The SMSF Association believes the federal government’s new policy for superannuation non-concessional contributions (NCC) will reduce administrative complexity, as well as increase opportunities for adequate retirement savings.
Last Thursday, Treasurer Scott Morrison announced the government had changed from its original $500,000 lifetime NCC measure to an annual $100,000 limit, with a three-year bring-forward rule, up to a super balance of $1.6 million.
The legislation for all measures will be introduced by the end of the year.
“The move to cap NCCs to people who have super balances under $1.6 million is an appropriate compromise in light of the original proposal outlined in the 2016 budget, with the policy goal of making the system more sustainable and better targeted still intact,” SMSF Association chief executive Andrea Slattery said.
“In addition, the new proposal’s prospective application date is a welcomed move, removing the lifetime cap’s issue of counting contributions back to 1 July 2007.”
Slattery said the association would work with the government to ensure the deferral of the ability to carry forward contribution caps made to offset the loss of revenue from the NCC cap shift could still be implemented by 1 July 2018.
“The association has been a long-time advocate of allowing the carry forward of concessional contribution (CC) caps because they assist women and people with broken work patterns achieve adequacy,” she said.
“We believe that this change was a positive element in the 2016 budget package as they increased the flexibility of the super system and allowed further opportunity for people to make catch-up contributions closer to retirement.”
However, the SMSF Owners’ Alliance (SMSFOA) said while it believed the decision to scrap the $500,000 lifetime NCC cap was sensible, having both contribution and balance caps was unnecessary.
“If an upper limit is set on tax-free superannuation accounts, it shouldn’t matter how and when the limit is reached,” SMSFOA executive director Duncan Fairweather noted.
“So the new reduced NCC cap of $100,000 a year is also unnecessary. If an overall account balance cap is set, then annual CC limits are not needed.
“Conversely, with contribution limits in place – the new cap on NCCs and the reduced concessional cap – there’s no need to have an overall $1.6 million retirement account balance cap at all – having both contribution and balance caps adds unnecessary complexity to a system for which simplicity is one of the government’s stated objectives.”
Fairweather said scrapping the retrospective $500,000 lifetime NCC cap would remove a headache for many people whose retirement savings plans were disrupted by the budget announcement.
“They will now be able to plan ahead with more confidence,” he said.
“It is unfortunate that it comes at the cost of withdrawing the budget measures to harmonise contribution rules for people aged 65 to 74, including getting rid of the work test.”
He added there was widespread concern expressed by SMSF members, many of whom had been in touch with coalition members and senators, representatives from SMSFOA and others.
“The scrapping of a major plank of the super changes announced in the May budget confirms our view that the changes were not well thought through at the time. They were driven by revenue needs rather than what is best for the super system,” he noted.
“There are still many unanswered questions about how the $1.6 million cap will work in practice and it may be several weeks before the government releases further draft legislation that will hopefully answer such questions.”