Gen Z Workers Could Face Hefty Super Tax

Some average-earning Gen Z Australians are on track to exceed the $3 million superannuation threshold by retirement age, raising concerns that proposed tax changes meant for the wealthy may hit a broader group than intended. Increased taxation on earnings above this cap, set to kick in from July 2025, aims to improve long-term sustainability. However, its lack of indexation could unfairly impact younger workers due to inflation and compounding interest.

Currently, the federal government plans to impose a 30% tax on superannuation earnings over $3 million, up from the usual concessional 15%. While this may sound like a measure aimed at high earners, analysis suggests that wage growth and compound investment returns could see even those earning an average income hitting the $3 million figure within 40 years, purely by staying employed and contributing via the super guarantee.

AMP Capital’s modelling shows that a 22-year-old today earning an average annual wage of $98,000, receiving average salary increases and standard investment returns, will accumulate around $3.6 million in super by the time they retire at 67. Under the new policy, this could see them paying an extra $5,400 annually in tax solely due to breaching the threshold. However, if the cap were indexed to inflation, as some groups are suggesting, they wouldn’t exceed the limit and would avoid the added tax altogether.

The bigger issue is the potential for this policy to unintentionally penalise younger Australians simply for having consistent work and retirement savings. Without indexation, the real value of $3 million erodes over decades. The lack of inflation adjustment means today’s average worker may be taxed tomorrow like a high-net-worth individual. While initially only 0.5% of the population is expected to be affected, over time far more people could face the higher tax as balances grow naturally.

This plan arrives amid broader generational wealth pressures. Soaring house prices, ongoing cost-of-living increases and stagnant wage growth have intensified financial frustration among young Australians. Many are already feeling over-taxed as inflation-linked pay bumps lift them into higher tax brackets without improving their purchasing power. Critics argue this new super tax may be another form of bracket creep, hitting future generations harder than today’s.

Source: Australian Financial Review, Australian Super, KPMG, ATO.