Ceiling of $1.6m for super

The $500,000 proposed lifetime limit on non-concessional contributions has been scrapped, writes Anna Kennedy.

The government is scrapping its proposed controversial $500,000 lifetime limit on non-concessional superannuation contributions, replacing it with a yearly limit of $100,000 (down from the current limit of $180,000), with a three-year bring-forward limit of $300,000 for those aged under 65 (at the start of the relevant financial year).

People would be eligible (subject to work-test requirements for those aged 65 to 74), to make non-concessional contributions until their super account balance reaches $1.6 million.

Treasurer Scott Morrison (pictured) proposed the superannuation rule in mid-September, following criticism from industry, the public and backbench politicians, since the federal budget was announced in May.

“These measures are about continuing to ensure that superannuation tax concessions are not being used as a tax-incentivised estate-planning vehicle, but it also ensures that Australians are supported to maximise their retirement balances in the pension phase of superannuation where they access tax-free earnings,” said Morrison in his press conference announcing the changes.

Association of Superannuation Funds of Australia (ASFA) interim chief executive officer Jim Minto says the new package makes the superannuation system more sustainable.

“We are delighted that people approaching retirement will have more flexibility to add to their super. ASFA has long advocated for both a lifetime cap on non-concessional contributions and a limit on the total amount tax-free in retirement. The revised superannuation proposals address both issues.”

The ASFA says for a comfortable retirement a couple needs an annual income of just over $59,000. So for a couple living 20 years in retirement, they will need more than $1m in savings. So it supports scrapping the $500,000 lifetime limit on non-concessional contributions and replacing it with an annual cap of $100,000, with a bring forward cap of $300,000 for those under age 65, subject to an eligibility threshold of a $1.6 million super balance, as a very welcome move.

“The ceiling of $1.6 million, once it is legislated, balances the need to ensure enough income for a comfortable retirement with ensuring the level of tax concessions is sustainable in the future,” says Minto.

Take action this financial year

Currently the annual limit for non-concessional contributions is $180,000 and will remain in place until June 30, 2017. In addition, the bring-forward rule allows persons under age 65 to bring forward three years of non-concessional contributions, meaning they may be able to contribute up to $540,000 before June 30 next year.

If the new $100,000 a-year non-concessional contribution limit is implemented, individuals under 65 will also be able to bring forward three years of non-concessional contributions to deposit $300,000 at one time.

These changes benefit Australians who have come into a significant amount of money – such as from an inheritance, divorce settlements or selling property – and would like to contribute five or six figure amounts to their super.

Other groups that may benefit are younger Australians who want to bolster their super balance, or women returning to the workforce after a career break and want to contribute more to their super to catch up.

Other proposed superannuation measures

  • The government has scrapped a budget proposal for the work test to be abolished for contributions made from age 65 to 74. It now says the work test will continue to apply from age 65 to 74. (The work test is defined as being gainfully employed for at least 40 hours in a 30 consecutive-day period within the financial year.)
  • At budget time, the government also proposed to reduce the concessional contributions cap to $25,000 (from July 1, 2017) and allow individuals to make “catch-up” concessional contributions if their super balance is less than $500,000. It will now delay this measure until July 1, 2018, while the reduced concessional contributions cap is still proposed to apply from July 1, 2017.

September 2016