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Hewison Insights

Simpler Super…??

Chris Morcom
Partner/Private Client Adviser
6 Mar 2011

On 1 July 2007 a new superannuation system was ushered in and called “Simpler Super”.  At the time it was one of the largest changes to the superannuation system since the introduction of the Superannuation Guarantee in 1992.

Since then, governments have continued to tinker and change superannuation legislation.

By far the biggest recent change has seen the halving of the Concessional Contribution caps from 1 July 2009.  The maximum contribution limit was halved from $50,000 to $25,000 per annum.

This means that those over 35 years of age have effectively seen their maximum contribution limit fall by around $17,000 per annum as compared to the 2006/07 financial year.

What sort of madness is this!  The impact of Australia’s ageing population is well known through the Government’s Intergenerational Reports.  Surely it is in the nation’s interest to have as many people as possible being self sufficient in their later years, rather than relying on the public purse.

The most recent “enhancement” to the superannuation system is to allow those over 50 years of age contribute additional amounts to their superannuation fund, so long as their superannuation balance is under $500,000.  The recent discussion paper has caused much confusion as to what is mean by “superannuation balance”.

The paper states that:

  • The $500,000 threshold will not be indexed, and
  • It is proposed that the concessional contributions cap for those over age 50 will be set at $25,000 above the indexed concessional contribution cap for people under age 50.

Not indexing the limit will see it become almost irrelevant in real terms over the next 10 years.  Based on inflation at 3% per annum, the limit would be worth around $370,000 in 10 years and in 20 years it would be worth $275,000 in today’s dollar terms…not enough on which to retire.

Complexity is introduced to this new system where people have started to withdraw from their superannuation, but may be still working or contributing (often referred to as a Transition to Retirement strategy).  The paper presents three options for the calculation of superannuation balance in these circumstances:

  • Add the total amount of withdrawals to the superannuation balance;
  • Not to include those withdrawals when calculating the superannuation balance; or
  • Exclude those who are drawing from their superannuation from the higher contribution cap.

Not what I would call a “simple” solution, and very much like the old, much derided “Reasonable Benefit Limit” system.

Most people are not in a position to contribute extra funds to their retirement until later in their working lives.  A Transition to Retirement strategy is a highly effective strategy to increase the final amount accumulated towards retirement, at a time when most people have the spare cash flow to put towards their retirement.

Surely the easiest and most simple option is to retain the current $50,000 concessional contribution cap for those over 50 years of age, irrespective of the amount a person has in superannuation. 

A better solution would see the previous $100,000 cap for those over 50 reinstated.  This would enable people, particularly women, to catch up their superannuation balances when they are most able.

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.