Here's how much money is at stake in the super changes making wealthy Australians furious

Alan Crowhurst/Getty Images

One of the big changes to superannuation in the 2016 budget was putting a cap of $1.6 million on the balance from which tax-free pensions can be drawn.

This effectively gets rid of multi-million dollar accounts spitting out hundreds of thousands of dollar a year in tax-free income during retirement.

However, this doesn’t mean the extra cash sitting in accounts greater than $1.6 million just disappears. The money can stay in super and benefit from the concessional 15% tax rate.

From age 60, anyone can take a take free income stream from their super account. The changes just limit the amount which creates that pension.

At $1.6 million, the minimum pension payable is 4% ($64,000 a year) and the maximum 10% ($160,000).

Compare that the the current government aged pension for a single person of about $22,721 a year.

Claire Mackay, a principal advisor at Quantum Financial, says pensions from super were made tax free in the dying days of the Howard government in 2007.

“We believe the unlimited tax free status of all pensions was too good to last,” she says.

Quantum Financial has estimated the impact of the change on individual super accounts and compared the government and the ALP’s positions.

The amounts payable are small. For example, someone with $2 million in their super — $400,000 more than the new limit — will end up paying an extra $3600 in tax, as these tables show:

Source: Quantum Financial

These calculations don’t take into account any imputation credits from franked shares. This would further reduce the tax paid.

However, the government has has plans on saving $2.9 billion from the overall changes to superannuation over the next four years.

The numbers show more tax paid would be paid under Labor’s plan.

Of course, the government has now made it harder to get to a balance of $1.6 million by placing a $500,000 lifetime cap on the after-tax contributions.

Many of the current large super balances were built using top ups from windfall profits, an inheritance or the sale of an asset.

“Until Budget night, wealthy people had a fairly simple, foolproof way of investing to secure their financial future,” Mackay writes.

The deal was to pay off your mortgage as soon as possible, set up a self-managed super fund and contribute as much as you could to your fund before retirement.

“It was a good plan and it was one that worked well since 2007,” she says. “It was fairly easy for successful people to set themselves up for their dream retirement.”

But the budget changed all that.

“The new rules are far more complex, there are new penalties and if you get it wrong you could be in trouble,” she says.

Mackay’s advice is to get advice.

“These changes mean you need alternative tax effective ways to invest your wealth,” she says.

“You don’t want to be leaving a tip for the tax man by paying too much tax –- he just doesn’t deserve it.”

NOW WATCH: Briefing videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.