The government’s decision to delay the increase in concessional superannuation contributions caps for individuals over the age of 50 with a retirement savings balance of under $500,000 has been met with caution amid industry fears it will lead to higher administrative costs and a further rise in cap breaches.
“My number one concern about this deferral is we are going to see an increase in excess contributions tax assessments being issued because a lot of people have been operating on the basis with the expectation the increased cap would be available from 1 July 2012,” Institute of Chartered Accountants in Australia head of superannuation Liz Westover told InvestorDaily.
“Unfortunately it takes a long time for the message to get across to everybody that it has changed.”
Self-Managed Super Fund Professionals’ Association of Australia (SPAA) director of education and professional standards Graeme Colley agreed this could be a realistic possibility.
“I would think this might be the case because there was a large increase in the 2009/10 financial year and maybe people haven’t woken up to this change and those breaches will continue,” Colley said.
SPAA also said it believed the move would disadvantage certain specific superannuants.
“In relation to the deferring of the $50,000 start date for two years, SPAA believes it will particularly affect people with broken work patterns, such as women, and will inevitably put more pressure on the pension system,” SPAA chief executive Andrea Slattery said.
The delay in implementing the higher caps was also criticised by Dixon Advisory head of financial advisory Nerida Cole, who described the move as “continued tinkering”.
“For fund members, there will be another administrative burden and increased costs,” Cole said.
Criticism was also directed at the announcement that individuals earning over $300,000 a year would have their concessional contributions taxed at 30 per cent from 1 July due to the complexity of the framework.
“When you have these really complicated regimes come into play, it usually means increased administration that in turn means increased costs and those costs tend to be distributed across the entire membership of a fund,” Westover said.
According to Slattery, the move might not achieve the desired contributions toward the targeted surplus anyway.
“High-income earners who are able to afford sophisticated tax planning advice will enter into activities with the objective of minimising their taxable income to avoid the impact of the measure, in the process undermining the confidence of all Australians in superannuation as the main savings vehicle for their retirement,” she said.
Both announcements prompted a call from the Association of Superannuation Funds of Australia (ASFA) for a parliamentary inquiry into the mobility of tax-effective investments.
“Making small changes at the edges to gain revenue for short-term political gain does not contribute to the development of long-term sustainable retirement incomes policy,” ASFA chief executive Pauline Vamos said.
“The issue with changes to taxation settings is that they drive behavioural change.
“A parliamentary inquiry would get all political sides together to develop a unified, long-term approach to retirement incomes and their tax settings going forward.”
