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Mercer proposes $3.4m balance cap to improve fairness in super system

4 minute read

A super balance cap is among five recommendations made by Mercer.

Mercer has urged the federal government to introduce a maximum superannuation benefit at age 70 of $3.4 million and undertake a number of other key changes to help improve the effectiveness of Australia’s super tax system.

The proposed changes, which are laid out in Mercer’s pre-budget submission to the government, seek to address inequity in a system that currently has an inherent bias towards high-income earners, according to the firm’s senior partner David Knox.

“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,” he 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.”

Mercer noted that it has called for a review of current super tax arrangements in order to make the system fairer, particularly for lower-income earners and women.

Among the firm’s proposed changes are paying super guarantee contributions on all government-paid parental leave and extending the Low Income Superannuation Tax Offset (LISTO) so that it fully compensates individuals earning up to $45,000 for the tax paid on their super contributions.

Along with the $3.4 million super balance cap, which is equal to twice the current transfer balance cap, Mercer has also recommended reducing the Division 293 tax threshold for high-income earners from $250,000 to $225,000 and requiring that all super benefits be subject to minimum drawdown rules beginning at age 70.

“The Retirement Income Review observed that certain tax concessions are not cost-effective. The implication is clear,” said Dr Knox.

“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.”

According to Mercer, the net result of its proposals would be a fairer super system and a reduced gender super gap, with no material impact on the overall budget outcome.

While paying the super guarantee on government-paid parental leave and the extension of the LISTO are estimated to negatively impact the budget by around $360 million and $520 million, respectively, this would be offset by the revenue gained by the changes to Division 293 ($220 million) and the introduction of the $3.4 million super balance cap ($700 million).

“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 concluded.

Minister for Financial Services, Stephen Jones, recently indicated that super funds with very high balances, particularly those in the tens of millions of dollars, may not meet the government’s view of the objective of super: “to provide retirement income for Australians”.

Jon Bragg

Jon Bragg

Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.