The financial services industry has broadly welcomed the Government’s decision to scrap the $500,000 lifetime cap on non-concessional super contributions but believes there is still more work to be done for superannuation.
Federal Treasurer, Scott Morrison, announced on Thursday that the proposal would be replaced by a new annual cap of $100,000.
The Financial Planning Association of Australia (FPA) head of policy and government relations, Benjamin Marshan, said the proposal gave greater clarity and flexibility to continue to use the bring-forward provisions, which was a step in the right direction.
However, Marshan said the FPA remained concerned around a number of the proposed super changes.
“Consumers will need to be aware that the concessional cap catch-up contributions have been delayed by two years and that the work test for those over 65 will remain in place,” Marshan said.
The Federal Treasurer also announced that individuals aged 65 to 74 who satisfied the work test would still be able to make additional contributions to superannuation.
The Association of Financial Advisers (AFA) chief executive, Brad Fox, said these compromises, if accepted by the Parliament, did provide pragmatic improvements to the package when balanced against the Budget repair measures.
“In the medium term, we would like to see the contribution harmonisation measures for 65 to 74 year old people reconsidered,” Fox said.
“Too many Australians are failing to maximise their retirement lifestyles by not making the most of the superannuation rules and seeking personal financial advice from a professional financial adviser.”
Australian Institute of Superannuation Trustees (AIST) chief executive, Tom Garcia, said the body was disappointed to see the reversal of rules affecting older workers aged 65 to 74, but that the overall changes were considerably easier for funds to implement and did not add to the complexity of the system.
Garcia noted that most Australians would be unaffected by the lower after-tax contributions cap as research from the AIST-Mercer Super Tracker estimated that the average non-concessional contribution was less than $4,000 per year for those over the age of 50.
AIST remained disappointed that the Government had not considered industry concerns about the reduction of the annual concessional cap for the over 50s from $35,000 to $25,000.
“Older workers already have a $35,000 cap so no change to existing policy would be required. This measure could be considered over a 10-year transitional period before reverting to the same cap limit for all ages,” Garcia said.
Industry Super Australia (ISA) said the non-concessional contributions reform would help rebalance unsustainable tax breaks and redirect greater support to lower paid workers.
ISA chief executive, David Whiteley, said: “We would hope all MPs will now give careful consideration to these changes so the reforms can start to make their way through the Parliament. These are evolutionary, not revolutionary changes”.
The Actuaries Institute’s chief executive, David Bell, said the proposed changes met the overall targets for the super and retirement incomes system of adequacy, equity, and sustainability.
“However, the Government needs to avoid constant tinkering with the system as this undermines consumer confidence in superannuation,” he said.
IOOF senior technical services manager, Martin Breckon, said the question for the non-concessional contribution cap change now was whether the Labor Party would support the change and pass the legislation through the Senate.
“The ALP’s concern with the $500,000 lifetime cap was that it was retrospective and this removes the retrospective element to the reforms. The change also links non-concessional contributions to the $1.6 million transfer cap, which the ALP supports,” Breckon said.
