Two of our headline recommendations in super were changes to:
- Concessional contributions cap rules
- Excess contributions tax.
The level of concessional contributions caps at $25,000 (for those aged under 50) and $50,000 (for those aged over 50), is simply too low. More than that, however, the current system does not adequately address an individual’s changing capacity for saving for retirement. The caps were introduced to encourage Australians to save consistently over their working life, but let’s face it; very few people have the capacity to save at each stage of life. At various times in life, we have costs like mortgages, children to feed and clothe, or school fees to pay.
It would be preferable if a person could, for example, pay less super at a stage in life when their expenses are high and more super when their expenses are lower.
The system needs to better accommodate the realities of life as a home owner, a parent or someone whose life choices necessitate lower incomes. A better option would be a carry forward provision for those caps to enable people to ’catch up’ later when they are more able to do so.
The excess contributions tax continues to cause angst for many people and the government seems reluctant to act on it. A tax this onerous, imposed as a penalty for those trying to save for their retirement within the existing rules, contradicts the government’s claims to be encouraging greater superannuation savings!
The government could implement fairer ways to ensure people only contribute within the contribution caps, such as refunding the contributions back out of the system, including any earnings on the excess contribution amounts.
This tax should not exist in its current format. Measures are needed to ensure people stay within their caps, but a system in which a person who, making an inadvertent error, contributes over their cap can be subjected to a whopping 93% tax is simply wrong.
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