Super backflip: government axes lifetime cap, brings in annual cap

Workers will face a new annual limit on their contributions in the biggest change to the government’s proposal.

Treasurer Scott Morrison. Picture: AAP

Workers will face a new limit of $100,000 a year on their contributions to super from their after-tax income or savings in the biggest single change to the government’s controversial tax changes.

The new approach replaces the divisive proposal for a $500,000 “lifetime cap” on the non-concessional contributions, an idea announced on May 3 but bitterly opposed by parts of the super industry, some wealthier workers and Coalition MPs.

The compromise ensures the end of the “retrospective” aspect of the super plan where the $500,000 cap was to start from 1 July 2007, a measure that became a deal-breaker for Coalition.

The lifetime cap was meant to raise $550 million over four years.

Australians already face caps on their non-concessional contributions but these are set at $180,000 over three years.

Coalition MPs are still meeting on the changes. Once they reach agreement, government ministers will take the proposal to Labor to try to lock-in support to get the modified reform plan through the Senate.

The amendments will still ensure that the overall saving to the budget bottom line, of $3 billion over four years, is retained.

Morrison’s superannuation changes

• The $500,000 lifetime non-concessional cap will be replaced by a new measure to reduce the existing annual non-concessional contributions cap from $180,000 per year to $100,000 per year.

• Individuals aged under 65 will continue to be able to ‘bring forward’ three years’ worth of non-concessional contributions in recognition of the fact that such contributions are often made in lump sums. The overwhelming bulk of such larger contributions are typically less than $200,000.

• Individuals with a superannuation balance of more than $1.6 million will no longer be eligible to make non-concessional (after tax) contributions from 1 July 2017. This limit will be tied and indexed to the transfer balance cap.

• With their annual concessional contributions, Australians will be able to contribute $125,000 each year and, if taking advantage of the non-concessional ‘bring forward’, up to $325,000 in any one year until such time as they reach $1.6 million.

Mr Morrison said he had consulted his opposition counterpart, Chris Bowen, and had offered his team a full briefing on the proposals.

The Treasurer said reversing the lifetime non-concessional cap announced in the budget would cost revenue $400 million over four years.

“In order to fully offset the cost of reverting to a reduced annual non-concessional cap, the Government will now not proceed with the harmonisation of contribution rules for those aged 65 to 74. While the Government remains supportive of the increased flexibility delivered by this measure, it can no longer be supported as part of this package, without a net cost to the Budget,” he said.

“Individuals aged 65 to 74 who satisfy the work test will still be able to make additional contributions to superannuation. This will encourage individuals to remain engaged with the workforce which is of benefit to the economy more generally.

“In addition, the commencement date of the proposed catch-up concessional superannuation contributions will be deferred by 12 months to 1 July 2018 to ensure the full cost of changes to non-concessional contribution arrangements are met over both the forward estimates and the medium term.”

The revised super package was passed by the Coalition partyroom by acclamation and was later praised by MPs who had been worried about tax increases they regarded as retrospective.

Liberal National Party MP George Christensen said he was “100 per cent supportive” of the modified plan and he praised Mr Morrison and Ms O’Dwyer for listening to the backbench.

Victorian Liberal Senator James Paterson said the outcome was meant there should be “no obstacles” to getting the changes through parliament.

“I was one of those backbenchers who had concerns about the superannuation policy we took to the election,” Senator Paterson said.

“The government has listened and heard the feedback we received from our constituents and

the new package is a significant improvement. The system now gives every Australian the best opportunity possible to save for a comfortable retirement.”

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Additional reporting: Jared Owens