Has the Govt eroded incentives for super saving?

The Government’s changes to superannuation have gone too far and there are no incentives left in the system to attract taxpayers to save about the compulsory contribution rate, according to specialist financial services consultancy, Pitcher Partners.

In a pre-Budget submission filed with the Federal Treasury, Pitcher Partners said numerous changes have been made to the superannuation system which had had the effect of “significantly reducing the attractiveness of using the superannuation system to fund retirement”.

“We highlight that we believe the changes have gone too far and now there are no incentives left in the system to attract taxpayers to save above the compulsory contribution rate,” it said. “Some of these policies include the reduced deductible contribution cap of $25,000 per year, the $1.6 million pension cap, and the 30 per cent contribution tax rate applicable to individuals deriving more than $250,000 per annum. “

“We are concerned that the outcome of these significant policy changes, which collectively eliminate most of the voluntary savings incentives from the super system, will be to discourage retirement savings from those taxpayers with the capacity to save.”

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“Over time, we believe that this will create a new class of taxpayer with insufficient savings to self-fund their retirement who will qualify for, and need to rely on, the age pension,” the Pitcher Partners submission said.

It said that, on this basis, it was strongly encouraging the Government to reintroduce voluntary savings incentives back into the system as well as encouraging middle income earners to use those incentives to self-fund their retirement.

The submission said these policy changes could include increasing the deductible contribution cap from $25,000 to $50,000; providing flexibility by allowing individuals to determine their deductible contribution cap by taking into account unutilised amounts from prior years; pooling thresholds and limits within families (e.g. allowing couples 2 times the pension cap that can be used between the couple in any way they choose); increasing both the total superannuation balance threshold where non-concessional contributions are prohibited and the transfer balance cap amounts from $1.6 million to double those amounts; increasing the threshold where the 30 per cent contributions tax rate applies to at least $300,000 and indexing that threshold to wages growth.