More research points to flaws in proposed caps
One industry lobby group has pointed to further research that indicates that younger superannuants under the proposed contribution caps will struggle to get their funds even close to $1.6 million, irrespective of their earning capacity.
The SMSF Owners’ Alliance said a report by the former head of the School of Economics at UNSW, Dr Ron Bewley, indicates that unless a superannuation member contributes the maximum $25,000 contribution cap every year of their working life, they are unlikely to ever a achieve a balance of $1.6 million in super.
According to Dr Bewley, a superannuant contributing $25,000 each year over a continuous 38-year accumulation phase into a capital stable fund are likely to only end up with $1,485,956 at the end.
“How many people even with great prospects can put aside $25,000 per annum from their income when they have possibly just left home, are paying HECS off, are saving for and buying a home, having kids, etc?” he said.
Over a 20-year period, if the super member invested $25,000 each year but used their non-concessional cap of $500,000 in year one and invested into a balanced fund, they would still only have a 50 per cent change of achieving a balance above $1.6 million, he said.
"Most people will not be able save the $1.6 million cap in super, however much they earn, unless they can contribute the annual caps for around 38 years," he said.
Under the new super proposals, private sector workers whose super savings are exposed to market and longevity risk, he said, are severely disadvantaged compared to public sector employees, including politicians, on defined benefit schemes that are guaranteed by the government.
"The contribution caps are obviously far too low for most people to reach an amount needed to compete with the ‘four times Aged Pension’ or politicians’ $100,000 defined- benefits pension," said Dr Bewley.
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.