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Contribution cap changes needed for women

A number of industry submissions to the Inquiry into Economic Security for Women in Retirement have called for changes to the contributions caps to allow women with interrupted workforce participation to amass sufficient savings to fund their retirement.

In its submission to the Senate inquiry, NAB/MLC called on the federal government to consider a lifetime cap on contributions or a cap on the balance that could be converted into a tax-free retirement income.

“An annual focus [on contribution caps] is important in terms of encouraging consistent and long-term saving (with attendant risk mitigation), but it is not suited to ensuring an adequate income in future retirement,” the submission said.

The Financial Planning Association (FPA) echoed NAB/MLC’s sentiments about implementing a lifetime contributions cap, but qualified the parameters in which that type of framework should operate.

“We encourage the government to explore and model lifetime caps and carry-forward provisions, but also believe that it is imperative that caps be means-tested on a household income basis,” the industry body said.

“This would reduce the opportunities of high-income earners to take unfair advantage of these provisions.”

In the name of fairness, the FPA suggested a 12-month period be employed for the implementation of that type of regime.

BT Financial Group (BTFG) recommended greater flexibility be employed around the concessional contributions caps.

“Most people experience different levels of income and different patterns of expenditure over their lifetime, which limits or enhances their capacity to contribute to super at different times,” BTFG said.

“By contrast, the current concessional contribution cap framework is uniform, with an annual cap that does not change until a person reaches age 50.

“Increasing the flexibility of the caps would allow for it, enabling them to accumulate more retirement savings.”

Meanwhile, Commonwealth Bank of Australia (CBA) took a different approach, suggesting the introduction of flexible provisions for concessional contributions, much like those currently applying to non-concessional contributions.

In particular, CBA was critical of the fact the system now, with only non-concessional cap flexibility, “does not assist individuals with broken work patterns, given any amount within their available cap which is not used in one financial year cannot be accumulated for use in later years”.

As such, it said it supported a three-year averaging rule allowing “individuals to make contributions in excess of the concessional cap in any given year provided they have not contributed in excess of the cumulative cap over the prior two-year period”.

“This effectively gives an individual the option to access any unused concessional cap amounts in the prior two-year period,” it said.

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