People should be able to carry forward unused concessional contribution cap amounts and contribute to their superannuation when they have the capacity to do so, says Andrea Slattery, CEO/Managing Director of the SMSF Association.
In its 2016 Budget submission, Slattery says the Association is urging the Federal Government to end the “use it or lose it” approach and allow people to make increased contributions to superannuation when their circumstances allow it.
“The current system delivers a poor result for people with volatile incomes – those with broken work patterns, especially women, small business owners or farmers whose income can fluctuate widely. These people may be able to make significant contributions to superannuation in some years but not others.
“In addition, younger people who are unable to make contributions above compulsory superannuation contributions earlier in life due to financial commitments, such as mortgages and raising families, will have an opportunity to increase their contributions later in life.
“Contrary to what many believe, a carry-forward approach is a more equitable and sustainable approach for the superannuation system in preference to a lifetime contribution cap approach.
“A lifetime contribution cap model can be exploited by making large concessional contributions early in life, reaping the long-term benefits from the low-tax superannuation environment for related investment earnings. But under a carry- forward model, contributions are limited by the maximum annual concessional contribution cap.
“Ultimately, making the contribution caps more flexible will ensure that everyone saving for retirement will have ample opportunity to make contributions to superannuation to build adequate savings that can be drawn down later in life.”
Under the current superannuation system contributions to superannuation are restricted through annual contribution caps for both concessional (pre-tax) contributions and non-concessional (after-tax) contributions. If maximum contributions are not made in the relevant income year(s), then that opportunity to take advantage of the unused portion of their contribution cap is lost.
Slattery says the Association is also asking the Government to address other red- tape issues that impede contributions to superannuation.
“This particularly applies to the complex rules around after-tax contributions for people aged 65 and over, and the 10% rule that restricts how people can make pre- tax contributions depending on whether they are self-employed or an employee.
“At the end of the day, ensuring that we have flexible contribution settings that cater for modern work patterns and people working longer will ensure the superannuation system can deliver the best results for all Australians.”
