The Federal Government has been told it should consider changing the Transition To Retirement (TTR) pension arrangements introduced by former Federal Liberal Treasurer, Peter Costello, because they unduly favour high income earners.
The call has been made by leading actuarial consultancy, Rice Warner, in a pre-Budget submission which suggests that the TTR arrangements need to be addressed, even though they were originally intended to help middle-come Australian catch up their superannuation later in their working lives.
Elsewhere in its pre-Budget submission, Rice Warner also suggests imposing a lifetime cap on non-concessional contributions of $500,000 which points out would be a considerable reduction from the current allowance of $180,000 a year.
As well, the actuarial consultancy argues for a reduction in the current level of minimum withdrawal values by 25 per cent to 50 per cent to allow members to defer drawdowns during periods of market downturns.
It said deferral of withdrawals would assist the retirement benefit to last for a longer period during retirement.
The pre-Budget submission also calls for a change to the tax rate payable on the death of a pensioner (without dependants) to be a flat 15 per cent plus Medicare giving 17 per cent in total, arguing that this would eliminate re-contribution strategies which simply avoid tax.
The submission also suggests that, as part of a broader tax package, the Government could consider having a uniform tax rate on the earnings of accumulation and pension accounts with a rate of about 10.5 per cent providing revenue neutrality.
The submission said Rice Warner was recommending a rate of 12 per cent which would help workers to grow their benefits faster from a lower tax rate than the current 15 per cent.
Why should assets backing an income stream be taxed on their earnings (at 10.5% per the article above)?
A person with a $200,000 super balance getting a 5% return would end up paying $1,050 tax on their super. Do we really want to encourage them to cash-in their super and put it in the bank where their earnings would fall within the tax-exempt threshold?