The superannuation industry has broadly welcomed the Federal Government’s changes to its Budget superannuation package, particularly the scrapping of the $500,000 lifetime non-concessional cap.
The attitude of the industry was reflected in an Association of Superannuation Funds of Australia (ASFA) statement in which its acting chief executive, Jim Minto, said the organisation supported the government’s revised package and urged its passage through the Parliament.
Minto said the package made the superannuation system more sustainable.
Under the changes announced by the Treasurer, Scott Morrison said the $500,000 lifetime non-concessional cap would be replaced by a new measure to reduce the existing annual non-concessional contributions cap from $180,000 per year to $100,000 per year.
The Treasurer’s announcement said individuals aged under 65 would continue to be able to ‘bring forward’ three years’ worth of non-concessional contributions in recognition of the fact that such contributions were often made in lump sums and that the overwhelming bulk of such larger contributions were typically less than $200,000.
Individuals with a superannuation balance of more than $1.6 million will no longer be eligible to make non-concessional (after tax) contributions from 1 July 2017. This limit will be tied and indexed to the transfer balance cap.
Morrison’s statement said this would ensure a focus on 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.
“These measures mean that with their annual concessional contributions, Australians will be able to contribute $125,000 each year and, if taking advantage of the non-concessional ‘bring forward’, up to $325,000 in any one year until such time as they reach $1.6 million,” Morrison’s statement said.
He said that while noting that less than one per cent of superannuants now reached the proposed transfer balance cap of $1.6 million, the improvements would mean Australians would be given a clear and better opportunity to realise their aspiration to build their balance to the limit of the transfer balance cap.
The Treasurer said that in order to fully offset the cost of reverting to a reduced annual non-concessional cap, the Government would now not proceed with the harmonisation of contribution rules for those aged 65 to 74, albeit that the Government remained supportive of the increased flexibility delivered by the measure.
He said that individuals aged 65 to 74 who satisfied the work test would still be able to make additional contributions to superannuation.
The announcement said the commencement date of the proposed catch-up concessional superannuation contributions would be deferred by 12 months to 1 July 2018 to ensure the full cost of changes to non-concessional contribution arrangements were met over both the forward estimates and the medium term.
The continuation of the “work” test to age 74 for super is simply pedantic. More so, considering there is no work test up to age 65, for non-concessional contributions. Total removal of the work test to 74 made sense, as its removal received a full mandate, passed at the Fed. Election.