The superannuation tax regime needs to be changed to ensure that those with broken work patterns can catch up, according to the Association of Superannuation Funds of Australia (ASFA).
ASFA has made the objective clear in a response submission to the Treasury to the Tax Discussion Paper in which it has defended much of the current concessional tax regime for superannuation but acknowledged that it is open to manipulation by a small number of wealthier individuals.
“While the vast majority of members do and will use the system for its intended purpose as their account balances are not high, a small minority of people have amassed amounts that the system was not designed to fully fund and, unless the system design is changed slightly, then an even greater proportion will fall into this category in the future,” the submission said.
It said it was for this reason that ASFA was recommending a limit of $2.5 million be placed on the superannuation funds an individual could rollover to commence an income stream in retirement.
“This could be implemented by requiring that amounts above this ceiling remain in the accumulation phase and continue to attract the nominal earnings tax of 15 per cent or be removed from the superannuation system,” the response said.
“Non-concessional contributions should also be capped at $1 million over a lifetime to prevent very large balances from accruing in the future as an integrity measure to complement the $2.5 million capital cap.”
It claimed these two measures would assist the superannuation system to deliver on its objective to remain broadly equitable and sustainable within the tax system.
The submission said to better deliver on adequacy concessional contribution caps should be changed in such a way that individuals with broken work patterns were able to make sufficient contributions.
“Providing flexibility in the system so that those with broken work patterns can catch up is a change that needs to be considered to improve the ability of the superannuation system to deliver a level of income in retirement,” ASFA chief executive, Pauline Vamos said in an accompanying media release.
She said that, via this, the majority of Australians would have a chance to live comfortably when they were no longer working full time.
