Chapter 4
Schedule 3: reduction in the concessional contributions cap
Description of the measure
4.1
Schedule 3 amends the Income Tax Assessment Act 1997 and the Income
Tax (Transitional Provisions ) Act 1997 to reduce the cap on concessional
superannuation contributions, from 1 July 2009.
4.2
Concessional and non-concessional superannuation contributions have been
subject to annual limits since July 2007. In 2007-08 and 2008-09 the
concessional contributions cap was $50,000. As a transitional measure persons
aged 50 and over may make concessionally taxed contributions of up to $100,000
per year until 30 June 2012. The non-concessional contributions cap is
currently set at three times the concessional contributions cap, thus $150,000.
The concessional cap (but not the
over-50s transitional provision) and the non-concessional cap are indexed.
4.3
The bill halves the concessional cap to $25,000 and the transitional
concessional cap for over-50s to $50,000. The non-concessional cap will be set
at six times the concessional cap, thus $150,000 in 2009-10. Current indexing
provisions will remain. Existing 'grandfathering' arrangements that apply to
certain members of defined benefit schemes will remain.[1]
4.4
The Government argues that '...the reduction in the concessional contributions
caps will improve equity in the superannuation system as the current caps
benefit those who can afford to make large concessional superannuation
contributions who are primarily high income earners... the changes are also
consistent with the finding the Australia's Future Tax System report into
retirement incomes which found that tax-assisted voluntary superannuation
contributions should be more fairly distributed....'[2]
4.5
The Government estimates that around 1.8 per cent of individuals making
contributions will be affected.[3]
Issues raised in submissions
4.6
Submissions from Association of Superannuation Funds of Australia (ASFA),
the Financial Planning Association (FPA) and the Investment and Financial
Services Association (IFSA) argued against the change. The chief concern was
that there will be an undesirable impact on employees with low superannuation
balances trying to make substantial 'catchup' contributions shortly before
retirement:
People making these contributions come from across the income
range including many who have experienced broken work patterns, such as women
and those experiencing unemployment, who then struggle to make up the shortfalls
of their superannuation by sacrificing their personal spending.[4]
4.7
ASFA and the FPA dispute the claim that only a few high income earners
will be affected:
It has been claimed that it is very high income earners with
relatively high superannuation account balances who make contributions over the
proposed caps. However, the provenance of such estimates is not clear. The only
public authoritative data available is not supportive of such an assessment.[5]
4.8
IFSA found that in a sample survey that 'of the over 50 year old age
bracket who were contributing more than $50,000 to super, the average account
balance was approximately $215,000'. ASFA gave examples arguing that 'the
current caps are substantially used by those seeking to catch up in their
retirement savings. Proposed reduction in the caps will significantly limit
their capacity to do so.'[6]
4.9
Other concerns were:
- the caps will constrain people's ability to take out insurance
through superannuation, and this may lead to people becoming under-insured and
more likely to rely on government support;[7]
- there may be inequities when people make concessional
contributions over the cap because of scheme design or because of general
remuneration policies of the employer or an industrial award or agreement;[8]
- the short notice of the change will 'leave financial planners
only a few weeks to reshape strategies for a large portion of their client
base';[9]
- 'a constant changing of the rules impacts on the integrity of
superannuation as a savings vehicle.'[10]
4.10
Suggested alternatives or fall-back positions were:
- there should be a higher cap for people with lower balances;[11]
-
the higher cap for over-50s should be made permanent (noting that
this would have no cost to revenue until 2012-2013);[12]
- 'Parliament should revisit the appropriateness of a single flat
contribution limit';[13]
- people should be able to carry forward unused concessional cap
space from the last ten years;[14]
- the Superannuation Guarantee should be excluded from the cap; [15]
- there should be grandfathering provisions to preserve the
position of people who make concessional contributions over the new cap because
of scheme design or because of general remuneration policies of the employer or
an industrial award or agreement. [16]
4.11
Treasury submitted:
- those who can afford to make large concessional contributions are
primarily high income earners;
-
the changes are consistent with the findings of the Australia's
Future Tax System report into retirement incomes, which found that tax-assisted
voluntary contributions should be more fairly distributed and questioned
whether the current cap is appropriate.[17]
4.12
Treasury further specified:
- it is estimated that 170,000 people will be affected in 2009-10
(1.8 per cent of individuals making concessional contributions), and the
average remuneration of those affected would be over $220,000 per year;
- of those affected in 2009-10 about 77,000 are under 50, and 73
per cent of these people have annual remuneration over $100,000;
- of those affected in 2009-10 about 93,000 are 50 or over, and 93
per cent of these people have annual remuneration over $100,000;
- the average superannuation balance of affected people aged 50 and
over is $870,000.[18]
4.13
The referenced Australia's Future Tax System report into retirement
incomes noted that in 2005-06 around 5 per cent of taxpayers had remuneration
over $100,000, and they made around 24 per cent of concessional contributions.
Only a quarter of low income earners eligible for the superannuation
co-contribution make concessional contributions. The report said that 'there is
a case for distributing assistance more equitably between high and low income
individuals, including by limiting generous salary sacrifice concessions.' [19]
Committee comment
4.14
The Committee accepts Treasury's statement that the measure will affect less
than 2 per cent of people who make concessional contributions, and these are
primarily high income earners. The Committee accepts the argument that the
measure reduces disproportionate benefits to high income earners who can afford
to make large concessional contributions.
Recommendation 3
4.15
Subject to the points raised in the earlier recommendations, the
Committee recommends that the Senate pass the bill.
Senator Annette Hurley
Chair
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