Squeezing less into retirement

Measures aimed at getting the budget back to surplus could limit the amount of superannuation for when your working days are done.

Measures aimed at getting the budget back to surplus could limit the amount of superannuation for when your working days are done.

IF YOU'VE been trying to squirrel away as much as possible into superannuation while you can, you need to take note of a few measures that were introduced by the Treasurer, Wayne Swan, last week. He is doing his darndest to make sure next year's budget is in surplus - no mean feat, given the current budget deficit forecast of $37.1 billion.

But some measures designed to aid us in building our retirement balances have been hit. You might recall, earlier in the year, I wrote about how the limit on concessional contributions into superannuation had already been squeezed.

That's the amount of money you can put into superannuation before tax.

It's a neat little way to build up your retirement balance, particularly if you can start it when you're younger.

For under-50s the annual limit has been $25,000 since the beginning of the 2009-2010 financial year. That amount includes your employer superannuation guarantee contribution of 9 per cent of your salary, plus any salary-sacrificing and one-off contributions. There had been some hope that amount would at least be indexed to keep up with inflation.

Not so, according to Swan last week. It was due to rise with indexation in 2013-2014 but will now be paused for one year.

"Indexation of the cap will be deferred until 2014 to 2015, when the cap is expected to rise to $30,000," the budget papers explain.

The pause will also include the higher caps for over-50s, who currently have a limit of $50,000 until the end of this financial year.

The non-concessional cap will be paused for the same period, which will mean a delay in an increase of that annual cap from $150,000 to $180,000.

Wayne Swan says this measure will translate to an increase in revenue of $485 million over the forward estimates period (2011-2012 through to 2014-2015).

Many argue that these concessional caps are a tax break for people on high incomes, as the tax rates in superannuation are much more favourable. However, they also provide a means for many close to retirement to build up their balances. And popular measures designed to help low-income earners build their super have also been put on hold.

Previously, the government would match your contributions dollar-for-dollar for incomes up to $31,920, after which the matching rate phased out gradually for incomes up to $61,920. But the co-contribution rate has been cut to 50 per cent and the maximum co-contribution entitlement halved to $500.

There has obviously been a pretty strong take-up of this scheme, as the government expects to save over $1 billion from this measure alone. As the crisis in Europe is showing, a country's debt is a problem when it becomes too expensive to service it obviously pays to not run your budgets into deficit for too long.

But what's the point of a surplus if it involves cost-cutting so severe, it stymies future growth? Swan's measures might not have gone that far but, given current volatile markets and the fall in superannuation balances for some due to the global financial crisis, let's hope measures designed to promote retirement saving are not paused indefinitely.

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