Pre-retirement trustees have most to lose from proposed super changes
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Self-managed super fund trustees will bear the brunt of the government's proposed reductions in concessional contribution caps, according to a joint study conducted by the SMSF Association and actuarial firm Rice Warner.
The study used a sample of 14,351 SMSF funds provided to the SMSF Association by BGL Corporate Solutions, an SMSF software and administration provider.
Budget 2016 outlined a number of proposed legislative changes, including reducing the cap on concessional contributions to $25,000 annually, from $35,000, for those aged 50 years and older--and $30,000 for those under this age.
This will disproportionately affect the SMSF population, based on the data provided. If this cap was implemented in 2015 it would have affected 1,983 members, or 13.8 per cent of the 2015 population, according to the report, "SMSF Association research into SMSF contribution patterns".
"The research confirms what [we've] long been telling policymakers--that there is a sharp difference between compulsory and voluntary contributions to superannuation," says Andrea Slattery, SMSF Association CEO and managing director.
"It graphically shows why people aged 50 and over need to have a more generous contribution cap than the $25,000 that will apply from 1 July 2017."
Michael Rice, CEO of Rice Warner, refers to data that shows an over-representation of people aged between 55 and 74 years of age in super contributions.
"It actually shows that people are contributing later ... the most significant areas of contribution are in the ages 60-64 and onwards. It also shows there is a significant amount of people still working and still contributing [to their SMSF] after age 75," Rice says.
Graph 1: Distribution of assets by age
Source: SMSF Association
"It also shows that for those aged over 50, they're already testing that $25,000 [annual concessional contribution] limit."
Rice points to changes proposed in the budget that would remove the ability to continue to make contributions beyond the age of 65,"when you previously could make contributions ... but now would have to satisfy the work test of working at least 40 hours in a 30-day period, once per year".
According to SMSFA's Slattery: "That will actually mean ... there will be barriers for people to be able to continue with their normal behavioural patterns."
The report also speculates that a significant proportion of SMSF members are likely to breach the $100,000 yearly non-concessional contributions cap, given the size of average personal contributions.
Slattery believes a largely unintended consequence of these changes would be an even greater reliance on the Aged Pension.
"The Intergenerational Report noted that in 40 years' time, we're still going to have 80 per cent [of the Australian population] on full or part pension. These changes will probably mean that 80 per cent will grow," Slattery says.
The SMSFA also points to findings from the study to argue the case for increasing the proposed carry-forward concessional contribution limit to $750,000, from $500,000 as is currently proposed.
"The association believes 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," says Slattery.
Women would be a key beneficiary of this, with the study showing that their contribution patterns are even more weighted towards the latter period of their working lives than for men.
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Glenn Freeman is Morningstar's senior editor.
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