The Retirement Income Review has labelled the superannuation taxation system as "flat" and less progressive than the individual income tax system.
The review noted that most people pay less tax when they chose to save through their superannuation compared with other savings vehicles.
"This is because, even after the reforms of the last 10 years, the superannuation tax system has a relatively flat structure, while the individual income tax system is progressive," it said.
The review said very high income earners have lowered their tax advantage through Division 239 in which those with incomes over $250,000 receive a 17% tax concession on contributions above the threshold.
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For those whose income is below the effective tax-free threshold of $21,884, the low income super tax offset removes the tax penalty on contributions, ensuring the tax on contributions is zero but does not create a tax advantage.
Super earnings are taxed at 15% in the pre-retirement phase but are tax-free in the retirement phase.
Essentially, the RIR found that those with higher annual incomes receive larger tax advantages on superannuation earnings.
"Over their lifetime, cameo modelling shows higher-income earners receive more superannuation tax concessions than lower-income earners as a percentage of superannuation contributions," it said.
"Several stakeholders suggested superannuation savings should be taxed more progressively. Some focused on equalising the tax advantage of superannuation contributions."
The RIR said if this is achieved, less superannuation contributions tax concessions would be received by higher-income earners.
However, the RIR said, even if the tax advantage was equalised, higher-income earners would continue to receive larger lifetime contributions tax concessions than lower-income earners because on they tend to make larger contributions.
"A few stakeholders also proposed reducing the tax advantage on superannuation earnings for people on higher incomes," it said.
"But, given the way this tax is administered, options to equalise the tax advantage on superannuation earnings would pose a number of challenges. This is because superannuation funds currently administer superannuation earnings tax, but the ATO holds information about people's marginal tax rates."
Removing barriers to young people being able to enter the housing market would be a better approach than using superannuation for a housing deposit, according to the chair of retirement income at Challenger, Jeremy Cooper.
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Invest Unlisted founder and chief executive Nicole Connolly loves to run, and when she's not training for a marathon she is running her own business, the Invest Unlisted Core Infrastructure Fund (formerly IPIF). Eliza Bavin writes.