Superannuation contribution caps should be based on the current needs of working Australians and not aimed at correcting any advantage current retirees may have gained in the past, according to a national accounting firm.
BDO called on the government to review contribution caps as part of its pre-budget submission, noting the current contribution caps are based on past actions rather than the future needs of superannuants.
“Such review should have regard to the effect of capping on the current population of workers who are currently having contributions made to superannuation funds and not based on the people who have obtained a distortional advantage out of the superannuation regime because of the previous more concessional rules,” the firm stated.
The submission noted the Retirement Income Review found only a small number of retirees were able to build large balances under previous rules and the current caps did nothing to change that, but did have an effect on those yet to retire.
“There is a perception that the reduction of the contribution caps is in some way rectifying this anomaly. However, the cutting of the contribution caps to such low levels now does nothing to mitigate the possible policy defects that allowed the small number of retirees to take inappropriate advantage of the superannuation system,” it said.
“The level at which contributions caps are currently set does not appropriately incentivise taxpayers to save for their own retirement.
“In particular, they are concerned that the contributions cap restricts them from saving for their retirement during their later years of working, generally in which such saving is financially affordable for them.”
It noted many superannuants have limited funds earlier in life to make additional superannuation contributions due to the cost of rent, mortgages and having children and while they have a greater ability to contribute later, the concessional super contribution cap had been reduced from $100,000 a year to $25,000 a year (later increased to $27,500 by indexation) in the past decade.
“BDO submits that the level at which the concessional contributions cap is set should be reviewed in light of evidence (either to be collected or, if already collected, to be made public) on the adequacy of such savings for a range of scenarios,” it said.
