The Federal Government should hold firm to its $1.6 million pension phase cap and proceed with caution on others, according to superannuation research group, SuperRatings.
The Government proposed three key changes in the Budget:
- a $1.6 million pension phase cap
- a $500,000 retrospective lifetime cap on non-concessional contributions
- the concessional contribution to be reduced to an annual limit of $25,000.
SuperRatings believes that the best interests of Australians would be served by implementing the $1.6 million pension phase cap, removing the retrospective aspect of the $500,000 lifetime cap on non-concessional contributions and scrapping the change to the annual concessional contribution limit.
According to SuperRatings founder and chairman Jeff Bresnahan, the $1.6 million pension cap is the least controversial and most common sense change of the three proposed.
“Any politician who votes against implementing a $1.6 million superannuation cap would surely be committing political suicide. Even worse would be a Coalition member who would consider crossing the floor on this part of the legislation,” said Mr Bresnahan.
Mr Bresnahan believes the current rules are unfair and that only the extremely wealthy will be affected by the superannuation cap change.
“Even after the change, an Australian couple with $3 million in super and $2 million in cash will not be liable to pay one cent in tax. Similarly, an individual with $1.6 million in super and $1.1 million in cash will also not be liable for tax. When one considers that even savings in excess of these amounts will still only then be concessionally taxed, that’s one hell of a standard of living,” he said.
The $500,000 retrospective lifetime cap on non-concessional contributions is a change that SuperRatings believes requires a cautionary approach.
It makes sense to introduce the proposed changes to prevent a small minority of ultra-wealthy individuals from continuing to stash away money in a highly concessional taxed environment. But as SuperRatings points out, we need to be careful about introducing the first-ever retrospective legislative change into the superannuation industry, as it may mean that nothing is sacred going forward.
“It would be far more logical and palatable to voters for the cap to be introduced with effect from the Budget date. Any Government that sets a precedent of retrospectivity in superannuation is asking for trouble,” said Mr Bresnahan.
The changes limiting annual concessional contributions to just $25,000 is the least thought-out proposal, according to SuperRatings. For the average Australian, the ability to contribute extra amounts of superannuation only comes after the mortgage is paid and children have finished school and moved out of home. SuperRatings believes that this change would be counter-productive, inequitable and would ignore the fact that people who are now approaching retirement have only worked for half their lives.
“Compulsory superannuation was brought in to enable as many people as possible to be self-sufficient in retirement. To limit their ability to reach an acceptable level of savings is ludicrous. Those last 15 years of work are for many the only time they are able to fast track contributions to build up their nest egg and should be encouraged, not restricted. This is particularly relevant for those currently aged over 50, most of whom haven’t enjoyed the benefit of full superannuation throughout their working lives and are only now reaching a time in their lives when they can afford to make additional contributions. If the Government is going to set a limit, then at least enable everyone to get close to it, not just those starting out,” said Mr Bresnahan.
Do you agree with Mr Bresnahan’s assessment of the proposed super changes?