Big four firm proposes scaled caps for super
A progressive approach to the non-concessional contribution caps could alleviate many of the issues relating to divorce and poor investments that have arisen from the proposed $500,000 cap, says a big four firm.
Deloitte Private partner John Randall says a model where there are certain caps available to super members incrementally throughout their lifetime could ease some of the issues around significant life events resulting from the proposed $500,000 non-concessional cap.
“If you have contributed in the past but perhaps your fund hasn’t performed as well as you would have liked, or you’ve had a divorce or separation and your balance is depleted it would give you another opportunity to top that up,” Mr Randall said.
The $500,000 lifetime cap is problematic for divorced couples as there is usually a carve-up of the superannuation assets and one spouse may have contributed more than the other, using up more of their $500,000 lifetime cap.
Superannuants that have suffered significant investment losses from GFC-like events are also negatively impacted by the lifetime cap, Mr Randall said.
The speculated carve-outs for life events such as these are likely to be difficult to administer in reality, he added.
“[Therefore] I think there should be staged lifetime limits so as you get older you get another significant bump up with the amount you could potentially put in,” Mr Randall said.
“I envisage a progressive scale where it might be $250,000 in the 20s, $350,000 in the 30s, $450,000 in the 40s and $500,000 in the 50s, so gradually increasing.”
He said a progressive approach would also result in a more equitable system.
“If you say, well let’s make it a $1 million lifetime limit and somebody has the opportunity to put in the $1 million at age 25, then they have the advantage of holding that money in a concessional environment for 40 years compared to someone who only comes into money in their late 50s after downsizing their home.
“So it would also cater for people who receive an inheritance or sell their home and have another opportunity to contribute funds.”
Mr Randall said it may also prevent individuals “ploughing their money into over-capitalised apartments” and into super instead.
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 also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.