“Taxing unrealised gains is a dangerous precedent that could seriously damage trust in the system,” Panagis said.

“There are fairer, more effective ways to limit concessions on large balances without disrupting the retirement plans of everyday Australians.”

The main alternative the IFPA put forward to reduce tax concessions for individuals with high superannuation balances in a “more effective and principled” way is through compulsory cashing of excessive balances.

According to the IFPA, this proposal would maintain the original policy rationale of targeting the minority of “mega” superannuation balances.

“We propose that individuals with high balances be required to either withdraw the excess from the superannuation system or convert it into a pension by a certain age,” the IFPA said in its submission.

“As only $2 million can currently be used to commence a retirement phase pension, a separate class of pension could be introduced for the excess amount. This would apply to amounts exceeding a member’s transfer balance cap (TBC), allowing those excess funds to be placed into a separate pension structure without there being a limit on balance size.”

According to the IFPA, this approach would not only ensure large balances begin exiting the super environment in a “gradual, controlled manner” but also enable the application of different rules to excess pensions, such as higher minimum drawdown rates or distinct tax treatment.

“For instance, the government could apply an additional 15 per cent tax on investment earnings in the pension phase for balances exceeding $3 million,” the submission said.

“This would align with the existing treatment of transition to retirement income streams (TRIS), where earnings are taxed at up to 15 per cent for individuals under 65 who have not yet retired.

“Creating a separate class of pension – distinct from standard retirement phase pensions – would help limit the benefits flowing to very large balances, while preserving concessional treatment for the vast majority of retirees.”

While the IFPA argued this method represents a “fairer, more sustainable alternative to taxing unrealised gains”, it also offered up two additional alternatives: taxing withdrawals above $3 million and simplifying superannuation thresholds and caps.

The first of these, it said, would apply a flat 15 per cent tax on the taxable component of withdrawals made from the accumulation phase for individuals with TSBs above $3 million, regardless of their age.

In terms of simplifying caps and thresholds, the IFPA argued that given the complexity of the current system, adding yet another threshold through Div 296 is counterproductive.

“We propose consolidating and streamlining these rules, potentially by aligning the TBC with the $3 million threshold (indexed) while retaining contribution caps but removing multiple overlapping TSB thresholds,” it said.

“This would simplify retirement planning and reduce compliance burdens.”

Panagis added: “We need a tax and super system that delivers certainty and confidence, not just for the next Budget, but for generations to come.”