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Category: Business, Economics and Finance / Consumer Finance / Superannuation

Government will have 'lost the plot' if it backs down on super changes

Wednesday, 27 Jul 2016 12:54:02 | Andrew Robertson

Super Ratings says the Government should keep the pension cap at $1.6 million. (ABC)

As the dust settles on the federal election, there are still rumblings from within the Government over the planned changes to superannuation announced in the May budget.

But Super Ratings chairman Jeff Bresnahan said appeasing what he calls the "NIMBYs" - those opposing the change - will be to the detriment of the majority of Australians.

"A wealthy couple with up to $5 million in savings will still be able to generate $225,000 a year in tax free savings, even in the current low interest rate environment," Mr Bresnahan said.

"If our elected representatives would consider giving them more, then we have completely lost the plot."

The Government's May budget outlined a $1.6 million cap on the amount of money that can be held in a tax-free retirement phase account by people aged 60 and over.

Under the plan, anything beyond $1.6 million has to go into a separate account, with earnings to be taxed at 15 per cent.

"Savings in excess of this will still only be concessionally taxed so that's one hell of a standard of living," Mr Bresnahan said.

"Common sense surely dictates that with an aging population and a wealth base quickly skewing to the retiring baby boomers, there has to be a limit on the level of concessions available to wealthy retirees."

While not opposed to the $500,000 lifetime limit on after-tax contributions, Mr Bresnahan said there were issues with the contributions being backdated to 2007 - the first arguably retrospective legislation introduced to change superannuation - with the precedent meaning any changes could occur going forward.

Mr Bresnahan also dismissed the debate around exemptions to the $500,000 cap - a possibility that has been rumoured in the press - as something that would be open to abuse by the wealthy and their tax advisors.

For example, he said if inheritances were made exempt, children may transfer assets to elderly relatives and receive them back as an inheritance to be put into their super - free of the constraints of the cap.

Concerns over cap on pre-tax contributions of $25,000

However, the one area where Mr Bresnahan thinks the Government is wrong is the reduction of the cap on pre-tax super contributions to $25,000 a year.

"Compulsory superannuation was brought in to enable as many people as possible to be self-sufficient in retirement," Mr Bresnahan said.

"To limit their ability to reach an acceptable level of savings is ludicrous."

There is concern that, for most people, the chance to put significant extra money into their superannuation fund probably will not occur until they are well into their 50s, with their house paid off and the children gone.

For women, often with interrupted work lives, the ability to top up super is an even bigger issue, and Mr Bresnahan described the proposed $25,000 pre-tax limit on super contributions as "counter productive and inequitable".

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