The rate at which caps and thresholds for contributions into super will increase is going to accelerate even when inflation has reduced, creating opportunities for SMSF members to revisit these limits, according to Heffron managing director Meg Heffron.
“We get an increase in the concessional contribution cap or the transfer balance cap (TBC) when there is enough wage or price inflation to cross over the next $2500 or $100,000 limit [respectively] as those things only go up in those increments,” Heffron said today at the Heffron Super Intensive Day 2025 in Sydney.
“As the size [of the cap and threshold] we are increasing gets bigger, it gets easier to shoot through that $2500 or $100,000 limit.
“Back in 2017, we needed heaps of inflation and wage inflation to get even the first increase [in the TBC and concessional contribution cap], which is why it took us ages to see a change.
“We had those limits back in 2017 and they did not increase until 2021, and then they both increased at the same time, but look at how things move as we go forward.”
She pointed out the consumer price index (CPI) needed to increase the general TBC from $1.6 million to $1.7 million was 6.3 per cent, but the CPI rise required to go from $1.9 million to $2 million was 5.3 per cent.
“We’re going to need much less price inflation [of 4.2 per cent] to get an increase in the transfer balance cap when we’re way up at $2.4 million, moving it to $2.5 million,” she said.
“Similarly, with the concessional contributions cap, much less wage inflation will be required to get us to increases in the future.”
In this case, the increase from $25,000 to $27,500 in 2021 required a 10 per cent rise in average weekly ordinary time earnings (AWOTE), while a future change from $32,500 to $35,000 would require a 7.7 per cent lift and a move in the cap from $45,000 to $47,500 would require an AWOTE increase of 5.6 per cent.
“What we’re likely to see is that complex table [of TBC thresholds and contribution caps] changing even more frequently than it is at the moment,” Heffron said.
“We might see a world where every year something is changing, either the concessional contribution cap or transfer balance cap or both.
“The real challenge with these ever-moving caps and thresholds is people we might have told they will probably never make non-concessional contributions again may find their positions are entirely different because not much has changed about them, but a lot has changed about the environment around them.”
