Why the concessional contributions cap should be lifted
The numbers say it all. The latest research report into the self-managed superannuation sector (SMSF), a joint venture between the actuarial firm Rice Warner and the SMSF Association, shows conclusively that when people hit 55 years of age, superannuation very much becomes front and centre in their thinking.
How do we know this? The research report, titled SMSF Association research into SMSF contribution patterns, demonstrates that it's at this juncture in their lives that people look closely at their SMSF balances and realise it's five minutes to midnight when it comes to topping up their superannuation to ensure a secure and dignified retirement.
From 55 onwards, and for both genders, personal contributions represent the bulk of their superannuation contributions, and from 60 onwards they dwarf employer contributions - a function of the much higher non-concessional cap relative to the concessional contributions cap and increased disposable income for older members. Noticeably, women, who are far more likely than men to suffer from broken work patterns, begin to make significant personal contributions later than males. It's amazing what a difference children leaving home makes to people's capacity to tip money into super!
The high average contributions at advanced ages indicate that many SMSF members are likely to be affected by the lower $100,000 yearly non-concessional cap. Although the average by age is not necessarily indicative of a typical SMSF member's contribution each year, the report, which used a sample of 14,351 SMSF members, shows that those between the ages of 60 and 70 are making contributions that are closing on this cap. In addition, members who have a balance of greater than $1.6 million will be unable to make non-concessional contributions at all under the Government's proposed legislation.
On a more important issue, the concessional front, the report provides a sound argument why people aged 50 and over need to have a more generous contribution cap than the $25,000 that will apply from July 1, 2017. Although the Association has long argued for the universal retention of the current cap of $35,000, it believes the evidence is irrefutable of the critical need for this cap for older workers.
The research also highlights that if the carry forward concessional contribution limit was increased from a balance of $500,000 to $750,000 it would benefit 13% of the members surveyed, of which half are female. This measure alone would go a long way towards building adequacy for women.
If this change was implemented, it would increase the effectiveness of the government's carry forward policy and deliver better results for people who have had volatile incomes throughout their careers and are trying to build adequate retirement savings.
There are now more than 500,000 SMSFs, the number of trustees and members exceed one million, and funds under management stand at about $622 billion - about 30% of the super pool. These are people who have taken a deliberate decision to be financially responsible for their retirement years, and are prepared to make sacrifices while working to achieve this goal. Helping them achieve this ambition, especially later in their employment years, is surely a worthy policy outcome.
Jordan George is head of policy for the SMSF Association