By Paul Rickard

Caught up in the deafening noise about the Government’s package of super changes were three positive measures which will make super more accessible and flexible. The Government should be applauded for these changes, and some of the criticism of the other changes recognised for what it often is self-interest.

Sure, the new concessional cap of $25,000 is far too low, as it the lifetime limit on non-concessional contributions of $500,000, although I don’t think it is any less fair to count non-concessional contributions from 1 July 2007 rather than start the measuring on Budget night. The problem is that both caps need to be higher, and I am going to continue to shout this from the rooftops.

The transition to retirement pension was a tax rort that should have been cleaned up years ago. You can argue about the $1.6m cap on balance transfers to the pension phase, and in particular, the element of retrospectivity for those who already have more than $1.6m in pension. I would argue that most in this situation will be better off under the Government’s plan than under the ALP’s policy, and that even with a tax rate on earnings of 15% on the excess over $1.6m, super is still a very attractive investment vehicle.

Moreover, if you didn’t expect that there would one day be a cap on how much you could have in super, then you haven’t been following the public debate. The pressure from the lobby groups including ACOSS, the think tanks and Treasury about the “tax leakage” from super has been so strong, and the industry response so weak, it was inevitable that a government would responds this way. The good news is that this package is so comprehensive that it might actually silence these super critics, meaning that the system might remain relatively stable and unchallenged for some time. 

Time will tell, of course. The Government has yet to legislate the package, and as I have argued previously, the lobbying effort is best directed at Coalition Senators (maybe some disaffected National Party Senators) who may be prepared to cross the floor. Wasting your vote on July 2 on some populist cross bench Senator (or the ALP) is not the answer. 

And when the lobbying does take place, let’s be careful not to throw the baby out with the bath water. There were three positive measures which should be retained. As they have received so little coverage, here is a quick re-cap.

Age limit for contributions increased to 75

Anyone up to age 75 will be able to make a contribution to super. The work test (40 hours over any 30 day consecutive period) is being abolished from 1 July, 2017.

This is great news for those aged 65 or over. For example, persons who are retired and have other sources of income such as investment income from shares or property will be able to contribute this to super, or who have assets and haven’t fully utilized their lifetime non-concessional cap. Also, spouse contributions will be allowed, which will suit a couple where one partner is working and the other (aged from 65 to 74) is not. 

A very welcome and long overdue reform.

Anyone can claim a tax deduction for a personal contribution

To claim a tax deduction for a personal super contribution, one of current the eligibility rules is that income from employment sources can’t be more than 10% of a person’s total assessable income. This is intended to limit the entitlement to the genuinely self-employed such as sole traders.

From July 2017, all individuals will be able to claim a tax deduction for personal super contributions, regardless of employment status. As these contributions are classified as concessional contributions, they will be subject to the $25,000 cap.

This means that those who are partially self-employed and partially salary and wage earners will be able to claim a tax deduction, as well as individuals who work for an employer that does not offer salary sacrifice arrangements.

Employees can also consider it as an alternative to salary sacrifice. Rather than have the benefit of salary sacrifice as a pre-tax saving up front, by paying the funds directly to the super fund and then claiming a tax deduction, you will effectively get the benefit in arrears. This may suit some employees where salary sacrifice impacts other package benefits.

The cost of this change is estimated to by $1.0bn over the forward estimates. 

Catch up concessional contributions

A third, and very welcome proposal, is catch up concessional contributions for those with moderate super balances. Although the cap is manifestly too low at $25,000 from 1 July, 2017, you will be able to make additional concessional contributions above the cap if you have not fully utilised the cap in previous years.

To access this, you will need to have a superannuation balance under $500,000. Amounts are carried forward on a rolling basis for a period of 5 consecutive years, with only unused amounts accrued from 1 July 2017 eligible.

For example, let’s suppose it is now the 2018/19 financial year and you didn’t make any concessional contribution in 2017/18, and your super balance is under $500,000. Assuming you have the financial capacity, you could now make a concessional contribution of $50,000. 

The reform is designed to improve access to the super system for people with interrupted work patterns such as carers, women going on maternity leave, or people going on a career break. It will also suit employees who are increasing their capacity to make superannuation contributions as their income increases, or financial situation improves.

Great reforms

The proposals above are great reforms that really do deserve more endorsement.

In the campaign that lies ahead, we need to be careful not to lose sight that it was a package of measures designed to improve access and equity.