Superannuation Cap Lowered

As announced at the federal budget discussions this week, salary-sacrifice superannuation contributions for those over the age of 50 has been lowered from $50,000 to $25,000. 

Analysts say the move may mean fewer people may opt for this when superannuation contributions used to come highly recommended by financial planners and is considered a popular tax strategy. 

Five years ago, anyone with spare income was able to acquire substantial tax savings with its former transition to retirement (TTR) strategy. Even as the cap was adjusted in 2010, the investment still gained reasonably. But as the new cap takes effect on July 1st, experts consider the investment as no longer viable. 

The new strategy suggests living off taxed pension income for those above 50 years old so that salary sacrifices can be entered into the super. This apparently allows the investor to save more for retirement. But some say this is not the case. 

A worker earning $200,000 with the new salary cap would have a guaranteed payment of $18,000 and $7000 as “salary-sacrificed.” Investors also need to factor in fees for fund managers or planners, who will help implement the strategy, as well as other fees for the product. 

Figure comparisons that show the benefits before and after strategy changes show overall cost can go from $2000 to $3000 yearly and this is just for those with higher incomes.

Fund managers say many of their clients will have to review their strategies, or stick to the old transition-to-retirement scheme, if they cannot find better alternatives.

This has made superannuation funds even more complex and investments have to be done with great care.