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Super changes see voluntary contributions fall

Coalition super changes are frightening savers.

Coalition super changes are frightening savers. Photo: AAP

The government’s proposed changes to superannuation rules seem to be scaring savers away from putting extra cash into super.

New figures released by the Australian Prudential Regulation Authority show a steep fall of 12.65 per cent in voluntary superannuation contributions in the year to June 2016.

“It’s no surprise that with the changes to super announced in the budget aimed at lowering contribution levels that people are starting to see superannuation as significantly less attractive,” said David Simon, principal advisor with Integral Private Wealth.

Industry fund outperformance continues

The figures also show that industry super funds have retained their lead in performance, with both investment returns and assets under management growing faster than competitors in other sectors.

Industry fund returns totalled four per cent in the year to June 30 2016, while retail funds managed only 1.3 per cent.

David Whiteley, CEO of Industry Super Australia, said “the outperformance of industry and not-for-profit super funds over time is so established that it is not unreasonable to question why bank-owned super funds are not able to deliver similar returns to their members”.

The under-performance of bank-owned funds means “there’s less super savings in the national pool for investment in areas like infrastructure”, Mr Whiteley said.

“There’s a greater risk over time for the taxpayer as more people will be reliant on the Age Pension” if super returns are lower in the retail fund sector,” he said.

“We have a moral, economic and fiscal responsibility to make sure super funds perform adequately.”

Superannuation contributions are under the pump, with overall contributions declining 0.68 per cent for the year to $103.8 billion. Proposed government changes to super appear to be the big driver with the overall fall led by voluntary contributions.

Personal contributions fall

Personal contributions made by super fund members declined 12.6 per cent over the year to $20.65 billion compared to $23.62 billion for the previous year. In June, the last month of the financial year when people often make decisions on voluntary contributions, the figure fell 10.3 per cent to $7.16 billion.

In comparison, superannuation guarantee payments, which are made by employers and are not variable, grew 4.2 per cent to $55.58 billion. Salary sacrifice contributions which are organised by workers with their employers, usually at the start of the financial year, grew 10.9 per cent to $8.3 billion.

Coalition costings to be released on Tuesday.

Scott Morrison announced changes to super in the budget. Photo: AAP

Personal contributions are generally made up of after-tax contributions to super and some pre-tax contributions made by mostly self-employed people.

They are the target of the changes to super announced during the May budget by Treasurer Scott Morrison. They will see after-tax or non-concessional contributions capped at $500,000, concessional caps reduced from $35,000 to $25,000 and tax levied on accounts of more than $1.6 million in retirement.

“Our clients tell us they are increasingly reluctant to contribute more to super because the proposed changes made them feel less confident about super as an investment,” said Mr Simon.

The contributions equation

Another significant fact revealed by APRA is that drawdown on super accounts is overtaking overall contributions.

The contributions equation.

Source: APRA

What is happening is that people are taking out more in super than they are putting in over the whole super system. That is driven in part by the fact that the population is ageing and more people are retiring and drawing on their funds to live.

But Mr Simon says other factors are also at play.

“As people move into the age bracket where they can access their super they are paying off debt, renovating their homes or helping the next generation.”

Another strategy driving super withdrawals is rebalancing super accounts between couples.

“In the situation where for a couple, the older partner has contributed significant super savings that are assessable in the assets test for the Age Pension, money is withdrawn and put into the super account of the younger partner enabling them to get more from Centrelink,” Mr Simon said.

Total superannuation assets grew 3.6 per cent to $2.109 trillion and funds in the default MySuper category rose 10.9 per cent to $474.9 billion.

The final shape of the government super changes will be decided by the Coalition parties in coming days. Revenue and Financial Services Minister Kelly O’Dwyer will be charged with carrying the policy along with Mr Morrison.

*The New Daily is owned by industry superannuation funds.

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