In a submission to government on the Tax Discussion Paper, Taxpayers Australia proposed the government limit non-concessional contributions by either imposing a lifetime cap of six times the current annual rate or banning non-concessional contributions after a set superannuation balance is achieved.
Speaking to SMSF Adviser, Taxpayers Australia superannuation and services manager Reece Agland said the rationale behind the recommendation is the argument that the purpose of super is for retirement only.
Taxpayers Australia chose the $2.5 million figure since it has been referenced by the Association of Superannuation Funds of Australia (ASFA) in the past as being the point at which retirees are generally earning enough income for a comfortable lifestyle, Mr Agland said.
“Any more than that and you may not need the concessions, so once you’ve reached your $2.5 million you can’t make any additional non-concessional contributions,” he said.
“With concessional contributions capped at $35,000, you’re not going to be able to make huge additions to your super but if you’re contributing $540,000 every three years, then that’s really going to boost your super balance.”
The ban would not, however, apply to small business capital gains tax concessions, the submission said.
Mr Agland said a survey of Taxpayers Australia’s members indicated there is support for changes to the superannuation system to address perceived equity issues.
“There is wide support for the superannuation system and the need for there to be tax concessions to encourage people to make additional contributions,” said the submission.
“However, the ability of a small subset of taxpayers to earn considerable income tax-free while accessing government services and benefits at the same time as others contribute to the tax system is seen as inequitable and needing to be addressed.”
The submission also proposed that limits be placed on the ability to take a lump sum on retirement.
It recommended that individuals with a super balance below a given threshold should be allowed to take out the full amount as a lump sum, while permitting those with balances above the threshold only to take a percentage of their total balance.
“There is some concern that people are taking a large part of their super out and spending it on a holiday overseas and doing all these wonderful things which is nice to do but it’s not for the purpose of superannuation,” said Mr Agland.
I strongly disagree with going back to a RBL system, that didn’t work, and neither should it. People should not be penalised for being a successfully investor.
But.
The current limits are too generous. Super was never designed as a tax bucket for the super wealthy. It was designed so that the other 95% of Australians can save for retirement and take pressure off a public pension scheme. $180,000 after tax contribution every single year? That just doesn’t make sense for 95% of Australians.
Re the question, if super’s not for holidays then what is it for. I thought the Government gave tax concessions to encourage people to save so they wouldn’t need the age pension.
Maybe as a society we are happy to have tax concessions to let people save more easily to fund one, or more, holidays or other things in retirement. We have tax concessions to help people buy their first home, to have a baby, etc.
If someone gets a benefit, someone else pays. Or alternatively over our lives if we get benefits at some stage we’re paying more at other times.
There’s basically one key point here. Do we think its fine for everyone who’s retired to have all their super tax free? If not, do we think $10m, $5m, $2.5m, $x is sufficient before tax comes in, or maybe an income level, or withdrawal level. And is the proposal cost effective – ie is the tax raised worth the compliance costs for super funds, members and the ATO?
As we work out the answer considerations such as if retirees with $m aren’t paying tax then someone else is (maybe we feel the retirees have paid their share of tax already).
My impression is as a society we reckon someone with $10m in super should be paying some tax, maybe we reckon $5m is the cut off. My understanding is that systems proposed to achieve this cost more than the tax they raise. Every super fund has to change its IT systems, ATO needs new forms, information sheets, team monitoring, advisors discuss strategies with clients, etc.
I am getting to old to keep reading all of this drival about superannuation and what it is for.
Superannuation IS a wealth creation vehicle to fund a persons retirement activities.
A persons retirement activities are whatever they have been dreaming about doing for all those years that they have been working hard before retirement.
NO ONE has a right to tell someone else that they cannot do what they are dreaming about doing in retirement.
Everyone dreams are unique and different.
Everyone’s dreams take a different level of funding.
Mr Agland apparently has no dreams so he doesn’t require any super, but a lot of people I see have many dreams and plans for retirement and should be allowed to pursue as many of them as their superannuation savings allow.
Ahh the good old paternalism approach! 2.5 M in your fund, clearly you are not competent to manage any larger sums and incidentally we also need to curtail what you spend your money on. Buy more shares in the horse whip company you say!
Cap It, Tax it, control it. Scintillating thinking-not!
“There is some concern that people are taking a large part of their super out and spending it on a holiday overseas and doing all these wonderful things which is nice to do but its not for the purpose of superannuation, said Mr Agland.”
Uhhh, it isn’t???
What am I saving for then….?
IS this guy serious? Why can’t people who have saved and put into superannuation, take money our of their super once they’ve retired to go on a holiday overseas? The purpose of super is to fund retirement – if they want to spend it holidaying, then surely that’s their call as a retired person? I think that last quote shoots down all his credibility.
Great! 2.5mil seems reasonable… We could even call it a “reasonable benefit limit”.
Maybe we could then allow people to purchase a “term allocated pension” and provide an asset exemption from social services pensions?
Also, I hear you can get music on portable cassette players now days.. I’m thinking they should call it a walking man.. Or walk person or something.