The Government has dropped the policy of a $500,000 lifetime non-concessional contributions cap, which was announced in the 2016 Budget.
Update: the Government has released the third tranche of draft superannuation legislation, which includes the lower non-concessional contributions cap of $100,000, preventing non-concessional contributions once super balances reach the Transfer Balance Cap and changes to the bring-forward rule.
The $500,000 lifetime cap policy has proved controversial among some sectors, particularly parts of the Coalition backbench. However dropping the policy is not without a cost.
To offset the Budget impact of dropping the lifetime cap the Government intends to lower the non-concessional contributions cap to $100,000 – it is currently $180,000 – with a three year bring forward. Also people with a superannuation balance of over $1.6 million will, from 1 July 2017, no longer be allowed to make non-concessional contributions. This threshold will be “tied and indexed” to the Transfer Balance Cap.
Additionally the carried-forward concessional contributions cap will be delayed by one year, to 1 July 2018. The Government will also not proceed with a repeal of the ‘work test’ restricting people aged 65-74 from contributing to super.
“These measures make the superannuation system even fairer, even more flexible and even more sustainable,” said Treasurer Scott Morrison.
“Legislation for all measures will be introduced by the end of the year. It is complex legislation. That process, as you know, has already begun. And the usual exposure draft process will be followed for that purpose,” said the Treasurer.
Dropping the $500,000 lifetime cap costs the Budget $400 million over the forward estimates, more than offset by a $180 million saving from keeping the Work Test and $400 million from delaying carried forward concessional contributions, over the same period. Out to 2026/27 the changes save $670 million, including $1,920 million from keeping the Work Test.
It appears the Government may revisit repealing the Work Test in the future. “While the Government remains supportive of the increased flexibility delivered by this measure, it can no longer be supported as part of the this package, without a net cost to the Budget,” said a statement by the Minister for Revenue and Financial Services, Kelly O’Dwyer.
The Labor Party had announced they would support retaining the Work Test, which the Coalition criticised at the time.
“We also think it’s terrible that he’s attacking older Australians. We want people to be able to contribute over a longer period of time, not simply once they hit 65. They should be able to contribute, if they want to, right up to the age of 75. Under our changes, they can do that. Under Bill Shorten they will be stopped,” said Minister Kelly O’Dwyer, after Bill Shorten announced the ALP policy.
During the election campaign Malcolm Turnbull was asked if the superannuation policies from the 2016 Budget were ‘ironclad’. “It is absolutely ironclad. Yes the commitment that we have made in the budget are our policy. If we are returned we’ll implement those policies. I believe they are fair. They make the super system, more flexible and more sustainable,” answered the PM.
The Government recently released a tranche of draft superannuation legislation, however the $500,000 lifetime non-concessional contributions cap, Work Test repeal and carried forward concessional contributions were not included.
It appears that the ALP will wait to see the legislation before arriving at a party position on the updated changes.
George Christensen no longer threatening to cross floor over changes
Superannuation changes announced by Scott Morrison and Kelly O’Dwyer this morning are very welcome. Gone is the $500,000 lifetime contribution cap, along with all the retrospective elements. These were the main concerns I was picking up from people in my electorate and Liberal National supporters. It’s great the Treasurer and Minister have listened to their backbench and the people and then acted accordingly. Proposed superannuation changes now have my full support.
Change in policy welcomed by superannuation industry bodies
The SMSF Association has welcomed the Government’s change on non-concessional contributions, saying it represents a “very positive and sensible policy” that will reduce administrative complexity and improve the ability to build up adequate retirement savings.
“The move to cap NCCs to people who have super balances under $1.6 million is an appropriate compromise in light of the original proposal outlined in the 2016 Budget, with the policy goal of making the system more sustainable and better targeted still intact,” said SMSF Association CEO Andrea Slattery.
“In addition, the new proposal’s prospective application date is a welcomed move, removing the lifetime cap’s issue of counting contributions back to 1 July 2007.”
Industry Super Australia said the changes should be a “workable compromise”.
“This measure combined with the rest of the proposed super reforms will help rebalance unsustainable tax breaks and redirect greater support to lower paid workers who need the most help to save for retirement,” said David Whiteley, Chief Executive of Industry Super Australia.
“We would hope all MPs will now give careful consideration to these changes so the reforms can start to make their way through the Parliament. These are evolutionary, not revolutionary changes.”
ASFA said it supports the revised superannuation package and “urges the Parliament to pass the changes as soon as practical, in order to provide certainty for people saving for their retirement”.
A statement by AIST said: “Modifications by the Government to the superannuation budget changes importantly maintain improvements to the fairness and sustainability of the superannuation system.”
“While AIST is disappointed to see the reversal of rules affecting older workers aged 65 to 74, on balance these changes are in keeping with the need to improve the fairness and sustainability of the system,” said AIST CEO Tom Garcia.
“Furthermore these changes are considerably easier for funds to implement and do not add to the complexity of the system,” said Mr Garcia.
“The FSC has consistently argued that the proposed backdating measures would have been difficult to implement and they also conflicted with the long-term nature of superannuation policy, undermining opportunities for consumers to prospectively plan for their retirement,” said an FSC statement.
“The changes are sensible and will hopefully provide some final clarity to the shakeup of the super rules,” said FSC CEO Sally Loane.