“Individuals with very large superannuation balances are able to benefit from tax concessions on funds that are likely to be used for purposes other than providing retirement income, such as tax-effective wealth management and estate planning,” the report stated.

“As a result, the majority of tax concessions accrue to the top 20 per cent of income earners. These tax concessions are unlikely to reduce future age pension expenditure significantly.”

The FSI outlined options it considered, including aligning the earnings tax rate between the accumulation and retirement phases.

“We think that from an adequacy point of view, that with most people not having enough to be able to provide a reasonable amount for retirement, the zero tax in pension phase is one of the benefits they get out of that. It helps their adequacy in retirement,” the SMSF Professionals’ Association of Australia’s Graeme Colley told SMSF Adviser.

“That’s why we wouldn’t support that, but there may be other offsets that the government brings in as part of it.”

The FSI also highlighted the option of reducing the non-concessional contribution cap and to “better target” superannuation contribution tax concessions.

“Tightening the non-concessional contribution cap — currently $540,000 over three years — would help to target the tax concessions for superannuation contributions better by reducing the extent to which individuals could accrue very large balances in the system in the future,” the report stated.

“The administrative and compliance costs would be relatively low. However, it would reduce individuals’ flexibility to save for their retirement at different times of their life and could adversely affect individuals with broken work patterns.”

Another option the FSI considered is to levy additional earnings tax on superannuation account balances above a certain limit.

“This option imposes a higher rate of earnings tax on individuals with superannuation balances in excess of a certain limit,” the report stated.

“It would target superannuation tax concessions to achieve the objectives of the system and reduce costs to taxpayers. It would also facilitate the removal of the non-concessional contribution cap.”

However, the FSI noted similar policy proposals in the past have not succeeded due to their complexity and high cost of implementation.