The SMSF Association has released “compelling evidence” that the Government should keep a higher concessional contributions cap for older people contributing to superannuation.
Currently people aged 50 or over have a higher concessional contributions cap than younger people. However the 2016 Budget included a reduction in the cap to $25,000 for everyone from 1 July 2017. This measure is currently at the draft legislation stage.
SMSF Association CEO Andrea Slattery said research conducted for the organisation by Rice Warner “conclusively shows” that people only start making significant voluntary contributions to superannuation in their mid-50s.
“The research confirms what the Association has long been telling policy makers: that there is a sharp difference between compulsory and voluntary contributions to superannuation – the former increase gradually over time while the latter jump dramatically in the years leading to retirement.”
“This research graphically shows why people aged 50 and over need to have a more generous contribution cap than the $25,000 that will apply from 1 July 2017.”
“The Association has argued for the Government to retain the current $35,000 cap for older workers and notes that even a compromise of a $30,000 cap for those over 50 years will still benefit fund members trying to save their superannuation savings to achieve a dignified retirement.”
According to the Rice Warner report 14% of SMSF members would have exceeded a $25,000 concessional contributions cap in 2014/15.
“This amounts to approximately $30m in additional contributions for the year in the sample considered,” says the report.
Rice Warner also finds that increasing the carried forward concessional contributions cap from a maximum super balance of $500,000 to $750,000 would benefit 13% of SMSF members, half of whom would be female.
“The Association believes that this change would increase the effectiveness of the Government’s carry forward policy and deliver better results for people who have had volatile incomes throughout their careers and are trying to build adequate retirement savings,” Slattery said.
“These important policy changes will allow a greater opportunity for people to achieve a secure and dignified retirement by building their retirement savings.”
Rice Warner CEO Michael Rice said: “The research shows that the proposed changes will have a material impact on the SMSF population and will restrict members’ ability to save in superannuation.”
The analysis by Rice Warner was based on a sample of 14,351 SMSFs provided to the SMSF Association by BGL from its Simple Fund 360 software.
In the report Rice Warner raised some issues in the data provided, and has “attempted to adjust” the analysis for errors found.
Seniors also call for higher concessional contributions cap
National Seniors have also called for the retention of a higher concessional contributions cap for people aged over 49, to “improve the adequacy” of retirement incomes.
“Tightening tax concessions within superannuation is a positive move, but the approach should still give older people the flexibility they need to save for retirement,” said National Seniors Chief Executive Dagmar Parsons.
“The proposal to reduce the annual concessional contributions cap to $25,000 for all individuals from 1 July 2017 would disadvantage older workers, many of whom have not benefited from compulsory superannuation throughout their working lives,” she said.
“We think a better approach would be to retain the higher $35,000 annual concessional contributions cap for older people to help boost their savings in the years leading up to retirement.”
“This would effectively support all those over 50 who are already utilising their full concessional cap or those who may be planning on using this higher cap as part of their retirement income strategy.”