In a major change of direction, the federal government announced on Thursday it will be scrapping its proposal to introduce a $500,000 lifetime cap on non-concessional superannuation contributions.
In a statement, federal Treasurer Scott Morrison said that following extensive industry consultation the planned 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.
- 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.
"These measures mean that 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," the Treasurer said.
"While noting that less than 1 per cent of superannuants now reach the proposed transfer balance cap of $1.6 million, these improvements will mean Australians will be given a clear and better opportunity to realise their aspiration to build their balance to the limit of the transfer balance cap."
However, the Treasurer also announced that the Government will not be proceeding with its plan to allow individuals over the age of 65 to continue contributing into their super on an unrestricted basis.
"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.
"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.