The Association of Superannuation Funds of Australia (ASFA) has called for a reduction of large super balances as a way to pare back the earnings tax concessions those members receive as part of its budget submission for the 2022 financial year.
Drawing heavily from the findings of the Retirement Income Review (RIR), which focused on equity in the retirement income system, ASFA recommended members aged 65 or over with a total superannuation balance in excess of $5 million on 1 July 2022, whether in accumulation, pension phase or a combination of both, should be required to withdraw the excess from super.
“One of the concerns in relation to the sustainability of tax concessions within super is the tax concession enjoyed in relation to investment earnings for high-balance members. This tax concession can be substantial for large accounts,” the superannuation industry peak body said in its budget submission.
“While the current caps on superannuation contributions limit the ability for members to build up excessive balances in the future, there is a real question regarding the appropriate treatment of high balances that were achieved in the context of more generous contribution caps in the past.”
ASFA noted removing excess balances from superannuation may cause liquidity problems where smaller funds held large, illiquid assets such as property but said this could be mitigated by have a start date for the measure of 1 July 2022 “and allowing, as a transitional measure, excess balances to be retained within affected self-managed or small APRA funds but subject to tax on the earnings at the top marginal rate”.
In addition, it recommended indexation of the transfer balance cap (TBC) be removed to reduce complexity and maintain equity in the system, pointing out not having a single TBC would be “confusing for fund members and will raise a number of issues in how the change is communicated to members and administered”.
“Given the complexity of having multiple TBCs and to ensure the system remains equitable, indexation of the cap could be removed,” it said.
It also urged the federal government to deliver a legislated objective for superannuation in line with the RIR’s recommendation.
“A formal objective for the retirement income system would provide an anchor for future retirement incomes policy,” it said.
“As the system matures and the pool of private savings grows, future governments should be discouraged from trading away retirement objectives to achieve unrelated policy goals.
“An objective would help protect against this and give Australians confidence that their retirement savings are safe from such erosion now and into the future.”
Last week, the SMSF Association called on the government to use the 2021/22 budget to reduce the complexity in the superannuation and retirement income system.
