When the internal earnings of super funds were rendered tax free in pension phase, I remember us saying “how good is this – it’s almost too good to be true!” Well I guess it was.

But let’s put this in context.  Unless you have a member account benefit of $2 million or internal investment earnings on your member account in excess of $100,000, you still enjoy tax free status.

If you have a superannuation member benefit of greater than $2 million and it earns more than $100,000, you pay a mere 15% on the excess. Make no mistake, this is still a good deal and sure beats paying marginal income tax by a long way.

Let’s take an example. John and Mary Bucket each have a superannuation benefit of $4 million in their SMSF. Their investments earn an average income of 5% after expenses – that is $200,000 each. The tax applicable to John and Mary is just $15,000 each, or $30,000 on a combined net income earning of $400,000, or a tax rate of 7.5%. No, it’s not as good as tax free but it sure beats the 46.5% top marginal rate!

There is some devil in the detail of the proposed changes that need to be clarified and let’s remember this is an election issue and may not eventuate.  Investors need to keep the changes in perspective and recognise the great tax benefits in super.