An analysis of the possible outcomes from the federal opposition’s proposal to change the taxation of superannuation income is necessary before an accurate assessment can be made about the merit of the plan, according to a retirement savings expert.
“The whole reason why we had tax-free earnings within super was to encourage people to take income streams as opposed to lump sums out of their superannuation,” Chartered Accountants Australia and New Zealand head of superannuation Liz Westover told selfmanagedsuper.
“If you change that tax measure, then you change the incentives within the system, so you have to do an analysis of the possible outcomes of this policy.”
Having recognised one of the key drivers of the current superannuation tax environment, Westover said Labor’s proposal could eventuate in more people opting to take a lump sum in retirement instead of a pension.
She pointed out individuals with higher superannuation asset balances who would be most likely to favour that course of action.
“If I’ve got more than the $1.5 million asset threshold that will generate the $75,000 earnings, I might be better off taking my money out of the superannuation fund environment entirely and investing it outside of super where I might actually be subjected to a zero per cent tax rate,” she explained.
She said it was imperative politicians proposing changes to the system did so with their eyes wide open.
“If you want to introduce these changes, just be well aware these might be the implications,” she stressed.
“So if you’re talking about how much it’s going to save the government, and they’re talking about $14 billion worth of tax savings over the next decade, it may not be quite as good as they think it is because it will drive different behaviours.
“Also, as soon as you start to implement these measures, people start looking at ways to get around them and that’s the way it goes.
“I’m just not sure that one [the ALP’s proposal] has been thought through in its entirety.”
Late last month, the opposition announced it would implement a superannuation policy, if returned to power at the next election, whereby earnings over $75,000 would be taxed at 15 per cent, instead of being tax free, and the income threshold for the high-income superannuation charge of an additional 15 per cent on contributions would be lowered from $300,000 to $250,000.
