“This isn’t only an issue for higher net worth Australians or higher income earners. This is an issue for middle Australians and we implore the Government to amend its policy announcements”
We are particularly concerned about the following:
The $500,000 lifetime non-concessional contribution (NCC) cap together with counting all NCCs made after June 2007.
We applaud the government for creating a lifetime non-concessional cap. However the $500,000 threshold is too low. This unfairly impacts those who had been preparing – in many cases for many years – to use the current rules and now find themselves disadvantaged because access has been blocked.
The following are examples that have been provided by our members:
- Investors who had put in place a Limited Recourse Borrowing Arrangement within their Self Managed Super Fund under the Tax Office’s non-arm’s length rules and were planning to make NCCs to pay off the debt have no way of satisfying the contractual terms of a loan
- Super funds that had signed a contract of sale to purchase a property that settles after 3 May and the members were intending to make NCCs to complete the sale
- Older Australians who have not contributed to super are now limited to superannuation accounts of $500,000. Withdrawals of 5% from age 65 mean that their pension could be restricted to $25,000 per annum
- The new NCC cap limits the amount of money Australians who have worked overseas can transfer back to Australia from foreign super funds
- The $500,000 lifetime NCC cap will make it harder for small business owners to have their business premises owned by their super fund
All these and other examples show how unfair this new policy is.
A higher lifetime limit should be introduced for those aged at least 50 years of age before July 2016.
In addition, the start date of this measure should not apply for contributions made since 1 July 2007. We have a number of practical difficulties with counting contributions from about nine years ago. It is heroic to assume that investors will be easily able to access accurate contributions data of their past NCCs so they don’t fall foul of this new rule.
Clearly a revised start date has be put in place for this measure. Given many of the Government’s proposed super changes commence on 1 July 2017 then consideration should be given to applying this date.
The government also needs to confirm that contributions made from structured settlements or personal injury claims are exempt from this change.
$1.6 million pension account balance limit – our members have asked us a large number of questions about this measure as they seek information on how this rule will work for their clients so that retirement planning can be undertaken with confidence.
Examples of situations requiring urgent explanation include the following:
- Who will make the assessment about that an investor’s pensions are within or exceed the $1.6 million? How and when will super funds forward this information? At what transaction date will the assessment be done?
- If, or how and when, death benefit pensions will be assessed under the $1.6 million limit
- The movement of pensions from one product to another especially if the original pension has declined due to severe market turbulence. Will there be a reassessment?
- Ceasing market linked and complying pensions that have an account balance greater than the $1.6 million limit
- Interaction between unfunded defined benefit pensions that pay less than $100,000 and private pensions
- Amounts from structured settlements and personal injury claims greater than $1.6 million
Reduction in the concessional contribution caps to $25,000 per annum – many Australians are unable to save significant amounts into super during their first two decades of work as their focus is on clothing, feeding, educating and sheltering their families. Retirement funding becomes a focus once these major expenses begin to decline. Often we can only make significant contributions to super for the final 10 years of our working life.
Under this new policy total concessional contributions would be limited to $250,000 over that 10 year period. This is clearly inadequate even allowing for the compulsory employer contributions made during a person’s working life.
The Government needs to urgently review this policy and should consider introducing a lifetime concessional contribution cap that has appropriate and sensible transitional arrangements.
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