The incoming superannuation rules will impact on a significant percentage of SMSFs, with baby boomers and older members of gen X to be hit hardest by the changes, the latest analysis from Class has revealed.
The “March SMSF Benchmark Report” found those two older cohorts with SMSFs have had the brakes put on their retirement savings by the new, lower cap on concessional contributions (CC), with 25.9 per cent aged 49 and over contributing more than $25,000 in the 2015 financial year.
Their contributions averaged $34,100 each, indicating they generally came very close to their $35,000 cap, therefore decreasing the CC cap to $25,000 would impact on them significantly, the report said.
Measured by value, 90 per cent of the reduction in contributions will come from members aged 49 and over.
When it came to SMSF members under 49 years old, the report revealed 17.3 per cent contributed greater than $25,000 in the 2015 financial year, with contributions averaging $29,800 each, close to their $30,000 cap.
Overall, 23.8 per cent of SMSF members are estimated to be affected, it said.
The report also found the government’s figure of less than 1 per cent of superannuants making or planning to make non-concessional contributions (NCC) of more than $300,000 in a three-year period using the bring-forward rule to be inaccurate.
The real picture was that a significantly higher percentage of SMSF members will be affected by the NCC cap, particularly those over 49, the research said.
Even before the completion of the 2017 financial year, in the past 33 months, 6.9 per cent of SMSF members 49 and over made NCCs of more than $300,000.
Furthermore, in the 2015 financial year, 10.6 per cent of SMSF members 49 and over made NCCs greater than $100,000.
“The super reforms legislated in 2016 could throw a hefty spanner into their contributions strategy and overall wealth plan,” the report said.
“These will be the people nervously discussing with their accountant or financial planner in the coming months how they can structure their super and other investments to try to mitigate the impact of the government’s changes.
“This is particularly the case for members who need to make catch-up contributions because they are older and have not enjoyed a lifetime of compulsory super or have had significant periods out of the workforce.
“The latter group is disproportionately women, who on average retire with 47 per cent less super than men.”
Class chief executive Kevin Bungard said as a result of the findings, many more Australians would need to consider their retirement savings plans and whether they can achieve their goals against the incoming contribution cap limits under the upcoming super changes.
“The average SMSF member is aged 58 and worked for 15 years before the superannuation guarantee was introduced, well over a third of their career,” Bungard noted.
“It’s no wonder then that more than a quarter of those 49 and older took advantage of the higher caps to make catch-up contributions.
“It will now be much harder for them to catch up for those lost years.”
