Balance limits for retirees making contributions to superannuation without passing a work test should be increased from $300,000 to $500,000, the Association of Superannuation Funds of Australia said.
In a submission to Treasury, ASFA supported the federal government’s move to allow people over 65 to make super contributions without passing a work test but said the current $300,000 balance limit for the measure is too low.
The work test used demands fund members work 40 hours over a month to be able to make contributions.
ASFA said the $500,000 limit would be easier for funds to administer because there is currently a cap of that amount applied to those wanting to make catchup concessional contributions to super. ”
ASFA encourages the Government to consider expanding access to the exemption to individuals with a total superannuation balance under $500,000.”
“ASFA is concerned that the implementation and administration of the exemption and related amendments to the contribution cap arrangements will involve unwarranted complexity for individuals and impose a significant compliance burden and cost on superannuation providers and the Australian Taxation Office (ATO),” the submission said.
As well as reducing complexity (by avoiding the introduction of an entirely new threshold of $300,000 into the contribution rules), “this would enable a greater number of individuals to take up the opportunity to increase their superannuation savings ahead of retirement”, ASFA said.
Keeping the balance limit at $300,000 would restrict the measure to people who were unlikely to use it. “We anticipate that many individuals would require financial advice to fully understand the implications of the exemption, yet the exemption is targeted at individuals with modest superannuation balances who are, in ASFA’s view, unlikely to seek advice.”
Expanding the balance limit to $500,000 would likely not increase the volume and quantum of work test exemption contributions very much, ASFA said. “It is unlikely that large numbers of individuals will qualify, or be financially in a position, to utilise the exemption, and an individual can only utilise the exemption for one financial year.”
ASFA also called for the onus for verification of the balance cap limit for retired people making super contributions be moved from the fund to the member because this will reduce complexity for the fund administrators.
The government’s measure restricts the work text exemption to one year, meaning that members could only make such a contribution once. ASFA said that measure “significantly adds to the complexity of the exemption for individuals and superannuation providers and will appreciably increase the administrative burden and costs associated with the measure.
“ASFA considers that this restriction is inconsistent with the objective of encouraging individuals to save for their retirement through superannuation, and inconsistent with changing work patterns that may see individuals moving in and out of regular employment.”
Industry Super Australia said it did not have a view on ASFA’s proposed changes.