Rice Warner looked at eight case studies of super fund members aged 40 who were planning to retire at 67 (the future retirement age).

Four were middle income earners currently on $100,000 a year, with the other four high income earners pulling $250,000 a year. Their existing superannuation balances range from $100,000 to $250,000.

The modelling found that each of the fund members would be able to save at least $1.6 million in superannuation, the Government’s proposed cap on amounts transferrable to a pension account.

Significantly, five of the eight fund members in the case studies would be able to build super balances of at least $1.6 million without having to make any more non-concessional contributions.

Here are Rice Warner’s calculations

The remaining three would get to $1.6 million making only modest annual non-concessional, or after-tax, contributions, the research found.

However the journey may prove more difficult for 40 year olds without significant super savings who will struggle for two decades with mortgages and families.

Each fund member will build their balances mainly relying on the combination of concessional contributions (in some cases markedly below the proposed new limit of $25,000) and the investment earnings of their funds, utilising the benefits of compounding returns over 27 years.

Rice Warner also observed that those able to build more than $1.6 million would be able to keep the excess funds in a concessionally taxed accumulation fund.

Tweaks to non-concessional caps

Rice Warner said the government could consider special circumstances where people could be allowed to make non-concessional contributions higher than the proposed new $500,000 limit to build overall balances to $1.6 million.

Exceptions could include people in their fifties, with little in super who want to “catch up.”

The researchers also suggested some leniency for people who had used re-contribution strategies in transition-to-retirement pensions back into superannuation as non-concessional contributions.

Perhaps some re-contributed amounts could be excluded from the lifetime cap in these cases, the research house suggested.

Rice Warner also suggested a method of addressing the criticism of the backdating of the $500,000 lifetime cap to July 2007 as “retrospective.” Backdating half the cap, or $250,000, might be considered fairer, the firm observed.

Rice Warner’s calculations assume fund earning rates of  6.5 per cent a year, account fees of one per cent, consumer price rise of one per cent and wage inflation of four per cent.

It also observed that the government’s proposed $500,000 non-concessional cap and $1.6 million cap on pension accounts are indexed.

Under Budget proposals, the concessional contributions of those making $250,000 or more will be taxed at 30 per cent, not 15 per cent.