On 2 Feb 2022, the Financial Review posted an article by its Michael Read, titled ‘‘Inequitable’ and ‘unsustainable’: Call to cap super balances at $5m‘. This reported on a proposal by AIST, to cap superannuation balances at $5m (so balances can’t grow beyond this figure). The article is reproduced below.
One of the nation’s peak superannuation lobby groups is calling on the government to cap super balances at $5 million, slamming the generous tax concessions enjoyed by the wealthiest Australians as “inequitable” and “unsustainable”.
AIST – the Australian Institute of Superannuation Trustees, which represents non-profit industry, corporate and public sector funds, wants the Morrison government to introduce a $5 million limit on total superannuation balances, arguing people with large balances are benefiting from excessively generous tax concessions.
- The proposal would affect about 11,000 people, who would be required to withdraw excess funds were the policy adopted by the government.
- The government’s retirement income review found a person with a superannuation balance of $5 million could achieve annual earnings tax concessions of around $70,000.
- AIST said in its pre-budget submission that the balance cap would improve the equity of the super system. As it stands, the earnings on the investments in an account with more than $5 million receives the same percentage concessional tax benefit as an account with a lower balance.
- “Unfortunately … the current level of lifetime government support provided through the retirement income system is heavily weighted towards those in higher income brackets,” it said.
- “Given that this cohort has a greater capacity to support themselves in retirement, it is not only an inequitable situation, but also unsustainable as the population of Australia ages.”
- The group’s pre-budget submission cited analysis by Mercer that found the tax concessions enjoyed by a single $10 million self-managed super fund could fund 3.1 full age pensions.
The tax concessions offered to all SMSFs with balances of more than $10 million could fund 240,000 full age pensions each year.
- The call for change comes amid evidence of an increase in the number of mega-SMSFs with more than $100 million in assets.
- Twenty-seven of Australia’s biggest SMSFs held more than $100 million each in concessionally taxed savings in the 2019 financial year, including one mega-SMSF that has hoarded $544 million.
- A year earlier, 22 SMSFs held more than $100 million.
Michael Read is a reporter based in Parliament House, Canberra. He was previously an economist at the Reserve Bank of Australia and at UBS. Connect with Michael on Twitter. Email Michael at michael.read@afr.com.au
In my opinion, our superannuation regime is collapsing under its own weight and is begging for some bold reform along these lines. Other similarly bold reforms could include: all contributions being deductible; all payments of benefits are assessable. Fund’s income tax exemption could be restored, obviating the need for segmented contributions, rollovers and benefit payments. All sorts of restrictions on how much one can contribute and inflated returns could be relaxed, if there was an absolute cap. If contribution limits were retained, this could be done through the ATO (so it operates across all funds). Let your mind wander – there is so much one could do, to come up with a simpler system, if you were to start with a ‘clean sheet of paper’.
[Tax Month – February 2022 – Previous 2022] 3.2.22