SMSF Baby Boomers may need to play super catch-up

The government has underestimated the impact of its super changes.

Summary: New research shows that cutting the annual concessional contributions cap to $25,000 will hit Baby Boomers harder, because they have much less working time left to build up their super balance compared with younger Australians.

Key take-out: More than a quarter of SMSF trustees aged 49 and over contribute in excess of $25,000 – not the 3.5 per cent claimed by the government.

Key beneficiaries: SMSF trustees. Category: Superannuation.

When the Turnbull Government unveiled its raft of planned superannuation and pension rule changes in the federal budget last year, it went to great lengths to explain that most Australians would not be affected.

It’s common knowledge that all Australians will be impacted by the cut in the annual concessional contribution limit to $25,000, regardless of age.

But new research shows that a high percentage of Australians with SMSFs, particularly those aged over 49, will be much harder hit by the super reforms than the statistics produced by the federal government suggest.

The Class SMSF Benchmark Report, released this week, shows that those who have not had the benefit of compulsory super contributions their whole working life, chiefly Baby Boomers and older members of Generation X, will be significantly impacted by the cut in the concessional contributions cap because of their need to make “catch-up” super contributions in later life.

In just over a month, from July 1, 2017, the annual cap on concessional contributions for those aged over 49 will be lowered from $35,000 to $25,000. Those aged under 49 will have their annual limit cut from $30,000, also to $25,000.

The Class report has found that while the government produced figures in the 2016 budget showing only 3.5 per cent of super account holders made concessional contributions over $25,000 a year, its own analysis (based on SMSF data it receives from financial advisors) shows that 25.9 per cent of SMSF members over the age of 49 did contribute more than $25,000.

“Measured by dollar value, 90 per cent of the reduction in contributions imposed by the new cap will come from members aged 49 and over,” the report found. “Even among those younger than 49 years, 17.3 per cent contribute more than $25,000 a year, much higher than the government’s figure of 3.5 per cent.”

Class CEO Kevin Bungard says many more Australians will need to carefully consider their retirement savings plans and whether they can actually meet their goals under the new contributions caps.

“The average SMSF member is aged 58 and worked for 15 years before the superannuation guarantee was introduced, well over a third of their career,” Bungard says.

“It’s no wonder that more than a quarter of those 49 and older took advantage of the higher caps to make catch up contributions.

“It will now be much harder for them to catch up for those lost years.”

The report also found a much larger percentage of SMSF members than implied by the government’s figures would be affected by the new non-concessional contribution caps and the $1.6 million transfer balance cap.

 

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