ASFA stated that one of the ways equity across the system can be improved is through the removal of the indexation of the transfer balance cap and removing balances above $5 million from the concessionally taxed superannuation system.

“Superannuation is about ensuring people have adequate income in retirement, it is not about facilitating excessive wealth transfers,” said ASFA chief executive Martin Fahy.

ASFA said it is concerned that when the SMSF transfer balance cap (TBC) is indexed on 1 July 2021 from $1.6 million to $1.7 million, it will cause confusion for members as every individual will have their own TBC between this range, which aligns with calls from other industry bodies.

“The Retirement Income Review Report raised concerns over equity of the system, while ASFA considers that wholesale changes to the system are unwarranted, we consider that there is an opportunity for modest changes to ensure the system remains fair and efficient. In this regard, the transfer balance cap (TBC) is due to be indexed for the first time with effect from 1 July 2021, increasing from $1.6 million to $1.7 million,” ASFA stated.

“This will be confusing for fund members and will raise a number of issues in how the change is communicated to members and administered.

“Given the complexity of having multiple TBCs and to ensure the system remains equitable, indexation of the cap could be removed. This decision could be reviewed after the SG has reached 12 per cent in 2025.”

Another concern from ASFA is in relation to the effects on the sustainability of tax concessions within superannuation enjoyed in relation to investment earnings for high-balance members. 

“This tax concession can be substantial for large accounts. The RIR Report observed that there are at least 11,000 superannuation fund members with balances within superannuation of over $5 million,” ASFA said.

“While the current caps on superannuation contributions limit the ability for members to build up excessive balances in the future, there is a real question regarding the appropriate treatment of high balances that were achieved in the context of more generous contribution caps in the past.”

ASFA said that the transfer balance cap regime limits the amount a member may take into the pension phase. However, “excessive” balances may still be present in accumulation accounts and therefore subject to a tax concession of up to 30 per cent of the tax on earnings (that is, 45 per cent personal tax rate less 15 per cent tax on fund earnings). 

ASFA has proposed that those superannuation fund members aged 65 or over with total super balances exceeding $5 million on 1 July 2022 would be required to withdraw the excess from superannuation. 

“Going forward, the withdrawal requirement would be applied to a member’s excess balance as they reach age 65,” ASFA said.

“The need to remove excess balances from superannuation may have liquidity implications for some small funds with large, illiquid assets such as property.

“These impacts would be mitigated by having a start date for the measure of 1 July 2022 and allowing, as a transitional measure, excess balances to be retained within affected self-managed or small APRA funds but subject to tax on the earnings at the top marginal rate.”