02-03-2011 19:33:09
Caps on super top-ups relaxed

Caps on super top-ups relaxed

•    Geoffrey Newman, Wealth editor
•    From: The Australian
•    March 01, 2011 12:00AM

CANBERRA will relax the annual caps on super contributions by older Australians but yesterday said it would not index the new thresholds for inflation, prompting accusations it was undermining its own policy. The government announced last year it would maintain higher caps on concessionally taxed personal super contributions for those aged 50 and over with low super balances. The caps were due to halve in July next year from $50,000 to $25,000 a year, the same for those under 50.

Under the plan, which still needs parliamentary approval, those aged 50 and over would be allowed to continue to contribute $50,000 as long as they had less than $500,000 in super.

Assistant Treasurer Bill Shorten said it was expected to benefit about 275,000 people, particularly those who had periods outside the workforce, especially women. "These changes will provide flexibility for those nearing retirement to make additional catch-up contributions at the stage in their lives when they are most able to," he said.

The move is generally supported by super funds, but has attracted criticism from some financial advisers for its complexity and the decision not to index the $500,000.

Partners Superannuation Services director Martin Murden said by not adjusting the threshold for inflation, Canberra was clawing back the benefits of its own policy as each year passed, since inflation would make people ineligible even though their wealth had not increased. "You are gradually going to whittle down the real value of this measure," Mr Murden said.

He said for such a complex proposal, it would benefit relatively few people and the government would be better off scrapping the halving of the caps next year. The consultation paper floats two proposals for monitoring a person's super balance, the first that they self-assess and the second that the records are maintained by the Australia Tax Office.

Mr Murden said the latter suggested the ATO would have to keep tabs on every Australian's super balance to be effective.

"We are going to introduce a complex system which is going to have little benefit to superannuation," Mr Murden said.

Thousands of people have been caught out by the caps, which were imposed to prevent the leakage of too much tax revenue to super. Those caught could face losing almost half their excess contributions in penalty tax.

Australian Institute of Superannuation Trustees chief executive Fiona Reynolds said it was not just the wealthy who were restricted by the caps and would benefit from the new measure. She said people on average earnings who received an inheritance or redundancy payment should be allowed to put more of it into super.


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