Until June 2009, Australians aged 50 years or over were permitted to make up to $100,000 a year in concessional contributions. In the May 2009 Federal Budget, the ALP government halved the concessional cap to $50,000, and then in the May 2012 Federal Budget, the over-50s concessional cap was halved again to $25,000. Tough luck for anyone hoping to make catch-up super contributions once the mortgage had been reduced, and the kids had left home.
But wait, the Federal Treasurer Mr Swan has announced that he has only deferred the over-50s for two years. What this supposedly means is that for the 2012/2013 and 2013/2014 years, the maximum amount of concessional contributions that anyone can make (and not be charged excess contributions tax) is $25,000 a year. From July 2014, those with account balances of less than $500,000 will then be able to make up to $50,000 in concessional contributions each year.
From July 2014, the ATO is expected to have some whiz-bang online reporting facility that will make it easier to find out the size of your account balance at a certain date, to enable those with account balances of less than $500,000 to access the higher concessional cap from July 2014.
I have published my views on this website before but briefly I consider the delays in introducing the contribution rules unacceptable especially when the Government is implementing such an ill-conceived, unfair and simply bad policy. The proposed change to the contributions cap was always about politics, not policy and you can thank former Prime Minister Kevin Rudd and Treasurer Wayne Swan, for the ‘itsy bitsy, sometime in the future when I won’t be around, or the public won’t care anymore’ nature of law making. My view continues to be that we need to get rid of the $500,000 account balance threshold for over-50s and make it a simple and straightforward $50,000 cap for everyone over 50.
Do you believe Mr Swan when he says the over-50s concessional cap has been deferred, rather than removed? I don’t think I do based on Mr Swan’s track record of promising policy changes and then breaking his promises, or minimising the policy change, or deferring the policy, or freezing indexation for years on end.
Here’s why I don’t believe that the over-50s cap will return while Mr Swan is Treasurer:
- May 2009 Federal Budget:Halving of over-50s contributions cap from $100,000 to $50,000 taking effect from July 2009, with the over-50s cap reverting to $25,000 from 1 July 2012. Before the 2009 Budget changes were released, the Government had announced that the concessional cap of $50,000 was to be increased to $55,000 from July 2009. If the Government was sincere about only halving the before-tax limit, the concessional cap should really have been $27,500 from July 2009.Mr Swan not only halved the caps, he froze the indexation of the caps for the 2009/2010 year.
- Before the 2009 Budget changes were released, the Government had announced that the non-concessional (after-tax) contributions cap was to increase to $165,000 for the 2009/2010 year, and the bring-forward cap was to increase to $495,000 from $450,000. (If you take advantage of the bring-forward rules, then you can make up to three years of non-concessional contributions in one year, representing your non-concessional cap for the current year and following two years.). By stating that the annual non-concessional cap was to remain at $150,000 the Government had effectively cut the cap by $15,000 for the 2009/2010 year, and the bring-forward cap cut by $45,000, and started the indexation period from the 2009/2010 year which meant any increase due to indexation wouldn’t happen for a few years. This ‘swifty’ was not mentioned anywhere in the 2009 Budget documents.
- May 2010 Henry Tax Review and May 2010 Federal Budget: The Government’s response to the Henry Tax Review included announcing that Australians aged 50 or over retain the $50,000 cap for concessional (before-tax) contributions, subject to satisfying certain conditions. The concessional cap for over-50s was supposed to revert to $25,000 (or the indexed amount if applicable) from July 2012, but the Federal Government publicly stated that it appreciated the harshness of removing the opportunity for mature Australians to play catch-up with super contributions. I wrote at the time that cutting the concessional contributions cap for over-50s was always bad policy because for many Australians, reaching the age of 50 and beyond is often the only opportunity that you have to make substantial contributions to super due to other financial commitments in your younger years; such as mortgage repayments, raising children and school fees. The special condition is that to continue to access the $50,000 concessional cap, your superannuation account balance must be less than $500,000.
- 2011/2012 Mid-year Economic and Fiscal Outlook: In November 2011, Mr Swan announced that the concessional caps would not be indexed until July 2014, further restricting the opportunity for Australians to contribute to super.
- 2012 Federal Budget: Effective from July 2012, Mr Swan has removed the over-50s concessional cap until at least July 2014.
Remember this: In June 2009, over-50s were permitted to make up to $100,000 a year in concessional contributions. At the end of June 2012, a mere three years later, the maximum amount that a person aged 50 years of over can contribute as concessional contributions (including compulsory Superannuation Guarantee contributions) is $25,000 a year, and that cap will not be indexed until July 2014.