Super system in need of major tax shake-up, says Actuaries Institute
The professional body has outlined a three-pronged tax reform package to make superannuation less complex, more equitable and sustainable.
The Actuaries Institute has released a paper outlining a range of tax proposals for improving the superannuation system, including applying a uniform tax on earnings across all accumulation and retirement accounts.
The paper suggests that the existing system of a 15 per cent tax paid on superannuation earnings in the accumulation phase, with zero tax paid by retirees, could be replaced by a uniform tax of about 10 per cent.
It also proposes introducing a tax on very high withdrawals in retirement and simplifying current tax rules for bequests.
One way this could be achieved by applying a tax on retirement income benefits once the amount received exceeds $150,000 to $190,000 a year or the highest marginal tax bracket, the paper said.
There could also be a tax applied on lump sum payments in aggregate over the period from age 60 to age 70 over the amount of $250,000, it said.
The excess of payments above these thresholds would be added to personal assessable income.
It is also calling for a 17 per cent tax on all death benefits after age 67 above a threshold of around $500,000, paid to any beneficiary who is not a spouse or other dependant.
For example, a higher tax-free threshold of $2 million could be applied to benefits paid to a spouse or other dependants, the Actuaries Institute said.
The other proposal involves applying the same tax treatment to concessional and non-concessional contributions once invested in a fund.
This would mean the distinction between concessional and non-concessional superannuation contributions would be removed once made to the fund.
The Actuaries Institute said the changes would simplify how superannuation is invested and allow consumers to have just one account.
It also argued that it would improve efficiency by actively encouraging retirees to draw down their superannuation to fund their retirement.
Actuaries Institute chief executive Elayne Grace said the paper was commissioned to help stimulate debate about meaningful tax reform in Australia’s $4.1 trillion superannuation system.
“The authors have proposed well-considered and holistic reforms. While views on superannuation tax reform vary widely, we welcome constructive debate about ways to improve equity within the system and deliver better value,” Grace said.
Actuary Richard Dunn said while the superannuation system is working, it is one of the most complex in the world.
“Our proposals make super simpler for consumers and funds while improving equity across the system," Dunn said.
"Further, the reforms encourage people to spend their super by removing the attraction of using super to accumulate tax-free bequests.”
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