In a submission to the Tax Discussion Paper, ASFA argued individuals should “not be permitted to have total capital underlying an income stream in the pension phase in excess of $2.5 million”.
In its proposal, ASFA suggested that amounts in excess of the $2.5 million be withdrawn from the system by the individual or be commuted and rolled back into the accumulation phase where the 15 per cent tax on investment earnings would apply.
ASFA said the income stream generated from the initial $2.5 million would, however, remain tax-free.
“For example, on retirement, an individual with a balance of $3 million could convert $2.5 million into a retirement income stream which would attract no earnings or benefits tax, while the balance of $500,000 could remain in accumulation, attracting the 15 per cent earnings tax,” said the submission.
The submission argued that some retirees are receiving a tax-free income stream that is far in excess of the ASFA comfortable standard.
“The average income stream for the 475 persons in pension mode with account balances greater than $10 million was $1.5 million,” said ASFA
“In some age groups the average payments were higher, with 84 persons aged 60 to 64 with account balances over $10 million receiving income stream payments which averaged $3.26 million a year.”
ASFA has also called for a lifetime non-concessional contributions cap of $1 million.
The submission said that non-concessional contributions have played a role in the creation of high-balance accounts.
“An individual is currently permitted to contribute $540,000 in non-concessional contributions every three years up until age 65,” said ASFA.
“Further contributions can be made by small business owners who retire and rollover the proceeds of the sale of their business into superannuation, making use of the capital gains tax concessions available.”
The submission also highlighted the fact that “SMSFs received over $18 million in non-concessional contributions in 2012-13”.
ASFA chief executive Pauline Vamos said the two measures will assist the superannuation system to deliver on its objective to remain broadly equitable and sustainable within the tax system.
"While the vast majority of members do and will use the system for its intended purpose as their account balances are not high, a small minority of people have amassed amounts that the system was not designed to fully fund and, unless the system design is changed slightly, then an even greater proportion will fall into this category in the future,” said Ms Vamos.
An earlier version of this story was mistakenly titled 'ASFA calls for more tax cuts to high balance funds.'