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Cut in concessional caps to hurt SMSFs

The SMSF sector will be more adversely affected than any other superannuation sector by the impending reduction in the concessional contributions caps as members of these types of fund tend to make a greater amount of personal contributions.

This is the conclusion the SMSF Association has drawn from the results of research conducted by Rice Warner into contributions patterns.

The changes to the superannuation rules will see the concessional contributions cap fall from $30,000 to $25,000 a year for those under the age of 50 and from $35,000 to $25,000 for individuals over 50.

The study showed it was not until the 60 to 64-year-old age bracket that SMSF members making personal contributions were in the majority.

“Indeed, the percentage of people making personal contributions remains flat, slightly under 30 per cent, until members are roughly 40 years old,” the report said.

It concluded that pattern was consistent across members of all superannuation funds although SMSF members tended to make larger contributions.

“With the concessional caps going down to $25,000 [a year] it’s going to significantly affect we believe, or disproportionately affect, the SMSF sector,” SMSF Association chief executive Andrea Slattery said.

“If [the change had applied] for this data set in 2015, there would have been 13.8 per cent [of SMSFs] that would have been affected by that particular measure.”

The findings of the research reinforced the association’s push to encourage the government to implement a more generous concessional contributions cap for individuals over the age of 50.

“The association has argued for the government to retain the current $35,000 cap for older workers and notes that even a compromise of a $30,000 cap for those over 50 years will still benefit fund members trying to save their superannuation savings to achieve a dignified retirement,” Slattery said.

The research also revealed 13 per cent of SMSF members would benefit if the balance limit applied to the carry forward provision of the concessional contributions cap was lifted from $500,000 to $750,000.

“The association believes that this change would increase the effectiveness of the government’s carry forward policy and deliver better results for people who have had volatile incomes throughout their careers and are trying to build adequate retirement savings,” Slattery said.

“These important policy changes will allow a greater opportunity for people to achieve a secure and dignified retirement by building their retirement savings.”

The study used a sample size of 14,351 SMSF members drawn from the database of specialist SMSF software provider BGL.

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