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Pension fund changes: Treasurer Jim Chalmers looks at accounts over $3 million

The government is considering limiting its planned pension changes to bills with a minimum of $3 million as opposition leader Peter Dutton warns all Australians to ‘be concerned’.

Treasurer Jim Chalmers is targeting people with more than $3 million in their super accounts — which would limit changes to less than one percent of taxpayers.

The average Australian has a super balance of about $150,000.

But Mr Dutton accused the Albanian government of breaching an election promise not to make changes to the pension.

“If you have a pension fund you should be concerned about Labor’s intentions here,” he said.

Federal Treasurer Jim Chalmers (pictured left, with his wife Laura) targets planned pension changes to a specific minimum amount

“The Labor government went to the election promising there would be no major changes to pensions and now they’re talking about major changes to pensions.”

The debate focuses on so-called concessional or ‘before-tax’ contributions to the pension.

When will you have access to your pension?

For those born before July 1, 1960, it is 55

The increases to 56 for baby boomers born between July 1, 1960 and June 30, 1961

It is 57 for those born between July 1, 1961 and June 30, 1962

It is 58 for those born between July 1, 1962 and June 30, 1963

It is 59 for those born between July 1, 1963 and June 30, 1964

It is 60 for everyone born after July 1, 1964

This allows an individual to deposit up to $27,500 of their annual pre-tax salary into their super fund.

This is then taxed at a standard rate of 15 percent, regardless of the top tax rate an individual pays, representing significant tax savings for high-income earners and a cost to the federal budget.

On Sunday, Mr Chalmers said a $3 million cap on getting the 15 per cent rate is a ‘great example’ of a change that could happen to help avoid bigger budget deficits.

He said the money saved from any reforms would be used to fund health care, disability services and other federally funded services.

“Less than 1 per cent of people have more than $3 million in pensions,” he told Sky News.

Australia’s federal debt stands at $896.7 billion, with no budget surplus expected anytime soon, according to the Australian Office of Financial Management.

This means the government “has to grapple with whether … we can continue to make the tax breaks meaningful and generous in retirement,” the treasurer said.

He added that some of the existing tax breaks may not provide “the best bang for the buck” for the federal budget.

Mr Chalmers said that while the government had not yet decided where it would draw the line for tax breaks for super balances, the much-touted $3m figure “is a good example for people to focus their attention on some of these large balances”.

He revealed that the average balance for all funds above $3 million was $6 million, showing that wealthy people are saving huge retirement pots with big tax breaks.

The current debate focuses on so-called concessional or 'before-tax' pension contributions.  Pictured are Australian banknotes

The current debate focuses on so-called concessional or ‘before-tax’ pension contributions. Pictured are Australian banknotes

Australians’ views on reducing pension tax breaks are finely balanced, with neither the pro nor the opposing side anywhere near a majority.

In the latest Resolve Political Monitor, 34 percent supported the idea, 28 percent were against changes and 38 percent were unsure.

Last October’s budget showed a budget deficit of $32 billion in fiscal year 2021-2022 and projected a deficit of $36.9 billion this year as the economy continues to feel the effects of the Covid pandemic and the war in Ukraine.

In 2020, the then-coalition government allowed cut workers to withdraw $20,000 from their retirement savings, in two $10,000 installments.

Labor said the resulting $36 billion withdrawal from super accounts would make Australians poorer when they retire.

The Liberal Party went into last May’s federal election and pledged to allow people to take $50,000 of their retirement savings to buy their first home.

Opposition leader Peter Dutton (pictured with his wife Kirilly) warned that 'if you have a pension fund you have to worry about Labour's intentions'

Opposition leader Peter Dutton (pictured with his wife Kirilly) warned that ‘if you have a pension fund you have to worry about Labour’s intentions’

It would have allowed first home buyers to invest up to $50,000 or 40 percent of their retirement if they saved for at least a five percent down payment.

There are limited reasons for early retirement, including a terminal medical condition and financial hardship.

The compulsory super was introduced in 1992 under Paul Keating’s Labor government.

The rate of the compulsory super will increase from 10.5 percent to 11 percent from 1 July 2023 and then increase by half a percentage point in July 2024 and July 2025.

Reasons for the early release of super

Merciful grounds: Palliative care for the person or someone dependent on him.

Terminal medical condition: Two registered doctors must conclude that someone will die within 24 months.

Permanent incapacity for work: Someone is unable to work due to a physical or mental disability.

Financial difficulties: This must be proven to the super provider.