Government moves quickly to increase super contribution limit

There were no further changes to superannuation announced in the recent Federal Budget, but the Government has wasted no time in moving on its previously announced proposal to increase the concessional contribution cap from 1 July 2013.

On 5 April, Minister Shorten announced a $10,000 increase to the annual $25,000 cap and Treasury have already released an exposure draft for industry consultation.

The increase will be phased in over two years with individuals aged 59 or older becoming eligible on 1 July this year, and those aged 49 or above becoming eligible from 1 July 2014. For everyone else, the $25,000 annual cap will remain and indexation will be frozen until the 2014/15 financial year, then the cap will be indexed annually until it reaches $35,000.

In effect, this means the government have simply brought forward eligibility for those aged 49 or above as the cap was going to be indexed until it reached $35,000 anyway.

Regardless, the government should not only be commended for this policy (given tax revenues have fallen off a cliff lately due to the high $AUD), but also for acting to legislate the change as soon as possible (even if it is a strategy to buy votes). Whether the bill is passed by Parliament before the election is anyone’s guess but if it is, it’s unlikely a new government would move to scrap it.

Additionally, it’s important to remember that previously planned tax cuts will now be shelved (probably until the budget returns to surplus), so the only tax relief for (some) individuals over the next few years may come from this increase to the super contribution limit. This is an opportunity to be seized.