The perennial question of how much tax concessions high earners should receive for superannuation is to be addressed in the discussion paper issued on Monday. One solution likely to be aired is the feasibility of a lifetime limit, such as $3 million, on superannuation balances.
In its favour, a cap, a figure that would be adjusted for inflation, could be easily communicated and would be unlikely to be misunderstood, unlike the current system that is clouded by differing tax rates, the annual contributions limit and the need to get an accountant to explain it all. It would serve as an aspirational savings target too.
One of the best arguments for this would appear to lie in the Henry Review of tax from 2009. “Personal tax compliance has become inordinately complex, and complexity hides its policy intent from citizens,” cites the review. “An opportunity exists to greatly simplify personal tax, to make its policy more transparent…”
There are, of course, many arguments against a cap or limit. Political risk is the greatest; the UK has recently cut its lifetime allowance from £1.25 million to £1 million (it is estimated that 4 per cent of savers will be impacted) amid great uproar. Not just from those close to the limit, but from those who have to administer a volatile lifetime allowance.
Another argument is that if retirement income depends to an extent on interest rates, those who retire during a time of low interest rates will be penalised more than those who retire in times of higher interest rates.
The limit in a roundabout way could also be said to penalise outrageously successful investment strategies that reach the cap quickly.
It is my sneaking suspicion that the whole debate is clouded by the experts at the top of the system.
Many are likely to be personally impacted and dare I say it, it is noticeable that when they talk on this topic their logic becomes muddy and convoluted, when it is normally as sharp as a diamond. It is as if they seek to wear down the will of politicians by diverting them away from this issue to other more easy-to-understand policy wins.