Imposing higher taxes on taking lump sums from superannuation will encourage members approaching retirement to opt for income streams, the Association of Superannuation Funds of Australia (ASFA) has said in a new whitepaper.
Announcing it at its annual budget luncheon, ASFA said the whitepaper aims to provide a process which supports an informed conversation about whether the system should be adjusted in light of demographic and economic changes within Australia.
“We are not advocating a revolutionary new retirement system – we are proposing that there be consultation on the nature of the evolution of the system given the changing nature of the Australian demographics and the economy,” it said.
“The core of the system was designed when the proportion of older people in the Australian community was not very high and the average life expectancy was much lower than it is today. In essence the system was designed to provide a retirement income for people who lived into their 70s not into their 90s.”
ASFA proposes removing withdrawal tax on any income stream members derive from their superannuation fund and increasing tax to a suggested rate of 15% for lump sums below a certain threshold during the transition to retirement phase,
with no tax paid in retirement. It suggests lump sum withdrawals above a certain tax threshold be taxed at 30% during the transition phase and 15% in the retirement phase.
The industry body has asked for feedback from professionals, members and stakeholders within the entire superannuation system and has explicitly asked for super to be de-politicised.
“In the current environment any changes to superannuation taxation will be difficult to implement and this proposal is not for tomorrow,” ASFA chief executive Pauline Vamos said.
“We’re not calling for income streams to be mandatory, but with the longevity crisis Australia faces we’ve got to use a carrot and stick approach to encourage members to opt for income streams.”
Written by Mark Smith of the Financial Standard.