Complicating concessional caps

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.