In a submission to the government’s tax discussion paper, Westpac said implementing a maximum retirement balance would “reduce distortions and address fairness concerns” and would be simpler to administer than alternative reforms such as a lifetime cap on concessional and non-concessional contributions.
“To the extent that a small number of very large superannuation holdings are adversely affecting the perception of fairness in the superannuation system, we support appropriate changes to address those concerns,” Westpac said in its submission.
“We favour specific, highly targeted measures aimed at curbing any distortions instead of widespread changes to the existing superannuation scheme that impact all members.”
As part of the proposal, Westpac said the $2.5 million cap should not apply to assets used to purchase an eligible longevity product such as annuities.
Westpac argued this will “encourage retirees to protect themselves from longevity risk”.
The current tax settings for the accumulation phase are appropriate, however, and should remain the same, the bank said.
“The embedded concessional tax rate framework is relatively simple to administer and also provides certainty in the context of overall government revenues,” said the submission.
“The Low Income Super Contribution for low income earners and the Division 293 additional tax for high income earners make this arrangement broadly equitable and should be maintained.”
The submission said contributions caps should be reviewed, however, to allow workers who are underfunded for their retirement to make additional voluntary contributions to catch up and improve their adequacy.
Westpac said this would include those with broken work patterns, migrants who have emigrated to Australia part way through their working lives, and workers who have had involuntary periods of non-employment, due to redundancy or ill health, for example.
Good idea with the only real weakness in my view being the process whereby more than one pension funds is held for a total of more than $2.5M. Best part is it minimises the impact on the majority of people.
Cloud Cuckoo stuff. Westpac’s idea is silly, administratively burdensome, will turn people off super. Next they’ll be recommending the ‘overflow’ account needs to be a Bank-run RSA – and weren’t they popular!!!
If the aim is to simplify the system, then why complicate it further with more caps and thresholds and limits and rebates and transfers…..
How about we just tax all Super Funds at 15% whether in pension phase or not, and treat withdrawals as tax free once past 65. By that age you surely would have paid enough tax through your working life to have contributed your “fair share” and qualify for a bit of a tax break, unlike the politicians and their defined benefit schemes.
No need, then, for compulsory minimum withdrawals (seems silly to force people to withdraw funds they may not need); age pension eligibility based on fund value for the assets test and required minimum pension for the income test – whether withdrawn or not.
Also agree with Eric Taylor that the ridiculous 10% rule denying employees the opportunity to contribute extra concessional contributions has to go. Never made any sense to me at all.
Still suffers from significant admin problem of people having super spread over multiple funds. How does fund A know that combined with balance in fund B they have in excess of $2.5m?
Sounds far easier to administer than lifetime caps on concessional & non-concessional. Of course, no one in their right mind would keep more than $2.5 million in a bank owned super fund, unless they are ineligible to be a trustee of a SMSF.
In my opinion Westpac idea is flawed for several reasons:
1) Income is not uniform, in good years, the $2.5M balance can make the fund taxable.
2) In case of death of one spouse, the other member may have more than $2.5M
3) Disparity in income cannot be controlled by $2.5M cap as some funds earn only 3% while others can earn 10%
4) indexation would have to be applied as some funds own growth assets like property
5) if this $2.4 M test is applied on 30th June balance, then trustees may withdraw just before that date and re contribute the next day, if contribution is possible
In my opinion any withdrawal from a fund should be taxed at marginal tax rate with tax rebate of 30% of which 15% is for tax on concessional contribution and 15% on income and Medicare Levy to be charged on assessable income to maintain the medical system. And income of pension fund will increase the tax free component and not be propotianate.
A good discussion point, however, we still need to address the discrimination against wage and salary earners who are unable to make concessional contributions up to their contributions cap. Not every employer provides for salary sacrifice, not to mention those who change from employment to self employed, or vice versa, during a year. This restriction must go.
I smell a rat with the Westpac proposal. Sounds like an attempt for them to get their greedy fingers on our funds!