident in their ability to save for a “happy retirement”.
The report said younger and mid-career professionals would also be impacted by the Division 296 tax, given the threshold was expected to remain unindexed at $3 million, potentially capturing a growing number of Australians over time with inflation.
Its analysis found that a 25-year-old earning $100,000 annually could amass over $5.9 million in super by retirement, significantly exceeding the cap.
Similarly, a 35-year-old with a $250,000 starting balance and $15,000 in annual contributions could reach $6.79 million.
Older cohorts, such as those aged 55 today, are less likely to cross the threshold, with projected balances at $3.63 million.
With the tax set to be debated in the Senate this month, Generation Life said financial advice would play a “vital role” in helping taxpayers navigate the changes and assess the long-term implications of the new tax on their retirement strategies.
“Ultimately, working to set yourself up for success in this context requires long-term thinking and a tax minimisation strategy,” Nash said.
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