Savvy super savers will avoid the $3m threshold. Here’s how

Unfortunately, it’s even more complicated than that. If his closing balance is greater than $3 million, Jack must add back his pension and withdrawals to obtain his "adjusted closing balance".

Contributions can be subtracted, but as his total super balance is over $3 million, so his contributions are limited to employer and personal concessional contributions.

If Jack received a pension of $100,000, his adjusted closing balance becomes $3.4 million ($3.3 million + $100,000).

His tax payable is now $400,000 ($3.4 million - $3 million) x 10 per cent pro rata (($3.3 million - $3 million) / $3 million) x 15 per cent new tax = $6000.

Tax saving strategy

If you anticipate a closing balance of over $3 million, strategic withdrawals in one year can lead to tax savings in the next.

Higgins, aged 65, has $3 million in super ($1.9 million pension and $1.1 million accumulation). It increases at 7 per cent each year, and he gets an initial minimum pension of $95,000.

If he does nothing, Higgins will incur approximately $552,000 in additional new taxes by age 85.

By strategically withdrawing $150,000 from his accumulation account in 2025 on top of his minimum pension and investing it outside of super, he can save about $130,000 in cumulative tax by age 85 (even after paying personal tax on his new non-super investments).

If Higgins has a partner, and they jointly own the new investments, the cumulative tax saving is $160,000.

Modelling reveals the key is to reduce your closing total super balance to about $2.95 million (after growth, pension and accumulation withdrawals) so this becomes your opening super balance the next year.

Higgins then withdraws an additional accumulation amount each year of $60,000-$100,000 on top of his minimum pension, so his closing super balance remains around $2.95 million. He adds the withdrawals to his non-super investments.

By doing this, a couple can save another $216,000 in total tax by age 85 (even after paying tax on the growing personal portfolio in their joint names). The tax savings can be even greater for a super balance of $3.5 million and a withdrawal of $600,000.

Why does this work? If your opening total super balance is $2.95 million, after 7 per cent annual growth, paying a pension and an additional withdrawal, your closing balance at the end of the year should be less than $3 million, so the new tax won’t apply.

However, this is entirely dependent on your personal tax profile and there is an eventual tipping point.

At this point, the strategy doesn’t work as invested cumulative withdrawals grow large enough that you pay more tax outside super than you save inside super.

If you earn more than $120,000 outside super, your marginal tax rate is 34.5 per cent (including Medicare levy).

It makes no sense to withdraw anything extra from your super (accumulation taxed at 15 per cent plus the new 15 per cent super tax) – it’s best just to pay the new super tax.

Changes in tax rules invariably shift investor behaviour. A targeted closing super balance of around $2.95 million, for example, could become a key strategy for many.

In my opinion, the government’s new tax is unlikely to raise $2 billion or affect 80,000 people.

While it is targeted at high super balances, investors with the means and knowledge will strategically manage their total wealth to maximise their after-tax returns.