Superannuation, Tax

Balance caps are retrospective fix

cap superannuation balances

The introduction of a cap on superannuation balances would only be trying to prevent events that have happened and will never be repeated.

A cap on superannuation balances would be a measure trying to prevent something that has already happened to a small cohort of funds and will never happen again under current superannuation rules, according to a super expert.

Institute of Financial Professionals Australia head of superannuation Natasha Panagis said comments from the federal government around the introduction of a cap on superannuation balances are focused on a very small group that will never increase or be able to form again.

“In a recent speech the Minister [for Financial Services Stephen Jones] alluded to at least 11,000 super fund members with balances of over $5 million and 32 with over $100 million in assets and one large mega-fund that has $400 million in assets,” Panagis said during a webinar today.

“In that speech, the Minister said the plan is to look at somewhere below $10 million, but how far south of $10 million we don’t know.

“We are opposed to it because these large balances are really such a small cohort of individuals. They represent less than 2 per cent of SMSF members and even a lower amount when you include Australian Prudential Regulation Authority-regulated funds.

“This small cohort is an exception, not the norm, and it exists because of the policies in place in the past and now we will be penalising everybody as a result of people who adhere to the rules at the time.

“There is absolutely no way that people will ever get to these large amounts going forward, particularly since the 1 July 2017 changes, which introduced limits on contribution caps and on how much can be held in the tax-free retirement phase.

“Once you hit that $1.7 million limit, you actually can’t make any more contributions into super, so we’re never going to see this happen again.”

She said the superannuation system would also force these large balances out in due course, resolving the problem without any further action.

“Many of these people with large funds are retirees or in the older demographic and considering death benefits need to be compulsorily cashed out of the system, it’s only a matter of time before these large funds do need to exit the system, so we’re not going to be seeing this issue continue in the future,” she said.

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