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Support grows for $5m super balance cap
Mercer has called for a super balance cap to be introduced in the name of equality, fairness and sustainability.
The federal government has been urged to introduce a $5 million cap on superannuation balances and force all Australians aged over 75 to draw down their super assets.
Mercer said that its proposed changes would help to address inequality in Australia’s super system that it argued had an inherent bias towards high-income earners.
The firm said that individuals with a super balance above $5 million, of which there are more than 11,000, according to the Retirement Income Review, should be required to reduce their balance below the proposed $5 million cap by the age of 70 or 75.
A three-year transition period was suggested by Mercer to allow for the sale of assets that are not able to be sold quickly.
“We know that the biggest beneficiaries of the current super tax concessions are in fact those that need it the least – high-income earners,” said Mercer senior partner Dr David Knox.
“While there has been no shortage of commentary that lower-income earners need greater concessions, we must find a way for reforms to be financially sustainable and place no added financial strain on the federal budget.”
“Currently, there is no requirement for individuals to draw down their super assets during retirement, outside of what’s placed in a tax-exempt pension product, capped at $1.7 million,” Dr Knox explained.
“This means that most of the investment income from these assets is subject to just 15 per cent tax. That’s less than the lowest personal income tax rate.”
The Australian Institute of Superannuation Trustees (AIST) similarly called for a $5 million limit on total super balances in its pre-budget submission last month.
“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.”
In addition, Mercer has also proposed that a 15 per cent tax rate be applied to all investment income received by super funds and that a concession of 15 to 20 per cent be provided for all concessional contributions below existing annual limits.
“Almost every year, the super tax system is tinkered with, and still, issues of inequity persist,” said Dr Knox.
“It’s time to fix the problems for a fairer and simpler system, once and for all, and strengthen community confidence in superannuation for the long term.”
Most whom have attained that kind of wealth in their SMSF will have done so with plenty of non concessional contributions. So have already paid full rate tax and more than likely been highly taxed during their working life, I find it interesting that some believe they know how much others need in retirement.0- This just an example of ENVY. Not even good in theory, and very bad in practice. Jesus said their will always be the poor among us. Let make Australia a communist state and be done with it.0
- With limits on non concessional this issue is a grandfathered one and time should not be wasted on making super regulations more complicated. these monies will flow out of super over next 20 years and a majority will be taxed on the way out unless the member is 90+ and has a 30 year old spouse. if taken from super now the Government would miss out on the "Death tax" and only get a smaller amount of tax on the earnings. Death tax of 17% on a $1M= $170,000 or $1M invested outside earning 1% to 5% =$10K - $50K income taxed at 30% = $3K-$15K seems a long pay back period.
0 - Cmon advisers lets maths this shit up. $1000 pm concessional contribution for 50 years @ 8% return will give you > $5M. Hardly the uber wealthy.
Seems more like diligent saving and investing to me. If you have done that over your working life, and accumulated > $5M in super, I congratulate you. Well played.
We should be doing more to encourage everyone to put more money into super during their working lives so as to take the pressure off the age pension in the future. It's do-able for most working people.0- I agree with a lot of what you have said. We need to educate the financially illiterate on the benefits on compounding returns and contributing a small amount into super at a young age.
Though, while your maths stack up, I question the possibility for more working people being able to contribute $1,000 pm at 25 and buy a house and then later in life support a family.
Also, who wants to work until their 75?0
- Is this consideration worth the trouble. With non concessional contributions limited by the total super balance and pensions, including death benefit pensions, limited by the transfer balance caps huge super balances will become a thing of the past. Even now they are only enjoyed by about 0.5% of superannuants. This proposal seems like a solution looking for a problem to solve.0
- David Busoli, great point. Keep super simple0
- Communists? Do you really want money to go offshore?0
- Here we go again.
You can't legislate for equality of outcomes; only for equality of opportunity.
