I recently started writing the Institute’s submission to Treasury on the implementation measures to make permanent the higher concessional contributions caps of $50,000 per annum for those over the age of 50. The catch now is that the increase will only be available where the person has a superannuation balance of less than $500,000.
I found, however, that before I could even get into the detail of the submission, the broader issues of the impact of this legislation were becoming more apparent and it worries me.
Firstly, it concerns me that the $500,000 balance limit (which will not be indexed) could send a message to Australians that once you meet this level of superannuation savings, you have enough to live on when you retire. We are an ageing population; individuals will be spending more years in retirement than ever before. It is a dangerous message for Australians to be receiving that this will be enough.
Secondly, including a maximum superannuation balance adds yet another hurdle for people to jump over in saving for retirement. It worries me that the new rules are going to exacerbate an already growing problem of people being subjected to excess contributions tax. The consequences of the concessional contributions caps legislation are already causing major problems for people – adding another factor (the $500,000 balance limit) will cause more people to falter and I believe that many more will be receiving excess contributions tax assessments as a result.
At a time when we have undergone a major review of our superannuation system in order to simplify and restore confidence in it, we should be thinking very carefully before bringing in new rules that will add complexity, cost and confusion and undermine other efforts to restore the confidence of Australians in their super.
Friday, March 18, 2011
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I agree: the proposals relating to the $500,000 existing savings indicate that there is going to be a need for much additional reporting by funds: individual balances at year end, and annual drawdowns. This information will have to be collated along with the existing information about the various contribution categories. Then the ATO is going to need to adjust its systems to deal with the new reporting. Then individuals will need access to the information the ATO holds (how can they otherwise confirm their positions at the relevant dates?) When we think about the errors and difficulties with reporting and collation of data for the existing contribution cap purposes, it sounds as if the administrative costs of this proposal to the community are going to be higher than the revenue it's proposing to save (by not allowing continued general access to the $50,000 cap for over 50s). Plus we'll end up with all these additional people trying to access the higher cap, thinking they can, then getting caught by excess concessional contributions tax.
ReplyDeleteThe government is simply fiddling around the edges and making the whole contribution system unworkable.
ReplyDeleteThe contribution cap system was introduced to replace the RBL system. The RBL reporting system was unworkable and riddled with errors.
The new $500K limit will also prove to be unworkable and extemely costly to implement.
I wonder how can one have more than 500k in superannuation savings. Must have either had a business or was paid heavily to have so much left in super.
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