Wealthy Me May 2025 Newsletter
Australian superannuation laws are set to change once again in the 2025-26 financial year as the nation’s fast-growing retirement savings system continues to evolve.
Below is a summary of the changes that will come into effect from 1 July, 2025, as well as looming legislative changes.
Millions of working Australians will receive a welcome superannuation boost from the start of July when the mandatory superannuation guarantee (SG) rate rises by 0.5% to 12%.
The SG is the percentage of your ordinary time earnings (in addition to wages) that is paid into your super fund account by your employer.
The 2025-26 rise marks the end of a series of five 0.5% SG rate increases since the start of the 2021-22 financial year, when the SG rate was lifted from 9.5% to 10%.
Individuals starting a pension for the first time on or after 1 July 2025 will be entitled to a personal transfer balance cap (TBC) of $2 million, which will be increased by $100,000 from the current level of $1.9 million.
The TBC is the maximum amount that an individual can transfer from their superannuation accumulation account into a tax-free pension account on their retirement. Any amount over the TBC must be retained in an accumulation account, where any contributions and investment earnings are still taxed at 15%.
Keep in mind that investment earnings within the pension account can increase the account balance above the $2 million transfer balance cap without any penalty.
Eligible workers can “carry forward” any of their unused annual concessional super contribution cap amounts from up to five financial years ago and add them to their concessional contribution cap in the current financial year.
That means it may be possible to contribute more than the current $30,000 concessionally taxed limit, subject to you having a total super balance of less than $500,000 at 30 June of the previous financial year and you having unused concessional contributions cap amounts available.
From 1 July the starting financial year for carry forward amounts will roll over to 2020-21. As such, the deadline for taking advantage of any unused entitlements you may have from the 2019-20 financial year will end on 30 June.
Following its recent re-election, the federal government is likely to reintroduce its Division 296 tax bill to be passed as legislation.
The proposed Division 296 legislation would introduce an additional 15% tax on the earnings of super funds with balances above $3 million (which would apply to earnings on any amounts over $3 million). This would include any unrealised gains on assets held inside a super fund, such as shares and property, even if they had not been sold.
Important information and general advice warning
Vanguard Super Pty Ltd (ABN 73 643 614 386 / AFS Licence 526270) (the Trustee) is the trustee of Vanguard Super (ABN 27923449966) and the issuer of Vanguard Super products. The Trustee has contracted Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) (VIA) to provide some services to members of Vanguard Super. Any general advice is provided by VIA. The Trustee and VIA are both wholly owned subsidiaries of The Vanguard Group, Inc. (collectively, “Vanguard”). The retirement savings tips provided above are general in nature and don’t take into account your personal financial objectives, situation or needs. You should consider your objectives, financial situation or needs, and the Product Disclosure Statement (PDS) and Target Market Determination (TMD) before making any decision about Vanguard Super. The PDS and TMD can also be accessed free of charge by calling 1300 655 101. Before you make any financial decision regarding Vanguard Super, you may wish to seek professional advice from a suitably qualified adviser. Any past performance information is given for illustrative purposes only and should not be relied upon as, and is not, an indication of future performance. The information above is current as at time of publication and was prepared in good faith and we accept no liability for any errors or omissions.
©2025 Vanguard Investments Australia Ltd. All rights reserved.
As the federal government moves to introduce a new 15 per cent tax on superannuation earnings above $3 million (known as Division 296 tax), concerns and debates have emerged about the broader implications for investment strategies, retirement planning, and even the property market.
It is intended that once passed by Parliament, the new tax – which doubles the tax rate from 15 per cent to 30 per cent for balances that exceed $3 million – will apply from July 1, 2025.
The tax change is expected to directly affect less than 0.5 per cent of investors or around 80,000 people.i
Treasurer Jim Chalmers describes the increase as “a modest change” that will make “concessional treatment for people with very large superannuation balances still concessional but a little bit less so”.ii
He says it will help fund other priorities such as Medicare, cost-of-living relief and tax cuts.
The Grattan Institute says tax breaks on super contributions cost the federal budget nearly $50 billion in lost revenue each year.iii
The Institute says that, while super is intended to help fund retirement, it has become a “taxpayer-subsided inheritance scheme”. By 2060, Treasury expects one-third of super withdrawals to be as bequests – up from one-fifth today.
The formula for the additional tax payment due calculates the difference between the member’s total superannuation balance for the current and previous financial years and adjusts for net contributions (which excludes contributions tax paid by the fund on behalf of the member) and withdrawals.
