According to the Financial Standard, the Federal Government has reworked its 2016 Budget measures on superannuation to drop the $500,000 lifetime non-concessional cap and alter several other policies.
Treasurer Scott Morrison announced the changes this morning and said the government will replace the $500,000 proposal with a new measure to reduce the existing annual non-concessional contributions cap from $180,000 per year to $100,000.
The move will cost government revenue $400 million over forward estimates but Morrison said introducing eligibility for non-concessional contributions to those with less than $1.6 million in superannuation limits the cost of this change over the medium term.
He added: “In order to fully offset the cost of reverting to a reduced annual non-concessional cap, the Government will now not proceed with the harmonisation of contribution rules for those aged 65 to 74. While the Government remains supportive of the increased flexibility delivered by this measure, it can no longer be supported as part of this package, without a net cost to the Budget.”
Under the reworked package, individuals aged 65 to 74 who satisfy the work test will still be able to make additional contributions to superannuation. Morrison said this will encourage individuals to remain engaged with the workforce which is of benefit to the economy more generally.
Individuals aged under 65 will continue to be able to “bring forward” three years’ worth of non-concessional contributions in recognition of the fact that such contributions are often made in lump sums. The overwhelming bulk of such larger contributions are typically less than $200,000, Morrison said.
“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,” he said.
“This ensures that we focus the entitlement for 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.
“While noting that less than 1% of superannuants now reach the proposed transfer balance cap of $1.6 million, these improvements will mean Australians will be given a clear and better opportunity to realise their aspiration to build their balance to the limit of the transfer balance cap.
“In addition, the commencement date of the proposed catch-up concessional superannuation contributions will be deferred by 12 months to 1 July 2018 to ensure the full cost of changes to non-concessional contribution arrangements are met over both the forward estimates and the medium term.”
Morrison added these measures will ensure that 96% of Australians remain better off or unaffected by the Government’s superannuation reforms “that will introduce greater flexibility and sustainability to our retirement income system.”
The Association of Superannuation Funds of Australia (ASFA) said it supports the government’s revised superannuation package announced this morning and urges the Parliament to pass the changes as soon as practical, in order to provide certainty for people saving for their retirement.
ASFA interim CEO Jim Minto said: “ASFA has long advocated for both a lifetime cap on non-concessional contributions and a limit on the total amount tax free in retirement. The revised superannuation proposals address both issues.
“The key message for savers is that they should have confidence in their super.”
Industry Super Australia chief executive David Whiteley said the policy shift was a “workable compromise.”
