Govt bows to pressure on $500k cap

Due to internal pressures, the government has changed its stance.

16-Sep-2016

By Daniel Paperny

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The government has admitted it erred on its proposed superannuation reforms, having met persistent criticism over the retrospectivity of its $500,000 lifetime cap on non-concessional superannuation contributions since it was first announced in its budget package in May.

In a radio interview yesterday, Minister for Revenue and Financial Services Kelly O’Dwyer revealed the government was no longer proceeding with the cap as it bowed to internal opposition.

The government had come to the decision, O’Dwyer said, to make Australia’s super system “fairer [and] more sustainable” over the long term, ensuring those making large contributions to super later in life would still have time to adequately fund their retirement.

“We don’t want to provide a handbrake on those people who want to be able to make contributions to prepare for their retirement,” she said.

“We think it’s important they be given every opportunity to do that and that is why we have made these refinements.”

However, by the government’s own admission in its announcement yesterday, scrapping the lifetime cap proposal would cost $400 million in budget revenue over the forward estimates.

According to Treasurer Scott Morrison, under the new proposal individuals with a super balance of more than $1.6 million would no longer be eligible to make non-concessional contributions from 1 July 2017.

The Association of Superannuation Funds of Australia’s interim chief executive Jim Minto welcomed the changes, saying the $1.6 million restriction would provide a healthy balance between retirement income adequacy and ensuring the level of tax concessions was sustainable in the future.

“The primary role of superannuation is to provide income in retirement and it should not be used as an estate planning tool,” he said.

“This is the responsible thing to do for the superannuation system and for Australia’s long term fiscal sustainability.”

On catch-up contributions, Morrison announced individuals aged under 65 would continue to be able to bring forward three years’ worth of non-concessional contributions, given the majority of larger contributions were typically less than $200,000 and were often made in lump sums.

This limit would be tied and indexed to the transfer balance cap, he noted.

“This ensures that we focus the entitlement for after tax contributions to those Australians who have an aspiration to maximise their superannuation balances and reach the transfer balance cap in the retirement phase, where a zero tax on earnings applies,” Morrison said.

The Financial Planning Association of Australia (FPA) head of policy and government relations, Benjamin Marshan, said allowing annual contributions of after-tax income to super helped give greater flexibility for Australians to continue to use the bring forward provisions, which was “a step in the right direction”.

“[However], consumers will need to be aware the concessional cap catch-up contributions have been delayed by two years and the work test for those over 65 will remain in place,” Marshan concluded.

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