Home / News / Mercer’s wish list for a ‘fairer and simpler’ super system

Mercer has proposed a slew of tax changes to address the super system’s “inherent bias towards high income earners” and reduce the gender pension gap.

Under Mercer’s proposed changes, individuals with balances over $5 million would be required to reduce their balance to that amount and those over the age of 75 would be required to draw down their super assets at a minimum rate equal to the minimum draw down rules that apply to account-based super income streams.

“Currently, there is no requirement for individuals to draw down their super assets during retirement, outside of what’s placed in a tax-exempt pension product, capped at $1.7 million,” said Mercer senior partner Dr David Knox. “This means that most of the investment income from these assets is subject to just 15 per cent tax. That’s less than the lowest personal income tax rate,”

Mercer also called for a government superannuation contribution of $4200 for primary caregivers following the birth of a child to address the gender gap in superannuation – a figure that equates to 10.5 per cent of the minimum annual wage (currently $40,175). For an individual who cared for two children at the age of 30, the contribution would increase their retirement benefit by approximately $25,000.

“Almost every year, the super tax system is tinkered with, and still, issues of inequity persist,” Knox said. “It’s time to fix the problems for a fairer and simpler system, once and for all, and strengthen community confidence in superannuation for the long term.”

Mercer also wants a concession of 15-20 per cent on all concessional contributions and the application of a tax rate of 15 per cent (10 per cent on realised capital gains) on all investment income received by super funds

“We know that the biggest beneficiaries of the current super tax concessions are in fact those that need it the least – high-income earners,” Knox said. “And while there has been no shortage of commentary that lower-income earners need greater concessions, we must find a way for reforms to be financially sustainable and place no added financial strain on the federal budget.

“The level of concessions in super isn’t what needs to change. The distribution of it, however, is.”

In a pre-budget submission, the Australian Institute of Superannuation Trustees (AIST) also called for a $5 million cap on super balances

“The current level of lifetime government support provided through the retirement income system is heavily weighted towards those in higher income brackets,” the AIST wrote. “Given that this cohort has a greater capacity to support themselves in retirement it is not only an inequitable situation but also unsustainable as the population of Australia ages.”

“This observation was also made in the Retirement Income Review, which noted that there are over 11,000 Australians with more than $5 million in superannuation.”