The Albanese government has left the door open for a cap on super balances amid claims that many are using super as a wealth creation tool.
In response to a suggested $5 million cap on balances, financial services minister Stephen Jones said: “If you’ve got massive retirement balances in a superannuation fund, it’s pretty hard to argue that that’s for retirement income.”
Super Consumers Australia’s director Xavier O’Halloran also says a $5 million cap would be appropriate.
“We’re seeing people passing away with about 90 per cent of their retirement savings still intact. So this is beyond saving for retirement and more into creating quite significant wealth inequality for a certain portion of the population,” he said.
Call for a cap on super has been growing for some time
In a pre-budget submission last year, the Australian Super Funds Association (ASFA) recommended that “those members aged 65 or older with a total superannuation balance as at 1 July 2022 in excess of $5 million, whether in accumulation, pension phase or a combination, could be required to withdraw the excess out of superannuation.”
The Morrison government did not heed that recommendation. The Albanese government has not ruled out such a move, but it, too, is yet to act. Jim Chalmers’ first Budget made a number of announcements that will affect super members. A cap was not among them.
Many believe it’s past time for a cap, including some retirees who will lose out.
Nigel and Lyn Rickman live a comfortable retirement on a small farm in regional Queensland. Much of their comfort derived from $65,000-a-year earnings on their self-managed super.
Under current rules, not one cent of that $65,000 is taxed. Nigel Rickman appreciates the advantages he and Lyn receive.
“The present system is favouring us and those above us greatly,” said Mr Rickman. “Clearly, the government needs to provide services to all the people and why should we get a free run?”
Mr O’Halloran believes greater equity could be achieved through a cap, or with a progressive taxation scheme.
Not everyone shares this view. Financial Services Council CEO Blake Briggs says any such changes would undermine confidence in super.
A cap on super may be very attractive to a government searching for savings
According to a model prepared by Delta Pearl Partners, the government could raise $8.5 billion a year with the introduction of a $5 million cap, along with reducing the $27,500 concessional contribution cap to $15,000, lowering the division 293 tax threshold from $250,000 to $200,000, and applying a flat tax of 15 per cent on all retirement earnings.
For now, though, the status quo remains, as Labor’s October Budget is very much a “bread and butter budget”, as described by Dr Chalmers himself, focused on driving down inflation. Would you support a cap on super balances? How would it affect you? Why not share your thoughts in the comments section below?