An earnings loss in a financial year, can be carried forward to reduce the tax liability in future years.
The calculation of earnings includes all unrealised gains and losses.
The Grattan Institute says taxing capital gains as they increase removes incentives to “lock in” investments. “But it can create cash flow problems for some self-managed super fund (SMSF) members who hold assets such as business premises or a farm in their fund,” the Institute says.iv
Many commentators speculate there will be a major change to asset allocation in super, particularly in SMSFs, as a result of the move to tax unrealised gains.
Meanwhile, one property analyst predicts a structural shift in property investment with commercial real estate becoming more attractive because of its stronger income yields relative to capital growth.v
The new tax could also reduce the appeal of super as an inheritance tool with investors likely to explore alternative wealth transfer methods.
With the tax changes looming, we’re helping clients to ensure their portfolios will continue to meet their expectations.
For those looking to minimise their exposure to the tax, there are a number of strategies that may be useful.
These include:
The new tax marks a significant shift in Australia’s retirement savings landscape. While the government argues that the measure is modest and targeted, its long-term implications—particularly the taxation of unrealised gains—could reshape investment strategies for high-net-worth investors.
For those nearing retirement with a high super balance, careful financial planning will be essential and all investors who could potentially be affected, should be reassessing their portfolios and weighing up whether alternate wealth management strategies may be an option.
Please get in touch if you would like help to navigate the changes.
i Better targeted superannuation concessions – factsheet (PDF)
ii Interview with Michelle Grattan, Politics podcast, The Conversation | Treasury Ministers
iii, iv Tax reform will make super fairer and the budget stronger – Grattan Institute
v $3 million superannuation tax change sparks property warning as ‘panic’ selling begins
By looking at how markets have performed over time, we can put current events into context and appreciate the benefits of a long-term and well diversified investing strategy.
The following three charts highlight the importance of staying invested and focusing on the long-term when markets are volatile.
Short-term volatility has forever been part of investing. Extreme and extended cases of volatility have frequently coincided with market pullbacks.
But investors clearly would do well to focus on the long term as global equity returns as measured by the MSCI World Price Index would suggest.
This chart shows that, despite periods of high volatility that have coincided with market pullbacks, equity markets have climbed over the long term.
From December 31, 1982, through December 31, 2024, global equities faced several periods of extreme intraday volatility, most notably after the stock market crash of 1987, the global financial crisis in 2008, and the start of the COVID-19 pandemic in early 2020.
However, despite sharp market pullbacks that coincided with these periods of intraday volatility, global equities have produced strong results over the long term.
Bear markets and corrections are inevitable for investors. Maintaining a long-term focus is the best way to navigate these challenging periods.
From January 1, 1980, through December 31, 2024, the average length of a bull market in global equities has been nearly four times that of a bear market.
It’s worth noting that although the downturns that began in August 1987 (related to Black Monday) and February 2020 (related to the start of the COVID-19 pandemic) don’t meet a widely accepted definition of a bear market because they lasted less than two months, we are counting them as bear markets and including them in our analysis because of their historic nature and the magnitudes of their declines.
The longer you stay invested, the less the historical likelihood that you’ll earn a negative return.
Over a 10-year holding period, investors holding a portfolio of 60% US stocks and 40% high-grade US bonds haven’t had a negative nominal return (not accounting for inflation) and have had significantly less likelihood for negative real returns (accounting for inflation) compared with shorter holding periods. As always, past performance is no guarantee of future returns.
Many investors think of cash and equivalents like US Treasury bills as safer than equities.
But when adjusted for inflation, US Treasury bills have been more likely than stocks to have negative returns.
We believe investors should focus on the things they can control.
That means setting clear investment goals, ensuring your investments are low-cost and diversified (both geographically and across asset classes), and staying focused on the long term.
Source: Vanguard April 2025
Reproduced with permission of Vanguard Investments Australia Ltd
Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.
© 2025 Vanguard Investments Australia Ltd. All rights reserved.
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Stay up to date with what’s happened in the Australian economy and markets over the past month.
There was a sigh of relief all round when the Reserve Bank lowered interest rates in May by 25 basis points to 3.85%.
Markets largely recovered from April’s losses during the month as US President Trump’s stance on trade softened.
However, the legal and economic uncertainty of US tariffs remain a key concern for global and local markets.
Click the video below to view our update.
Please get in touch if you’d like assistance with your personal financial situation.
