Report calls on overhaul of current superannuation system with simpler tax rules
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Navigating Australia's superannuation system can be as complex as a game of chess where the rules keep changing.
But what if there was a way to simplify the game, making it fairer for all players involved, from the hardworking employees to the retirees looking forward to their golden years?
Well, it turns out there might just be a strategy on the horizon that could save companies $1 billion in operational costs annually.
The Actuaries Institute has put forth a bold proposal that could revolutionise the current superannuation system.
Their report, crafted by actuaries Richard Dunn, Michael Rice, Jennifer Shaw, and Alun Stevens, suggests a trio of major changes aimed at meaningful tax reform within the $4.1 trillion superannuation industry.
Firstly, the report proposes a uniform tax rate of 10 per cent on all superannuation. This is a significant shift from the current system, where employees pay a 15 per cent tax during the accumulation phase but enjoy a tax-free status in retirement.
‘This would enable a simpler system where people could have just one super account, build stronger balances from when they begin working and save money on fees,’ Actuaries Institute Chief Executive Elayne Grace said.
The second change targets how taxes are levied on retirees who withdraw substantial amounts from their super.
The current loophole allows individuals to take out large sums before claiming the aged pension, but the proposed reform would introduce thresholds for taxing high withdrawals.
‘The thresholds could be set at high levels, such as $250,000 and $150,000 per annum, respectively, with compensation for any retirees adversely impacted provided through adjustments to the age pension, for example,’ the report said.
‘These changes would encourage retirees to use their superannuation in retirement.’
Moreover, the report suggested a fairer tax on bequests. The age at which the 17 per cent rate is applied would be raised from 60 to 67, with the tax-free threshold varying depending on whether the beneficiary is a dependent or non-dependent.
According to report author Jennifer Shaw, the changes, especially the tax on large benefits, aligned with the proposed objective of super: ‘To preserve savings to deliver income for a dignified retirement’.
‘They would leave the system largely unchanged for most retirees and still allow people to make large withdrawals for their immediate needs, for example paying off a mortgage or healthcare,’ Shaw said.
Lastly, the authors recommend abolishing the distinction between the tax treatments for concessional (tax-deductible) and non-concessional contributions once they are invested in a super fund.
This would further simplify the system and encourage the use of super for retirement spending rather than as a means to accumulate tax-free bequests.
‘We have a superannuation system that’s working, but it’s one of the most complex in the world,’ report author Richard Dunn said.
‘Our proposals make super simpler for consumers and funds while improving equity across the system. Further, the reforms encourage people to spend their super by removing the attraction of using super to accumulate tax-free bequests.’
What are your thoughts on these proposed changes? Do you believe they will make the superannuation system more equitable and less complicated? Share your insights and join the conversation below.
But what if there was a way to simplify the game, making it fairer for all players involved, from the hardworking employees to the retirees looking forward to their golden years?
Well, it turns out there might just be a strategy on the horizon that could save companies $1 billion in operational costs annually.
The Actuaries Institute has put forth a bold proposal that could revolutionise the current superannuation system.
Their report, crafted by actuaries Richard Dunn, Michael Rice, Jennifer Shaw, and Alun Stevens, suggests a trio of major changes aimed at meaningful tax reform within the $4.1 trillion superannuation industry.
A report proposed simple tax rules on the current superannuation system. Credit: RomanR / Shutterstock
Firstly, the report proposes a uniform tax rate of 10 per cent on all superannuation. This is a significant shift from the current system, where employees pay a 15 per cent tax during the accumulation phase but enjoy a tax-free status in retirement.
‘This would enable a simpler system where people could have just one super account, build stronger balances from when they begin working and save money on fees,’ Actuaries Institute Chief Executive Elayne Grace said.
The second change targets how taxes are levied on retirees who withdraw substantial amounts from their super.
The current loophole allows individuals to take out large sums before claiming the aged pension, but the proposed reform would introduce thresholds for taxing high withdrawals.
‘The thresholds could be set at high levels, such as $250,000 and $150,000 per annum, respectively, with compensation for any retirees adversely impacted provided through adjustments to the age pension, for example,’ the report said.
‘These changes would encourage retirees to use their superannuation in retirement.’
Moreover, the report suggested a fairer tax on bequests. The age at which the 17 per cent rate is applied would be raised from 60 to 67, with the tax-free threshold varying depending on whether the beneficiary is a dependent or non-dependent.
According to report author Jennifer Shaw, the changes, especially the tax on large benefits, aligned with the proposed objective of super: ‘To preserve savings to deliver income for a dignified retirement’.
‘They would leave the system largely unchanged for most retirees and still allow people to make large withdrawals for their immediate needs, for example paying off a mortgage or healthcare,’ Shaw said.
Lastly, the authors recommend abolishing the distinction between the tax treatments for concessional (tax-deductible) and non-concessional contributions once they are invested in a super fund.
This would further simplify the system and encourage the use of super for retirement spending rather than as a means to accumulate tax-free bequests.
‘We have a superannuation system that’s working, but it’s one of the most complex in the world,’ report author Richard Dunn said.
‘Our proposals make super simpler for consumers and funds while improving equity across the system. Further, the reforms encourage people to spend their super by removing the attraction of using super to accumulate tax-free bequests.’
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