The government last night introduced a measure that will enable people aged 65 and over to be able to make non-concessional (post-tax) contribution into their superannuation of up to $300,000 from the proceeds of selling their home.
The current contribution rules for people aged 65 and older and the restrictions on non-concessional contributions for people with balances above $1.6 million will not apply to contributions made under this new downsizing cap.
PwC director of private clients Liz Westover said she is concerned the downsizing concession will not actually solve the problem it’s intended to resolve.
“I’m not sure whether it’s going hit the mark on the right incentives for people to actually downsize,” said Ms Westover.
The measures, she said, would have been better targeted around social security and the age pension.
“I wonder whether or not the ability to put more money into super for someone who’s over the age of 65 is really going to provide the right incentives to downsize,” she said.
Pereptual Private senior manager of strategic advice Colin Lewis believes the measure will “only really help a particular market niche that wouldn’t be affected by the aged pension”.
Mr Lewis said it is unclear how this will operate at a practical level with the “devil likely to be in the detail”.
“The thing is how is it going to work in practice? You might have someone who’s wealthy, got money sitting in the bank or in investments. They’re too old to put the money into super, or not eligible to put the money into super. Now they might say, well I can actually free up some capital in the house by buying another property, with the capital I’ve already got, and put that into super,” Mr Lewis explained.
“So you don’t necessarily need to downsize in order to get the benefit of putting the money into super from the for sale proceeds.”
Mr Lewis said there may therefore be planning opportunities or advice opportunities for this niche in the market, “but it’s not actually there for the purposes of what the government is intending it to do”.
“With most things there are integrity measures, and if the integrity measure is the value of the new place has got to be X dollars less than one that you’re in, then well who monitors that?” he said.
“Otherwise you could have someone with a $2 million mansion buy another place with the freed up capital they’ve got and put the remainder into super.”
However, head of BT’s technical advice team, Bryan Ashenden, noted a positive in this measure is that it gives older Australians an opportunity to engage with their superannuation where they may not have previously.
“Some people have never had the ability to put money into super, they have done all of their investing outside of the super system,” he told SMSF Adviser.
“This gives them a change to use the super system for the purpose of their retirement,” he said.
There are others who have retired at aged 60 (or earlier if they are fortunate enough) and want to downsize. The age restrictions should be lifted. ALL who wish to downsize should be able to avail of this concession. This will free up more housing stock.
The real issue is the insanity of having an age 75 cap on super contributions. Most retirees who are on the edge of the asset test threshold wouldn’t be very excited by this announcement. Unless they lived in New Zealand, where there is no Asset or Income Test, & the retirees can do what they like, as they ought.
Downsizers to Super. Does this apply plus 75year old’s?
Why do you have to wait till next year for this action. Incentive for over-65s to downsize, by permitting extra super contributions. need it now