All taxpayers have the opportunity to build up multi-million dollar Super balances, and to equally access the tax concessions that go along with it. The fact that some are better placed than others to take advantage of those opportunities shouldn't be the concern of the legislators.
All these think tanks and social commentators dreaming of a Socialist paradise where everyone is equal and no one person has more than another are deluded.
The real world just doesn't fit your idealistic model.0- Do you understand the purpose of superannuation? This policy is to stop people making a mockery of super.0
- But, Bill, for the past 25 years governments of both persuasions have been badgering us to put every dollar we have into Super to take the strain off social welfare - so that's what people have done.
Now the pollies are concerned that people have too much in Super, and want them to take it out again! I wonder what the message will be tomorrow...?0- DavidL, the government isn't concerned about getting people with more than $5million is assets off social welfare, the asset test takes care of this. They want the lower income people to put as much as possible in super. People are abusing the system.
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- DavidL, please read this www.psychologyinaction.org/psychology-in...-social-ladder-ht8ch0
- Thanks Jenny. Interest concluding sentence: "Next time you compare your home, car, or job to your neighbor’s perhaps it is worthwhile to take a step back and ponder if these status comparisons are beneficial to your health. If we can lessen our comparisons to one another or learn to be grateful for what we have rather than compare ourselves with those who are better off, as a society we may see a tremendous rise in well-being"
In other words, stop complaining about how others are better off, and just concentrate on getting yourself sorted out. Take advantage of those opportunities, instead of giving up because you think your aren't worthy.0
- Maybe all the concessions need to be removed for balances over the cap. The Cap can be 2 million which is more than enough to provide concessional treatment. Every thing above this balance can be taxed at company rates or 30%. The reason people are pushing everything they can into super is the tax concessions available so let us just put a CAP on the amount that can be treated concessionally.
0- One step further. If the goal of super is to provide income for retirement, surely the income from $2million would be sufficient to fund retirement and the goal is achieved. If a person's TSB at the prior 30/06 is $2million or greater, the entire income should be taxed at the person's marginal tax rate0
- If Mum and Dad have $4m each ($8m in total) in super and one suddenly passes away, does the survivor have to pull out $3m? What wold the timeframe be? If this requires a property sale, if the survivor transfers property, or part of a property, to themselves, would there be stamp duty concessions?
Scenario 2 has a member with $4.8m in super. The share market goes up by around 20% in one year, so they now have $5.8m in super. By the time year end accounts are prepared the share market has dropped back so the member at that time has around $4.8m in super again. Do they still have to take out the $800k excess? And could they put this back into super in the next year?
These cap ideas always have the criticism that it penalises those who've done well. Someone who is cleverer with their investment choices will get to $5m sooner, and get penalised by having to take money out of super. Someone in a better performing fund has the same scenario.0- 1. If there was a reversionary pension, this issue already exists. Even if all member's accounts were in accumulation, you would still be limited by the TBC. Yes, they would need to take out the excess. Same timeframe and stamp duty conditions as death benefits now. These are not new issues.
2. The cap would be based on TSB at 30/06 of the prior year. If it was a hard rule, yes, they would need to take the excess out. Though, it would be a good idea to allow trustees to apply to not withdraw the $800K based on change in market conditions. Similar to reducing a PAYG instalment to nil.
It should not be seen as punishing people for having a better performing fund. Its reducing the generous tax concessions to its original purpose. Provide income for retirement, not as a tax haven.0 - If they have a property worth more than $5 million in super, there is no sympathy from me. They should have accessed the risks of having such a high value illiquid asset. Also, they have $8million...0
- Gees our hearts bleed for the dilemma that those poor individuals have when contending with what to do with their $8M and $4.8M in super....how will they survive??0
- Once the $5 million cap is reached. All contributions should be blocked.0
- Why? Super is only income averaging of income from personal exertion. The only limit on contributions should be income for personal exertion,0
- because they have met the goal of super of accumulating enough wealth to support super. Anything over $5 million can go to their person name and taxed at their personal rate0
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