The government’s proposal to cut concessional contribution caps has been labelled as a “backward step that will severely reduce the ability of people to save adequately for retirement”.
In last night’s federal budget, the government proposed lowering the superannuation concessional contributions cap to $25,000 per annum.
Currently, the ATO lists the concessional contribution caps for the 2016-17 income year for those under age 49 as $30,000 and for those over age 49 as $35,000.
“This level still enables individuals to make enough contributions over their working life to be self-sufficient in retirement. Lower caps on concessional contributions also make it feasible to allow more flexibility across the system to accommodate modern working arrangements. Reducing the caps on concessional contributions will only affect around three per cent of superannuation fund members,” the government said.
However, this move has been met with fierce opposition across the superannuation industry.
“We do not support the reduction of annual concessional caps to $25,000,” said the Association of Superannuation Funds of Australia’s chief executive Pauline Vamos.
“While today less than two per cent of people with superannuation make contributions above $25,000, a significant number of such individuals that have low balances are attempting to catch up. For instance, around 36,000 women with balances less than $200,000 in 2013-14, were making contributions in excess of $25,000,” she said.
Further, the SMSF Association’s chief executive Andrea Slattery said the move will send shock waves throughout the SMSF sector.
“We strongly believe that adequate concessional contribution caps are vital to allow people to save for a secure and dignified retirement,” Ms Slattery said.
“It is especially important that people approaching retirement have adequate contribution caps to maximise contributions to superannuation when they are most likely to have the financial resources to do so,” she added.
“SMSF Association/Rice Warner research shows that people make their most significant contributions to superannuation in a short period once they reach their mid-50s, and need capacity to make these ‘top-up’ contributions. This change reduces the ability to do that,” she added.
The measure appears contrary to the government’s intentions for super, with PwC’s director of private clients, Liz Westover, noting the impact it has on a taxpayer’s retirement budget.
“When you reduce these caps, you are inhibiting their ability to save for their retirement,” she told SMSF Adviser.
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