Devil in retrospectivity detail of contribution caps
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Glenn Freeman is a senior editor at Morningstar.
The retrospective nature of proposed changes to the superannuation contributions regime is the most disruptive part of Budget 2016 for super investors, says Peter Burgess, general manager of technical services and education at Super Concepts.
"The $500,000 lifetime cap was a surprise and probably the most controversial announcement in regard to super. The concerning aspect of it is that it is retrospective," he says.
"It's saying that they're going to include in that cap any non-concessional contributions that you've made since July 2007 ... so we think that's a concern."
He says it currently remains unclear what types of non-concessional contributions are going to be counted towards the cap, for example, personal injury payments, certain small business assets and capital gains tax caps.
Referring also to the $1.6-million cap on pension balances, Burgess says: "Again, that does have a retrospective element to it, because they're saying it will also apply to existing pensioners."
Those with balances in excess of this cap will need to move any amounts above the $1.6-million threshold outside of their superannuation pension, or be taxed at a higher rate.
Burgess points out that this cap equates to around $80,000 per year of income, based on average Australian life expectancy.
"There's a question whether $80,000 is sufficient, once you build in costs such as healthcare. We've got to be careful when trying to work out how much income people need in retirement," he says.
"Once you move into retirement, you have additional costs around things such as healthcare--so it's not always a good indicator. It's a bit dangerous measuring [this figure] on pre-retirement income.
"The government didn't say that's how they've [calculated this], but to say that $80,000 equates to essentially 70 per cent of a pre-retirement income, there is some risk associated with that, because that doesn't factor in the cost of getting older--there's a lot of debate around that.
"Certainly within the next weeks and months, you'll see a lot of discussion about the retrospective nature of some of those changes."
Burgess says the reduction of the concessional cap on superannuation contributions, which would move from $30,000 to $25,000, is also a concern.
"We think that needs to be left at that $30,000 mark. It's worth noting that's come down for people over 50, it's come down from $35,000 ... to $25,000 across the board, and that's disappointing."