Talk of changes to superannuation tax concessions among retirees is always unpopular.  

However, there is an important question about whether current tax concession settings are fair and consistent with the objective of superannuation.  

At the Australian Financial Review Super & Wealth Summit, Financial Services Minister Stephen Jones, said Labor was open to a debate on tax concessions once the purpose of super was legislated.

Recently, Treasurer Jim Chalmers announced a consultation to do just that. 

In previous submissions on this matter, National Seniors argued that the objective of superannuation should be to provide dignity, financial security, and a comfortable standard of living in later life combined with the Age Pension and other savings.  

Under such an objective, there would be a clear emphasis on ensuring that as many people as possible could have an adequate superannuation balance.  

Contrast this with the current rules governing superannuation, which provide generous tax concessions regardless of how wealthy you are.  

The transfer balance cap has had an impact on the tax-free concession for balances over $1.7 million (per person) for superannuation sitting outside the cap. However, it is still the case that earnings from these investments attract a 15 per cent tax rate. Furthermore, the balance can grow higher than $1.7m if fund earnings exceed the pensions drawn from the account.  

It is important to note most Australians do not come close to reaching the transfer balance cap of $1.7m.  

Further, there is a small number with extremely high balances.

According to the Australian Taxation Office (ATO), in 2020 there were ten self-managed super funds with balances above $171m, the highest valued at $410m. That is 8,120 times more than the national median balance of $49,374!  

A smaller fund with $10m outside of the cap earning a paltry five per cent a year would be earning $500,000 per year. At the tax rate of 15 per cent, they would pay only $75,000 in tax.  

Contrast this with the tax rates on other earnings. If you are working and earning $500,000 per year, you pay about $195,000 in tax (unless you have a good accountant).  

The question is whether it is fair that people with such high balances (and incomes) should get such a generous flat tax rate of 15 per cent when people of working age get taxed progressively up to 45 per cent.  

This is at a time when the government is grappling with a huge national debt which will be repaid from future taxes. We are also facing ballooning aged care costs due to the need to invest billions of dollars to lift standards in aged care.

Some participants at the recent AFR summit put forward the option of drawing a line at $5 million, beyond which there would be no 15 per cent tax concession on earnings. Those with balances this high would pay the normal personal tax rate.  

Others were even blunter, saying this should be set at low as $2 million.  

The head of the Self-Managed Super Fund Association and others scoffed at this idea as unfair and unworkable.  

Recently, we spoke to respected actuary Michael Rice, who told us he believes there is an alternative option – to apply a level of progressivity to the treatment of tax on superannuation earnings beyond the $1.7m cap.  

Under this option, the government would apply a tax rate of (say) 30 per cent (the corporate tax rate) to funds with balances over a certain threshold.  

The threshold could be set at the pension transfer cap or a higher amount, for example, $3.4 million (double the $1.7m balance cap).  

The advantage of increasing the tax rate over imposing a balance limit is that retirees do not need to liquidate assets at inconvenient times to meet the change.  

Regardless, funds would need ample time to restructure their affairs.  

The question is: How do everyday retirees feel about this?  

Is it fair? Does it go far enough?  

We would love to hear your thoughts by completing this simple poll below.