Concern is growing in the superannuation industry that the federal government’s plan to introduce a lifetime $500,000 ceiling on after-tax super contributions may be hard to administer, adding to the pressure on the government from the revolt against the change from some backbenchers.
The Australian Institute of Superannuation Trustees said that while it supported the “intention” behind a plan to introduce the ceiling, it harboured concerns about the ability of super funds to implement the policy and the backdating of the cap to 2007.
AIST is supportive of the intention behind the $500,000 cap but they have concerns particularly around timelines and cost of implementation for funds, The AIST said that replacing the lifetime cap with an annual $50,000 non-concessional contributions limit would be easier to administer.
According to an AIST spokesperson, it will be easier to monitor the status of contributions made over the course of a year to a member’s fund, than over a lifetime. Another key measure of lowering the pre-tax contributions limit to $25,000, would hurt older savers.
The Financial Services Council, which represents bank-controlled super funds, also raised concerns over the implementation of the $500,000 lifetime cap. Watering down the $500,000 lifetime cap as well as the annual concessional limit on contributions would significantly reduce the Budget savings from super reform, while overwhelmingly benefiting the wealthiest Australians:
The proposed $25,000 cap on pre-tax super contributions will have most effect on older men with higher incomes. Nearly four in five of those making pre-tax contributions of more than $25,000 a year are aged 50 or over. Of these, more than half have already accumulated super balances of more than $500,000. Few of these people will ever qualify for an age pension.
Instead, high annual caps mainly create tax-planning opportunities for people who already have enough resources to fund their own retirement. A $500,000 lifetime cap on post-tax contributions would also help to align super tax breaks with the Government’s stated objective for superannuation: to supplement or substitute for the age pension.