Public servants in DB schemes want $3m super tax exemption

Not unlike judges, public servants in defined benefit superannuation funds are arguing that they should not be subject to the Government’s proposed $3 million superannuation tax concession cap.

The Australian Council of Public Sector Retiree Organisations (ACPSRO) has used a submission to the Senate Economics Legislation Committee review of the super cap legislation to argue that because defined benefit pensions do not receive particular concessions they should be excluded from the new arrangements.

“…our view is that Defined Benefit (DB) pensions are not in receipt of the several concessions that apply to funds accumulated under the Superannuation Guarantee (SG) arrangements and therefore should not be included within the ambit of the proposed legislation,” the ACPSRO submission said.

In doing so, it cited a range of reasons including that SG pensions could readily escape the proposed tax by moving some of their assets to other places while defined benefit pensioners “are unable to access any of the virtual asset ascribed to them”.

As well, the ACPSRO argued that: “In retirement mode, the earnings of the first $1.9m of SG assets are tax exempt for a SG pensioner. They are excluded from the SG pensioner’s tax assessment. Every cent of a DB pension contributes to a DB pensioner’s tax assessment”.

“Earnings from SG assets between $1.9m and $3.0m will continue to be taxed at only 15%,and will continue not to be added to any personal income tax assessment. A DB pension, on the other hand, which is assessed under the proposed regulations to be derived from a fund valued towards the top of this range, is likely to have the marginal income taxed at the top marginal rate of 45%.”

“Earnings from SG assets in excess of $3.0m will attract a Div 296 loading of 15% taking the marginal tax rate to 30%. DB pensioners who are assessed to incur the Div 296 loading of 15% will have that loading applied on top of the 45% marginal rate they will almost certainly be facing already; and

“While there are tax exempt elements to some defined benefit income streams, these elements represent the return of a members after tax contributions to the fund during the accumulation phase and do not represent concessional tax arrangements of the kind currently provided by the SG arrangements.”

“Given the current tax treatment of DB pensions, it is clear they are not subject to the tax concessions covered by this legislation. Consequently, we consider that DB pensions should not be included within a scheme designed to recover only a small part of the currently open-ended tax concessions that apply only to the income derived from the SG system,” the ACPSRO submission said.