Financial planning software company Midwinter Financial Services has modelled a potential new strategy based on the Government's decision to reverse changes to the rules around the superannuation concessional contribution caps.
In last year's Budget the Government halved the concessional contribution cap from $50,000 to $25,000. People over 50 received transitional relief, allowing them to access the higher $50,000 cap until 30 June 2012. In its response to the Henry Review earlier this month, the Government announced it would return the concessional contribution cap to $50,000 per annum for those over 50 with superannuation balances below $500,000 from 1 July 2012.
Following the announcement, there have been questions over how the cap might apply, and who might be able to take advantage of it.
Midwinter has now modelled a strategy it believes would deliver significant benefits to clients using the popular transition to retirement (TTR) strategies, particularly when used in conjunction with one of the group's own strategies.
The group offers a strategy through its software called 'pension refresh', which effectively allows advisers to commute a client's superannuation balance and pension balance at the end of each financial year and commence a new pension.
"If the Government excludes pension amounts from the $500,000 super balance limit, the 'pension refresh' element will effectively ensure most TTR clients always remain eligible for the $50,000 concessional cap," the group said.
For a person aged 55 on a salary of $80,000 per annum, with $400,000 in superannuation and using a TTR strategy, the increase in the concessional contribution caps would allow an additional $23,000 in benefits to be accrued by the age of 65, Midwinter's Matt Esler said.
Combined with the group's 'pension refresh' strategy, additional benefits would increase by more than $37,000 over the 10 years.
Esler said assuming the client implements both the TTR strategy and pension refresh strategy under the new concessional caps - and assuming that person requires net retirement income of $80,000 - their capital would last an extra three years.
The concession was created to assist people who need to catch up on their super contributions, as opposed to those who already have significant super savings, but Esler argued it would be "an adverse reaction if the Government did not allow this strategy to go ahead".
He argued the problems created by an ageing population, and the resultant reliance on the age pension, meant creating adequate and sustainable retirement incomes should be a priority.