The figure of $2.5 million is becoming a popular number in the debate around superannuation and tax.

The Association of Superannuation Funds of Australia (ASFA) has argued for a number of years that there should be a lifetime cap on the amount of super that should attract tax concessions.

In its submission to the Government's latest tax inquiry, ASFA has put a figure on that - $2.5 million.

ASFA has been supported by, amongst others, BT Funds Management, AMP and the Actuaries Institute of Australia, who all agree that $2.5 million is the way to go.

The generosity of the superannuation system to the wealthy is well documented, so there is no need to go over old ground here.

Suffice it to say that ASFA's view is that for many wealthy people super has become estate planning rather than retirement planning.

Although the upper pre-tax contribution limit to super is $35,000 per year, it is possible to put $540,000 in after-tax contributions into super in one hit. Time it right and you can add another $180,000 very shortly afterwards.

And then there's self-managed superannuation funds, where all sorts of assets can be tipped in.

The bottom line is that many people can get much more into the tax advantaged superannuation system than they will ever need to live on in retirement.

One self-funded retiree told me he had $9 million in his fund.

At a 5 per cent return a year, that's $450,000, tax free.

Caps on the tax-free benefits from superannuation are nothing new.

Until they were abolished by the Howard Government in 2007 there was what used to be known as the 'reasonable benefit limit'.

Under that system, pension balances of more than $1.4 million and lump sums of more than $678,000 were taxed at your marginal rate.

Which brings us back to the current debate and the question at the start of this article?

Is $2.5 million still too generous?

A simple example may provide the answer.

A $2.5 million superannuation fund may look like this:

Pre tax contributions (23 years at an average of $10,000 pa)* = $230,000

Pre tax contributions (23 years at an average of $10,000 pa)* = $230,000 After tax contributions = $1,000,000

After tax contributions = $1,000,000 Fund earnings = $1,270,000

Fund earnings = $1,270,000 Total balance at retirement = $2,500,000

* Compulsory superannuation started in 1992

If at age 65 the person took a pension of $200,000 a year that pension would be tax free.

That's a tax saving of more than $32,000 (the tax on $120,000, because the after tax contributions represent 40 per cent of the fund).

A person relying solely on the age pension receives a maximum payment of $22,365 from the Federal Government.

That means the wealthy person gets nearly $10,000 more from the public purse, and that's just over one year.

At 65 a man can currently expect to live for another 19 years, so our wealthy superannuant would get more than $600,000 in tax savings and $190,000 more in Government help than the pensioner.

Women can expect to live three years longer.

If the super fund earns more in a year than the pension taken out, there's another tax free benefit.

A cap on superannuation tax breaks is a step in the right direction, but the question remains, is $2.5m the right figure?

Author's note to financial planners and tax experts: The taxation of superannuation is very complex. I have deliberately tried to simplify this so we can all understand but am confident my simplification has not altered the correctness of the arguments.