Compromise on super is fair, logical

Top marks to the government for dumping the deeply flawed proposal to introduce a backdated lifetime $500,000 non-concessional contributions cap in response to pressure from passionate self-managed super fund members, the opposition and Coalition backbenchers.

The new plan is simpler and fairer and, even more importantly, capable of being administered by the Tax Office because the limits will apply only to future contributions.

There will still be a lifetime cap on non-concessional contributions but only after account balances exceed $1.6 million starting from July 1, 2017. The existing rules will apply until then, as I believe they always should have.

By all standards, restricting the amount that can be put in by reference to the amount already in super answers the equitable treatment of all taxpayers The proposed $500,000 cap ignored the needs of the millions of Australians with poor or inadequate employer super having to build up sufficient super to fund their retirement by using inheritances or other windfalls and the proceeds of selling property.

The new plan will instead limit the scope for people with generous employer super or who have already deposited large amounts of after-tax money in their fund to further boost their balances.

Among the biggest winners will be couples where one partner has the lion's share of their retirement assets. Provided emphasis is placed on building up the partner's super over years by withdrawals from the larger account, there will be increased opportunities to share superannuation equally.

For example, when a house mortgage is paid off, non-concessional contributions to a partner's account won't be limited to $500,000. The limit on non-concessional contributions will be a realistic $100,000 a year or $200,000 for a couple available until the account balances exceed $1.6 million.

This policy change will also increase the attractions of transition-to-retirement (TTR) pensions for people aged 60 or over wanting to build their partner's account balance.

The maximum TTR pension annually is 10 per cent of the account balance and the proceeds up to $100,000 can be deposited in the partner's account. The government's plan to put a lifetime cap on non-concessional contributions unfairly targeted the self-employed and others not in highly paid employment.

Those in employment, especially generous defined benefit fund members, will still be able to receive concessional employer contributions even when their account balances exceed $1.6 million. But compared with current arrangements where defined benefit fund members can have their work superannuation as well as an accumulation fund, the new plans reduce such opportunities.

The best option for defined benefit members to boost their private super in the future will be to focus on building their partner's balance. This will help reduce the gender imbalance.

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Daryl Dixon

Executive Chairman

Daryl Dixon is one of Australia’s foremost investment experts and a well known writer and consultant. He has provided trusted advice to thousands of personal clients over more than 25 years and is an acknowledged expert in the areas of tax, superannuation (including public sector superannuation), social security and investments.

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