Editorial - Superannuation e-news April 2011

The government’s willingness for concessions to the mining sector reflects its motivation to win support for the Minerals Resource Rent Tax. It has now ear-marked significant resources for related infrastructure works while also being favorably disposed to the resources States receiving better terms in the annual carve-up of the national GST revenue. This followed immediately after it also accepted all the recommendations of the Policy Transition Group that was tasked with advising it on the implementation of the MRRT. The government has argued that its package of new superannuation measures is subject to the satisfactory conclusion of the MRRT, a linkage aimed at encouraging agreement for the MRRT to avoid it unraveling. Given this environment, the stars for superannuation may just be starting to align, with the prospect of progressively higher SG ultimately to 12%, a long overdue improvement in the net efficiency for concessional contributions for low income taxpayers and the retention albeit in a more narrowly targeted manner of the current higher transitional concessional contribution cap for those who are at least age 50 and perceived to have inadequate super savings.

The case for raising retirement savings has never been stronger, so increasing the SG rate is a practical way to yield additional superannuation savings. And while the flexibility of a lower compulsory SG coupled with universal salary sacrifice may potentially be preferred by many, an increase in the SG rate makes a great deal of sense given the restrictions imposed by the lower annual concessional cap of $25,000. It follows that a lower cap leads to a requirement for a generally unbroken work history for adequate savings, since there will only be limited opportunities to rebuild low account balances via accelerated salary sacrifice contributions to super in later life even if the higher $50,000 limit applied. Addressing such shortfalls would therefore be dependent on after tax savings where they exist and increasing the need for higher SG rates. The issue of providing a rebate to offset the contributions tax for low income taxpayers is eminently sensible and it lays down a framework for future enhancements if this is seen to be necessary.

The upper limit of $500,000 of super savings proposed for the over 50s when determining eligibility to the higher but still restrictive $50,000 contribution cap is too low. While it provides some opportunity for additional concessional contributions to super, this would be greatly improved and remain targeted if the provisions were changed to allow for a member to make contributions to a spouse’s account as with spouse contributions splitting arrangements, however this should be permitted up to the level of the spouse’s concessional contribution cap and allow for additional salary sacrifice by the member. Where the member’s cap is exceeded it should be counted against the spouse’s contributions cap if the money is directed to the spouse’s account. A number of variations on this theme are possible that would allow for fine tuning of this proposal while enabling targeted opportunities for greater contributions to super.