Australians who have accumulated the most under the country’s superannuation system could soon have their tax privileges removed under new proposals.

A discussion paper on possible tax reform for those with high superannuation (pension saving) accounts questions whether the current system should continue funding those with "very high balances".

The target of the suggested changes are Australia’s self-managed superannuation fund (SMSF) members. The report, issued by the Association of Superannuation Funds of Australia (ASFA), says there are 24,000 people with balances in excess of $2 million who have received a total of around $5.2 billion in tax-free income payments, or an average of $216,000 per person.

This compares with the 232,000 SMSF members with balances of less than $1 million who received a total of $8.9 billion, or an average of around $38,000.

SMSFs are funds established for a small number of individuals (limited to four) and regulated by the Australian Taxation Office (ATO). According to the latest figures from the ATO, the SMSF sector was the largest sector of the Australian super industry, with 99% of the number of funds (over 500,000) and 31% of the $1.6 trillion in total super assets, as at June 30, 2013.

Data on the level of account balances and income stream payments is not available for members who have their superannuation in pooled vehicles.

Pauline Vamos, CEO of ASFA, says it is appropriate for the super community to start questioning whether it should fund growing tax concessions on very high balances.

"The superannuation system was set up to provide people with additional income to live a better lifestyle in retirement [over and above] the Age Pension. Once a person has built up enough superannuation savings that will enable them to achieve a fairly high standard of living, it's appropriate to question whether taxpayers should fund incentives to build wealth beyond this.

“Above this level, the opportunity for people to use the concessionally taxed super system for estate planning purposes increases.

"It is therefore appropriate to question whether or not the same tax concessions that are applied to lower balances should equally be applied to individuals with very high levels of super," said Vamos.

"It also poses problems when it comes to inter-generational equity, and whether it is fair for younger generations of taxpayers to be funding the tax concessions of older high-net-worth individuals."

Vamos says there are a number of policies the government could implement, including lifetime caps on concessional and non-concessional contributions and different tax treatment of high-balance accounts.

She said there is growing support for changes to the taxation of high balances. "Measures like these would help to ensure people are using the superannuation system for its intended purpose, while also relieving some pressure on the federal budget.”

The key findings of the research include:

  • Around 210,000 Australians have superannuation account balances in excess of $1 million, with around 70,000 in excess of $2.5 million
  • 475 individuals have an account balance in excess of $10 million, receiving an average tax free income stream of $1.5 million annually
  • 24,000 retired self-managed superannuation fund (SMSF) members have balances of more than $2 million, and receive an average income stream of $216,000 per year tax free
  • In contrast, around 232,000 members with balances of less than $1 million received an average income of around $38,000.