Mercer calls for super tax reform, proposes $3.4 million superannuation cap 

Australia, February 6, 2023

In its pre-Budget submission to government, Mercer has called for a review of the current superannuation tax arrangements in order to make the system fairer – in particular, for lower-income earners and women.

Mercer has proposed five recommendations aimed at improving the effectiveness of the super tax system, and according to Senior Partner, Dr David Knox, which seek to address inequity in a system that has an inherent bias towards high-income earners.

“The objective of Australia’s retirement income system, encompassing both the Age Pension and superannuation, should enable most retired Australians to maintain their pre-retirement standard of living. And yet, the taxation of superannuation in Australia is complex and inequitable, and the current legislation serves to benefit those who need it least; that is, high-income earners,” Dr Knox said.

“We need to find a sustainable and Budget-neutral way forward so that more Australians, and especially lower-income earners and women, can enjoy a better and financially-secure life in retirement.”

The proposed changes include:

1. Paying Superannuation Guarantee (SG) contributions on all Government-paid parental leave funded by reduced super tax concessions;
2. Extending the Low Income Superannuation Tax Offset (LISTO) so that it fully compensates those earning up to $45,000 for the tax paid on their concessional superannuation contributions;
3. Reducing the Division 293 tax threshold applicable to high income earners from $250,000 to $225,000;
4. Introducing a maximum superannuation benefit at age 70 of $3.4 million (equal to twice the Transfer Balance Cap); and
5. Requiring all superannuation benefits to be subject to minimum drawdown rules from age 70.

“The Retirement Income Review observed that certain tax concessions are not cost-effective. The implication is clear. The introduction of some form of benefits cap would limit the significant concessions received by those with very large balances, and as a result, help create more equitable outcomes,” Dr Knox said.

And, according to Dr Knox, Mercer’s recommendations would go towards improving the super tax system now and into the future.

“The proposed changes address critical and systemic issues in ways that have little to no impact on the Budget, while seeking to improve the system over the long term. We can and should do better than the current arrangements,” Dr Knox said.

Read Mercer’s paper on A fairer tax system for super.