Financial planner calls for ‘catch up’ contributions cap

Financial planner Christine Hornery, CFP, Director of FMS Group says the new higher contributions caps for superannuation which took effect from 1 July 2014, are not high enough for people who spend prolonged periods of time out of the workforce and is calling for the introduction of a ‘catch-up’ concessional (before-tax) contributions cap to help these people accelerate their superannuation balances.

“Many women and some men leave their jobs to raise families, sometimes for a prolonged period of time and therefore may not receive superannuation guarantee contributions for many years,” she says. “Even when they return to work, they cannot have concessional contributions made to their superannuation accounts beyond the new annual $30,000 cap, or $35,000 if they are aged over 49.”

Ms Hornery says a special ‘catch-up’ concessional contributions cap, that allows people who have spent a significant period of time out of the workforce to receive concessional contributions beyond the current caps may help them build bigger superannuation account balances faster.

“If a person takes say 10 years out of the workforce, then for 10 years that person usually has no money going into their superannuation account at all,” she says. “Currently, there is no provision for these people to ‘catch up’ once they return to work. They are caught under the same concessional, and for that matter non-concessional, contribution limits as a person who has spent a lifetime in the workforce.”

Generally speaking, non-concessional contributions are contributions made from after-tax income. “People can make non-concessional contributions to their superannuation up to a new, higher cap of $180,000 per year, however, where these contributions do come from after tax income, they are not as tax effective as when they come from before tax income,” she says. “People starting from so far behind the eight ball need as much favourable tax treatment as possible – which is why they need a higher concessional contributions cap.”

Last month, Ms Hornery highlighted disturbing statistics published in the Association of Superannuation Funds of Australia (ASFA)’s March 2014 update on the level and distribution of retirement savings which reported that more than a third of all women and around 60 per cent of those aged between 65 to 69 say they have no superannuation whatsoever.

“It is appalling that as a country we know this, we know it is an ongoing problem and yet we are doing nothing to address it,” she says. “We need to be putting in place initiatives to encourage women, particularly those who have spent a long time out of the workplace, to place as much as they possibly can in superannuation for retirement and, given the huge burden these people are likely to become on Centrelink when they retire if we don’t, we need to do it now.”