Super contributions: What’s going on with the over-50s concessional cap?

UPDATE: In the May 2012 Federal Budget, Treasurer Wayne Swan, and Minister of Superannuation, Bill Shorten, have broken their promise about extending the over-50s concessional contributions cap. The over-50s concessional cap has been halved to $25,000 for the 2012/2013 and 2013/2014 years. For more information, see SuperGuide article Another super con: Over-50s contributions cap removed.

I have received dozens of emails from SuperGuide readers asking for clarification about the over-50s concessional cap, including who will be eligible for the $50,000 cap from July 2012, and how the $500,000 account balance threshold will be implemented.

This article, and SuperGuide’s companion Q&A feature on the topic, will hopefully answer most of your questions.

I won’t delve too deeply into my strong views against the new contributions policy and the protracted nature of its introduction, except to say that I consider the delays in introducing the rules unacceptable especially when the Government is implementing such an ill-conceived, unfair and simply bad policy. The proposed change to the contributions cap is 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.

If anyone in the decision-making process is listening, my advice is to keep it simple! Get rid of the $500,000 account balance threshold and make it a simple and straightforward $50,000 cap for everyone over 50.

What are the proposed changes to the over-50s concessional cap?

In early May 2010, the Government published its response to the Henry Tax Review. As part of the Government’s response to the report, the Government announced that Australians aged 50 or over can retain the $50,000 cap for concessional (before-tax) contributions, subject to satisfying certain conditions.

Although not yet law, from July 2012 you can continue to access the $50,000 concessional cap provided that your superannuation account balance is less than $500,000. At the time of the announcement, everyone was in the dark (including the Government I suspect) about how the $500,000 account balance rule was to be implemented. The Government is now in consultation with the super industry about the mechanics of the $500,000 threshold (see later in the article).

In May 2011 (Federal Budget), the Government announced that the over-50s concessional contributions cap is to be ‘indexed’ rather than having it remain at $50,000 for perpetuity. Due to the nature of the indexation announced, the under-50s cap will shrink over time in proportion to the under-50s cap. From July 2012, the over-50s cap will always be $25,000 more than the under-50s cap, rather than double the under-50s cap. I explain this super con in more detail in the article Contributions cap for over-50s to be ‘indexed’… if that’s what you call it.

What do the proposed changes mean for my current and future concessional contributions plans?

For the 2010/2011 and 2011/2012 year, the current $50,000 cap is in place for over-50s, regardless of the size of your super account balance.

The $50,000 concessional cap for over-50s was supposed to revert to $25,000 (or the indexed amount if applicable) from July 2012. If your account balance is under $500,000 and you’re aged 50 or over, then your concessional cap will be $50,000 from July 2012 (subject to legislation, and subject to satisfying yet to be finalised conditions).

For under-50s, the current and future concessional cap is $25,000 for each financial year.

Note: Concessional contributions include your employer’s compulsory Superannuation Guarantee contributions.

Our companion feature Super contributions: Over-50s concessional caps (10 Q&As) answers the most popular questions asked by SuperGuide readers about current and future concessional contributions plans.

What is the super industry doing about the over-50s cap?

The Government released a consultation paper on the concessional cap policy (Consultation Paper – Concessional Superannuation Contributions Caps for Individuals Aged 50 and Over). The Government received substantial 119 industry and community submissions.

One of the non-industry submissions was from an individual called Carol Anderson. Her comments contained in her one-page submission capture the sentiment shared by many of our fellow SuperGuide readers, based on the hundreds of emails that I have received from SuperGuide readers.

Ms Anderson’s submission includes the view that the constant change to the super contributions caps is counterproductive and causing angst for those Australians who have made a commitment to creating a financially secure retirement. Ms Anderson also considers the $500,000 threshold will result in inequitable outcomes for super savers. She requests that the $50,000 concessional cap be extended to everyone aged 50 and over, by removing the $500,000 benefit limit. If you have a spare minute or two after finishing this article, why not read what Ms Anderson has to say. Click here, but note that you will leave the SuperGuide site when you click on the link.

When will the proposed changes to the concessional caps become law?

The Government is currently consulting with the superannuation industry but the rules need to be in place before July 2012, since that is when the rules are supposed to take effect. The Government has not yet introduced legislation into Parliament.

We will notify all SuperGuide subscribers when the changes to the concessional caps become law.

If you have questions about the proposed over-50s concessional cap, check out this article’s companion feature Super contributions: Over-50s concessional caps (10 Q&As).