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The Australian government has revised its controversial superannuation tax proposal, dropping the plan to tax unrealised gains, a move that could offer insights for Kenya's evolving pension tax framework.
The Australian government, led by Treasurer Jim Chalmers, announced on Monday, October 13, 2025, significant amendments to its contentious superannuation tax plan, notably abandoning the proposal to tax unrealised gains on superannuation account balances exceeding AUD 3 million. This decision follows sustained criticism from various sectors, including industry groups and political figures.
Under the revised plan, the concessional tax rate on superannuation balances between AUD 3 million and AUD 10 million will still double from 15% to 30%. However, a new, higher tax rate of 40% will apply to earnings for balances exceeding AUD 10 million. Crucially, both the AUD 3 million and AUD 10 million thresholds will now be indexed to inflation, addressing concerns that more Australians would be progressively caught by the tax over time due to bracket creep.
The original superannuation tax proposal, first announced in 2023, aimed to increase the tax on earnings for balances above AUD 3 million. This policy was designed to better target superannuation concessions and contribute to funding public services. However, the inclusion of taxing unrealised capital gains drew significant backlash, with critics arguing it was an unfair imposition on assets that had not yet been sold and could force individuals to sell illiquid assets to cover tax liabilities.
Former Labor Prime Minister Paul Keating, an architect of Australia's superannuation system, praised the revised plan as a "huge policy achievement," acknowledging the government's responsiveness to feedback. The government estimates that approximately 90,000 individuals will be affected by the AUD 3 million threshold, and fewer than 8,000 by the AUD 10 million tier.
While Australia navigates its superannuation reforms, Kenya has also been implementing significant changes to its pension and tax framework. The Tax Laws (Amendment) Act 2024, effective December 27, 2024, introduced reforms aimed at improving how retirement benefits are taxed and managed in Kenya.
Key changes in Kenya include an increase in the tax-deductible pension contribution limit by 50%, from KES 240,000 annually (KES 20,000 per month) to KES 360,000 annually (KES 30,000 per month). This adjustment aims to address inflationary pressures and the rising cost of living, encouraging Kenyans to save more effectively for retirement. Additionally, pension benefits from registered schemes are now exempt from income tax if an individual reaches retirement age as defined by their scheme's rules, withdraws due to ill health before retirement age, or has been a member for at least 20 years.
The Finance Bill 2025 further proposes to make all pensions and gratuity payments, whether in the public or private sector, fully tax-exempt, a significant departure from previous regimes. This bill also expands tax-free treatment to private insurance-based retirement plans and tasks employers with directly applying tax relief and exemptions when calculating Pay-As-You-Earn (PAYE), streamlining the process for employees.
In Australia, the superannuation industry had strongly opposed the taxation of unrealised gains, with the SMSF Association (SMSFA) calling it "confiscation" and arguing it "punished aspiration." The revised policy, by scrapping this element, addresses a major point of contention.
In Kenya, the Retirement Benefits Authority (RBA) has been instrumental in communicating the recent tax reforms. John Keah, Assistant Director of Market Conduct and Industry Development at the RBA, highlighted that the increased tax-deductible contribution limit is a long-overdue adjustment that accounts for inflation and rising living costs, promoting a stronger retirement savings culture.
For Australia, the initial proposal to tax unrealised gains had raised concerns about its impact on investment and the potential for forced asset sales, particularly for self-managed super funds holding illiquid assets like farms or businesses. The reversal of this element is expected to alleviate these concerns and provide greater certainty for high-balance superannuation holders. The revised plan is projected to raise AUD 1.6 billion in its first year (2028-29), less than the AUD 2.7 billion initially anticipated from the original proposal.
In Kenya, the pension reforms are largely seen as positive, aiming to enhance retirement security and encourage long-term savings. However, the actual impact will depend on the clarity and speed of implementation, as well as the capacity of employers to adapt to new administrative requirements for applying tax relief directly.
While the Australian government has made concessions, the Greens party, whose support is needed to pass the legislation, had called the initial move a "gift to the super-rich" and advocated for a lower threshold of AUD 2 million. The opposition Coalition has also indicated it will consider the details of the new proposal before taking a position. The long-term economic effects of these changes on investment behaviour and the broader Australian economy remain a subject of ongoing analysis.
In Kenya, while the Finance Bill 2025 proposes significant tax exemptions for pensions, the full details of its implementation and any potential challenges for various pension schemes are yet to be widely disseminated and understood by all stakeholders.
Observers in Australia will be watching the parliamentary process closely to see if the revised superannuation tax plan gains the necessary support to become law. The impact of the indexed thresholds on future generations of superannuation holders will also be a key area of interest. In Kenya, the focus will be on the smooth implementation of the Finance Bill 2025, particularly how employers and the Kenya Revenue Authority (KRA) adapt to the new administrative procedures for pension tax relief. The overall effect of these reforms on Kenya's savings culture and retirement security will be closely monitored.
Kenya and Australia maintain strong bilateral relations, with growing opportunities in trade, education, and investment. In 2024, two-way trade surpassed AUD 1 billion, reflecting expanding ties in sectors such as mining, agribusiness, healthcare, digital technology, and education services. Over 20,000 Kenyans reside in Australia, contributing to its economy and enriching its multicultural society. Australia has become Kenya's fourth-largest source of remittances, with flows reaching USD 112.8 million in the first half of 2025.
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