Coalition dumps $500,000 lifetime superannuation cap

The federal government has made significant changes to its superannuation package, including dumping plans for a backdated, lifetime cap of $500,000 on non-concessional contributions, in order to win over the back bench and ultimately, the Senate.

In a compromise that was approved by party room on Thursday, the $500,000 cap backdated to 2007 has been removed and replaced by a mechanism in which people would be able to make both concessional and non-concessional contributions until the cap of $1.6 million in a super retirement account was reached.

There will be a yearly cap of $100,000 on non-concessional contributions, down from the current $180,000-a-year-cap, until the $1.6 million is reached.

After that, there can be no more non-concessional contributions, even to an accumulation account.

Post-tax super contributions and super balances Grattan Institute.

People aged under 65 can continue to bring forward three years worth of non-concessional contributions in recognition that such contributions are often made as lump sums.

Dumping the $500,000 lifetime cap for the $100,000 annual cap would cost the budget $400 million in revenue over four years.

To recoup this, the government has scrapped a proposal to remove restrictions such as minimum work requirements on people aged between 65 and 74 wishing to make voluntary contributions to their super.

The government has also delayed by a year - from July 1, 2017 to July 1, 2018 - plans to allow people with interrupted work patterns to roll over unused concessional contributions form the previous year.

Super was a source of internal Liberal Party instability, fuelled by the conservatives but Labor was poised to block the entire package on the basis the $500,000 cap was retrospective.

David Rowe
Treasurer Scott Morrison has already briefed shadow treasurer Chris Bowen on the package and says Labor now has no reason to block the package.

"Labor has no excuse whatsoever not to immediately support this," he said.

"It removes every impediment that Labor has mentioned."

The super breakthrough, worth a net $3 billion to the budget, follows a deal with Labor this week to deliver $6.3 billion in budget savings and the guaranteed passage of a hike in tobacco excise, all giving the government valuable momentum.

Overall, the government has now landed more than one quarter of its planed $40 billion in savings and revenue measures, something Mr Morrison said he hoped the ratings agencies would notice.

"It's really important that they can see that we are really committed to this task of arresting the debt," he said.

The super legislation will be introduced before the end of the year. The changes are due to start on July 1, 2017.

Mr Bowen said Labor would take its time to examine the proposal but said the government had made shambles of the whole process. Only a few weeks ago, the government attacked Labor for proposing to dump the measure for 65-75-year-olds in order to fund dumping the $500,000 retrospective cap.

He hinted Labor may keep pushing to dump catch-up contributions altogether.

"These are measures which might be worthy when the budget can afford them but we are talking about budget repair, a AAA rating under threat, we are talking about priorities," he said.

Liberal backbenchers who fought the $500,000 cap were happy.

"I'm very pleased that he Treasurer has listened and heard the feedback we received," said Liberal Senator James Paterson.

"The new policy is much better geared to reward aspiration and give Australians the best chance of saving for their own retirement."

Eric Abetz, one of the chief backbench agitators, was also pleased.

"Certainty in superannuation and no hint of retrospectivity is vital for a viable superannuation policy platform for the future. We owe it to the next generation to encourage them to be self-reliant without the threat of future plans being turned upside down," he said.

Recently, Prime Minister Malcolm Turnbull hinted that the $500,000 cap could be dumped altogether, noting it was worth $550 million out of the total $6 billion in savings the government planned to make with its super package.

Mr Morrison had told the back bench that any lost revenue due to changes had to be recouped elsewhere in the super package.

As previously reported,the government is also preparing to split its bill that was to enact a 10-year plan to cut the company tax rate to 25 per cent.

With the Senate very unlikely to embrace the entire $48 billion proposal, the government is now likely to push for the first phase which would reduce the rate to 27.5 per cent for all companies with a turnover of up to $10 million.

Mr Morrison all but confirmed this saying while the government still believed in the full plan to attract long-term investment, "100 per cent of nothing is ot the sort of pragmatic approach the Australian people expect".

In an interview with The Australian Financial Review, Prime Minister Malcolm Turnbull indicated the government was prepared to compromise on all its measures to secure passage through the Senate.

"The one thing that will not work in this Parliament is take it or leave it. We understand that. Unless you're prepared to leave it," he said.

Read more at http://www.afr.com/personal-finance/superannuation-and-smsfs/coalition-dumps-500000-lifetime-superannuation-cap-20160914-grgm7x#