Reduce super tax, govt told

In its response to the government's Re:think tax discussion paper, the research house recommended a reduction in the taxation of accumulation account earnings from 15 per cent to 12 per cent.

However, Rice Warner also recommended that earnings on pension accounts be taxed at 12 per cent – since they are currently tax-free.

"We consider it sensible to have a single rate of tax across accumulation benefits and superannuation pensions," Rice Warner said.

"The government only taxes accumulation assets which are 70 per cent of superannuation fund assets. "Consequently, it has an effective gross rate of tax of about 10.5 per cent – and the actual rate collected is lower due to allowable deductions such as fund costs and insurance premiums.

"Once pension assets become 40 per cent of all superannuation assets (in about 15 years), the effective gross rate will fall to nine per cent of total superannuation system earnings (and a lower effective rate after deductions).

"We suggest the government consider a 12 per cent rate across all fund earnings rather than 15 per cent since existing assets would also be taxed. We do not recommend grandfathering of existing pensions as this adds complexity and does not overcome current inequity," Rice Warner said.

Because 30 per cent of superannuation assets are in the pension phase, the current 15 per cent tax could be lowered to 10.5 per cent to raise the same amount of revenue, Rice Warner said, adding that a 12 per cent rate would allow the government to reduce taxes elsewhere.

"Twelve per cent is still a highly concessional rate and it still provides considerable advantages for high income earners," the firm said.

"Superannuation funds would want to retain retirement benefits as pensions so the onus would be on them to show that the fund earnings after tax and fees will be better than the return made from money left in a bank. As it is a competitive market, members would have good options either way," the submission said.