FPA propose further reforms to super contributions to secure Australia’s long term retirement savings.
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Last night’s Federal Budget announcement allowing excess superannuation contributions to be refunded back to the individuals reflects the ongoing advocacy efforts of the Financial Planning Association (FPA) but represents a lost opportunity to fix a problem facing many Australians.
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“While this reform is expected to reduce the number of occasions where the concessional contribution caps are exceeded and individuals penalised, the measure falls well short of delivering a solution for a very serious problem,” FPA CEO Mark Rantall said.
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“We believe the government could have taken advantage of the strong economic position to embark on a more ambitious tax reform program and whilst the concessional contributions amendments are welcome, there needs to be a substantial rethink of how we engage Australians in contributing to a stronger, long term retirement income position.”
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The FPA has called on the Federal Government to remove the 46.5 per cent excess contributions tax penalty for non-concessional contribution and:
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- Refund excess non-concessional contributions back to the taxpayer
- Provide taxpayer with warning and impose no monetary penalty if it is taxpayers first break of the non-concessional cap
- Impose a monetary penalty (admin fee) on the taxpayer if this is the second/third break of the non-concessional cap
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Nor does the FPA support the introduction of a $500,000 account balance eligibility threshold for concessional contributions. Rather, the FPA has called for:
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- The concessional contributions cap for people aged 50 and over to at least remain at $50,000 but indexed with inflation
- Removal of the Superannuation Guarantee (SG) from the concessional contribution limit
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From 1 July 2011, individuals who breach the concessional contributions cap by up to $10,000 can request that these excess contributions be refunded to them. This refund will only apply for first time breaches of the concessional caps. In effect, individuals will be able to take excess concessional contributions out of their superannuation fund and have it assessed at their marginal rate of tax, rather than incurring a potentially higher rate of excess contributions tax. However, what is not clear is whether individuals who have breached the cap before this measure commences will be eligible.
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The Government plans to complement the other reforms including the increase in the concessional caps for those over 50 (with superannuation balances under $500,000) from 1 July 2012; the gradual increase in the SG rate to 12 per cent; and a new super contribution of up to $500 for low income earners.
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“The FPA looks forward to continuing to work with the Federal Government and Treasury to ensure we achieve the most equitable outcome for both the financial planning profession and the retirement savings of all Australians,” Mr Rantall said.