The changes to superannuation contributions caps handed down in 2009 has the potential to push individuals into higher risk investment strategies in an attempt to compensate for reduced contributions, according to Tria Investment Partners managing director Andrew Baker.
The concessional contributions caps have been halved effective from 1 July 2009, going from the current level of $50,000 to $25,000 including the super guarantee levy.
“People are probably going to be looking to get more juice out of their maximum $25,000 contribution so they’re probably going to want to think about putting more gearing into their super like using more warrants, geared equity trusts, and other kinds of structured products,” Baker said.
The magnitude of the reduction in contribution caps was also likely to result in an increase in non-superannuation investments as an alternative strategy to supplement their retirement savings, he said.
“If you can only contribute $25,000 to super and you’re fortunate enough to have some left over what are you going to do with that?”
Again, like the situation with super investments Baker said higher risk and higher return strategies are likely to be sought.
“It’s probably going to be a great story for margin lenders, and other kinds of investment lending against all sorts of structured and geared products,” he said.
As a result, this latest change in the superannuation rules could end up encouraging investment in riskier products seen as being contributors to the current global financial crisis (GFC).
“It’s very ironic, having gone through the GFC fuelled by massive amounts of debt, that due to the second round impact of the budget changes it’s exactly what we are going to encourage all over again,” Baker said.
