The tax treatment of very high account balances should be the starting point for discussions around adjustments to superannuation tax concessions, rather than blanket changes that impact on all members, according to a report released by the Association of Superannuation Funds of Australia (ASFA) today.
Analysing the distribution and magnitude of very high superannuation account balances, the report found that there are over 200,000 people who have superannuation account balances in excess of $1 million, with around 70,000 with balances in excess of $2.5 million.
24,000 self-managed superannuation fund (SMSF) members in the pension phase with balances in excess of $2 million received around $5.2 billion in tax-free income stream payments, or an average of around $216,000. This is compared with the 232,000 SMSF members with balances of less than $1 million who received a total of $8.9 billion, or an average of around $38,000. Note that data on the level and distribution of income stream payments and account balances is not available for members who have their superannuation in pooled vehicles.
With the release of the tax discussion paper encouraging wide-ranging debate on tax reform, ASFA CEO Ms Pauline Vamos says it's appropriate for the community to start questioning whether it should fund growing tax concessions on very high balances.
"The superannuation system was set up to provide people with additional income to live a better lifestyle in retirement than that which can be provided by the Age Pension alone. Once a person has built up enough superannuation savings that will enable them to achieve a fairly high standard of living, it's appropriate to question whether taxpayers should fund incentives to build wealth beyond this.
"A person who retires with a very high superannuation account balance is likely to have sufficient capital to draw an income stream that will allow them to live comfortably, even if they face medical or care expenses in the future or live considerably longer than expected. Above this level, the opportunity for people to use the concessionally-taxed super system for estate planning purposes increases.
"It is therefore appropriate to question whether or not the same tax concessions that are applied to lower balances should equally be applied to individuals with very high levels of super," says Ms Vamos.
"It also poses problems when it comes to intergenerational equity, and whether it is fair for younger generations of taxpayers to be funding the tax concessions of older high net worth individuals."
Ms Vamos says there are a number of policies the government could implement, including lifetime caps on concessional and non-concessional contributions and different tax treatment of high-balance accounts.
"Measures like these would help ensure people are using the superannuation system for its intended purpose, while also helping relieving some pressure on the federal budget," Ms Vamos says.
"It's also very important that as we make changes to superannuation, we give people enough time to plan and make changes to their financial strategy. The majority of the community participates in the system, and all taxpayers fund the concessions applied to it. Therefore building consensus among policymakers and the Australian people will be critical to ensuring its ongoing sustainability and success.
"There is growing bipartisan support for changes to the taxation of high balances, and we are pleased to see it being considered as part of the tax discussion paper process. We look forward to working collaboratively on the solutions required to ensure all Australians can live with comfort and dignity in retirement," Ms Vamos concluded.
Click here to access the full report.
For further information, please contact:
Lisa Chikarovski: Manager – Consumer Strategy, Media and Public Affairs, 0451 949 300.
About ASFA
ASFA is the peak policy, research and advocacy body for Australia's superannuation industry. It is a not-for-profit, sector-neutral, and non-party political national organisation, which aims to advance effective retirement outcomes for members of funds through research, advocacy and the development of policy and industry best practice.