The SMSF Association has included a recommendation in its 2016 budget submission to allow individuals to carry forward the unused amount of their non-concessional contributions cap, enabling them to make larger superannuation contributions when they have the capacity to do so.
The industry body has called on the government to scrap the current “use it or lose it” approach with a view to making the system better for some specific individuals.
“The current system delivers a poor result for people with volatile incomes – those with broken work patterns, especially women, small business owners or farmers whose income can fluctuate widely. These people may be able to make significant contributions to superannuation in some years but not others,” SMSF Association chief executive Andrea Slattery said.
“In addition, younger people who are unable to make contributions above compulsory superannuation contributions earlier in life due to financial commitments, such as mortgages and raising families, will have an opportunity to increase their contributions later in life.”
In addition, the carry-forward approach would be a more equitable solution than implementing lifetime contributions caps, which had been suggested by some quarters of the industry, Slattery argued.
“A lifetime contribution cap model can be exploited by making large concessional contributions early in life, reaping the long-term benefits from the low-tax superannuation environment for related investment earnings,” she said.
“But under a carry-forward model, contributions are limited by the maximum annual concessional contribution cap.”
According to Slattery, incorporating flexibility in regard to non-concessional contributions caps would help Australians accumulate an adequate level of superannuation benefits to fund a comfortable retirement.
Also included in the SMSF Association’s 2016 budget submission was a call to improve some of the current administrative obstacles incorporated in the current superannuation system.
“This particularly applies to the complex rules around after-tax contributions for people aged 65 and over, and the 10 per cent rule that restricts how people can make pre-tax contributions depending on whether they are self-employed or an employee,” Slattery explained.