Mercer superannuation and retirement incomes specialist, David Knox will later this week unveil a four-point tax and super plan based on life-time contribution caps, limiting the balance of account-based pensions to $2.5 million (indexed) and subjecting investment earnings from savings in excess of this to the 15 per cent standard superannuation tax rate.
Knox will outline the approach during this week's Financial Services Council national conference in Cairns in the context of the Government's pending white paper.
Knox argues that the maintenance of tax concessions on superannuation are crucial and a critical part of Australia's three pillar retirement savings system.
According to Mercer's managing director and market leader, David Anderson the system needs to considered holistically "because as sure as day follows night, changes to tax will lead to changes in behaviour and how people save for their retirement".
"Also, we cannot forget increasing tax on super will reduce super savings and would lead to an increase in future social security payments," he said. "We support a fairer system, but it has to be simple to administer or the benefits of any changes will be lost. It also has to look at both the pre and post-retirement phases of our lives."
Mercer's four point tax and super plan includes the following recommendations:
1. Extend Division 293 tax to all those on the top marginal tax rate
The current arrangements apply an additional 15 per cent tax on concessional contributions for people who earn above $300,000. Extending it to everyone on the top marginal tax rate would reduce the concession to those currently earning above $180,000 (but less than $300,000) from 34 per cent to 19 per cent.
2. Improve the Government Low Income Earners Superannuation Contribution
Ensure nobody pays more tax on their concessional contributions than they do on their income and those subject to the 19 per cent marginal tax rate pay no tax on their concessional contributions.
3. Introduce lifetime contribution caps but with a maximum contribution in any year
Maintain current concessional caps with the standard cap continuing to be indexed.
Introduce a lifetime approach to concessional caps — for example a person's annual cap could be increased by half the unused amount from the previous year but with a limit of say three times the annual cap in any single year. A similar approach cap could apply to non-concessional contributions thereby removing the existing complex three year rule. This would limit the cost of the tax concession in any one year while allowing individuals who have started saving late or had interrupted careers to catch up.
4. Limit the amount of assets that can exist in the tax exempt pension phase.
Limit assets in a tax free account-based pension to $2.5 million (indexed) per pensioner. Assets in excess of this amount could be commuted (i.e. paid out) or transferred back into the accumulation section of the superannuation fund and therefore be subject to the normal 15 per cent tax on investment earnings. Special consideration would need to be given to defined benefit pensions and annuities. A five year transition period could also be provided for existing pensions.