Don't let government tinkering of the superannuation rules stop you from making voluntary contributions to superannuation. While the fiddling is likely to be never-ending, the government is always going to make sure there are decent tax incentives for ordinary people to save for their retirement.
The rules are not perfect, but relying on compulsory contributions alone will not be enough to provide a comfortable retirement, and the tax breaks on super remain attractive.
It is the lowering of the cap or limit that can be salary sacrificed into super that is causing the most concern.
As part of the Howard government reforms that simplified superannuation, those aged 50 or older were allowed to salary sacrifice up to $100,000 a year of pre-tax income into their super from July 1, 2007.
All taxpayers subsidise the tax breaks on super, and those who can afford to put the most into super receive the biggest tax breaks.
The argument for high caps is that the more people save for their retirement, the less the government will have to spend on the age pension. But the reality is that relatively few people of pensionable age are truly self-funded. One of the reasons for that is the generous means testing of the age pension. On reaching pensionable age, a couple can have assets of about $1 million, excluding the family home, and still qualify for a part pension. Qualifying for even a small age pension gives full access to pensioner discounts.
That helps explain why the cap for over-50s was lowered to $50,000 by the Rudd government from the year 2009-10. The need to balance the budget explains why the cap was reduced to $25,000 for all ages by the Gillard government from 2012-13. Also, from 2012-13, those with incomes of more than $300,000 a year will have the tax on their super contributions doubled from 15 per cent to 30 per cent, affecting about 1.2 per cent of taxpayers.
Even though the contributions cap includes the 9 per cent superannuation guarantee, for most people salary sacrificing is still a very good deal. Someone on the average wage of about $70,000 can sacrifice $18,700 a year. Not many people, particularly those with children living at home, could afford to sacrifice up to the cap.
But there are people for whom the cap is a problem - mainly women who have broken work patterns. When the children become independent, many choose to return to full-time work. And with the mortgage paid off, they may at last have the capacity to put a large portion of their before-tax pay into their super.
It was with these people in mind that the government had intended to allow a higher cap of $50,000 for over-50s with super balances of less than $500,000. But it has deferred implementing the measure until July 1, 2014.
Frequently Asked Questions about this Article…
Should I keep making voluntary contributions to superannuation even though the government keeps changing the rules?
Yes — don’t let government tinkering stop you. The article says tax incentives for voluntary super contributions remain attractive, and relying on compulsory contributions alone is unlikely to deliver a comfortable retirement. Making voluntary pre‑tax contributions (salary sacrifice) can still be a smart way to boost your retirement savings.
What tax incentives apply to salary sacrifice and other pre‑tax super contributions?
The article explains that governments continue to provide decent tax incentives for super, making pre‑tax contributions attractive for many taxpayers. While rules and caps change over time, the tax breaks on superannuation remain a key reason to consider salary sacrificing into your super.
How have concessional contribution caps changed in recent years?
According to the article, the cap history is: from 1 July 2007 people aged 50+ could salary sacrifice up to $100,000 a year; that cap was lowered to $50,000 for over‑50s from 2009–10; and from 2012–13 the concessional cap was reduced to $25,000 for all ages.
Who is most affected by lower contribution caps and why should everyday investors care?
The article highlights that the cap change mainly affects people who suddenly gain capacity to boost super balances — notably many women with broken work patterns who return to full‑time work once children are independent and mortgages are paid. Everyday investors should care because lower caps restrict how much pre‑tax income you can funnel into super when you have the means to save more.
Does the contributions cap include my employer's super guarantee (SG) contributions?
Yes. The article notes the contributions cap includes the 9% superannuation guarantee. For example, someone on the average wage of about $70,000 could still salary sacrifice roughly $18,700 a year after accounting for the employer SG under the $25,000 cap.
Will high‑income earners pay more tax on their super contributions?
Yes. The article states that from 2012–13 people with incomes above $300,000 a year will have the tax on their super contributions doubled from 15% to 30%, a change that affects about 1.2% of taxpayers.
Will allowing higher contribution caps reduce government spending on the age pension?
The article explains the argument: higher caps should mean more people are self‑funded and the government spends less on the age pension. In practice, however, relatively few pension‑age people are truly self‑funded because Australia’s means testing is generous — a couple can have roughly $1 million (excluding the family home) and still qualify for a part pension, which also gives access to pensioner discounts.
Was there any planned relief for over‑50s with lower super balances?
Yes. The article says the government intended to allow a higher $50,000 cap for over‑50s with super balances under $500,000, but implementation of that measure was deferred until 1 July 2014.
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