Lifetime concessional tax limits to superannuation contributions, as opposed to annual limits, would create a fairer and far more equitable retirement savings system for all Australians and help address the crisis of declining retirement readiness in Australia according to Mercer.
Mercer proposes if an individual doesn’t use the current concessional cap of $25,000 in a given year, half of what’s unused should be rolled over to the next year and so forth. However, a concessional contribution in any year should not exceed three times the annual concessional cap, making $75,000 the maximum cap in any single year.
Only 30 per cent of working Australians believe they will have enough savings to last beyond age 70 according to Mercer’s Superannuation Sentiment Index. Lifetime concessional contribution limits would be a big step forward in addressing Australians’ quality of life in retirement, correcting the unfair treatment of women and men who take career breaks and to reduce the cost of retirees for tax-payers.
The superannuation industry, including the Association of Superannuation Funds of Australia, Financial Services Council, and a number of superannuation funds support the call for lifetime contribution caps. Mercer is the first to outline how the change could work and create a fairer and better retirement savings system.
David Anderson, Mercer’s Managing Director & Market Leader for the Pacific, said, “Lifetime concessional contribution caps would provide all Australians with an equal opportunity to build their nest egg when they’ve got the financial capacity to do so. We should simply begin now, it does not need to be retrospective.”
“The reality is most Australians cannot afford additional super contributions of $25,000 for much of their working life and are therefore missing out if they leave the bulk of their super contributions to the latter part of their career, often when their disposable income is highest.
“Retirement savings are a lifetime journey and all Australians should have the opportunity and flexibility to build a more secure retirement when they can afford it.
“Lifetime limits would create a much fairer system; they would secure more adequate retirement incomes for more Australians; lessen the cost of the age pension to tax-payers; and allow people – particularly women – who have been in and out of the workforce to catch up in their retirement savings”.
Mercer’s research – Tax & Super: Benchmarking Australian against the world’s best retirement systems – shows Australia has the lowest contribution caps of the top nine retirement savings systems in the world. When expressed as a percentage of average earnings, Australia falls significantly short.
“Concessional contribution caps provide a significant benefit in encouraging long term saving for retirement, without the Government having to provide excessive taxation concessions to the wealthy,” said Mr Anderson.
How would Lifetime super concessional caps work:
|Concessional contributions cap||Concessional contributions made||Unused cap for the year||Rollover available (50% of unused cap for that year)||Extra contributions made above annual cap|
Concessional contributions include employer and salary sacrifice contributions.
The cap for the financial year 1 July 2013 to 30 June 2014 is:
- $25,000, if aged 59 and under on 30 June 2014, or
- $35,000** if you were aged 60 and above on 30 June 2014.
** From 1 July 2014, the higher threshold of $35,000 also applies to people aged 50 and over.
From 1 July 2013, a new system of taxing excess concessional contributions applies. Concessional contributions in excess of these caps are treated as assessable income and effectively taxed at the member’s marginal tax rate plus the Medicare Levy (and Medicare Surcharge where applicable). An interest charge will also apply. A non-refundable tax offset of 15% will be provided to take account of the contribution tax already paid. The cap for the financial year 1 July 2012 to 30 June 2013 was $25,000. Tax of 31.5% will generally be payable on contributions in excess of this cap in the 2012/13 year.
Caps on 'non-concessional' contributions
Non-concessional contributions include those made to your super from your after-tax salary for which you do not claim a tax deduction.
The caps for the financial year 1 July 2013 to 30 June 2014 are:
- $150,000, or
- $450,000* in three years for people under age 65.
Contributions in excess of these caps are taxed at 46.5% (45% plus 1.5% Medicare Levy, which will increase to 2% from 1 July 2014).
* To accommodate larger contributions, people under the age of 65 (at the start of the financial year) may generally bring forward two financial years' of non-concessional contributions - thus being able to make up to $450,000 of non-concessional contributions over 3 years. An eligible person who makes a non-concessional contribution in excess of $150,000 in a financial year automatically triggers this bring forward provision.
For confirmation of your year to date contributions you should contact your super fund. Mercer Super Trust members can call the Mercer Helpline on 1800 682 525.
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