A cap on large superannuation balances would not penalise people who had the opportunity to accumulate those funds under previous superannuation laws, but would counter their overly generous provisions, according to an SMSF actuarial firm
Lime Actuarial director Greg Einfeld said suggestions a cap be introduced on superannuation balances have been met with the view that such a move would penalise people who had acted legally under past contribution rules, however, those rules continue to benefit people today.
“I agree that people who have large balances have not done anything wrong and they should not be penalised, but what they were able to do was take advantage of what was an overly generous system at the time,” Einfeld told selfmanagedsuper.
“We are 15 years on from the changes that ended those rules, but some people have continued to benefit from them for that period and, given we could not implement any changes overnight, they will probably benefit from them for another five years as well.”
He said it was hard to argue the superannuation system was designed to provide tax subsidies for people with balances in the tens of millions and the imposition of a cap on large balances would address some of the excess generosity of past laws.
“I don’t regard a cap as penalising anyone by forcing them to take money out of super, but rather bringing us back to where we probably should have been 15 years ago in that people should not have been allowed to have such large balances,” he said.
“We should also keep in mind that the system now with zero tax in the retirement phase, no reasonable benefit limits and only 15 per cent tax in the accumulation phase is more generous to everyone than what we had up to 2007 when people made all these large contributions.
“Additionally, these people have 15 years to benefit from those rules and their balances have also grown significantly from what they were back in 2007 as well.”
He said addressing the issue of large balances was something the superannuation sector should consider, rather than having the government impose new rules, but any change was dependent on how superannuation will be viewed into the future.
“Part of the problem is nobody has defined what the objective of superannuation is, but whatever it is, it is not subsidising people with balances of $100 million or even $10 million,” he said.
“It is there to ensure that retirees can live a comfortable retirement and to take away the burden of the age pension, but not be an estate planning vehicle for the super wealthy.”
