THE HIDDEN MEANING BEHIND REDUCED SUPER CONTRIBUTION CAPS

By Byron Murphy

The changing of the Super Contribution Cap now means you need to look beyond super to secure your future.

Concessional contributions are those contributions for which a tax deduction may be claimed. They generally include contributions made by self-employed tax payers as well as contributions made by employers as either Super Guarantee [SG] payments or salary sacrifice contributions made by employees on top of the SG payments they receive.

Until 30 June 2009, the concessional contribution cap is $50,000 for those under 50 and $100,000 for those over 50.  From 1 July 2009 these caps have been reduced to $25,000 and $50,000 respectively. It is fair to say that most people under 50 could not afford to contribute $50,000 a year to super, because they usually have children to raise and mortgages to pay off

But the underlying essence of these changes is that if you could contribute $25,000 p.a to super, you would not be able to retire comfortably without working longer than age 65 and relying on an age pension.

If you contributed $25,000 for 45 yrs (working from age 20 to age 65) assuming a 6.5% p.a compounding net return on your superannuation, then you would have acquired approximately $6.15M in super. But this ignores the effect of inflation, so in present dollar terms that would be about $1.59M (assuming real inflation of 5% p.a). This would last approximately 25 years if you needed $50,000 pa to live on and had no capital expenditure needs, such as updating your car, white goods, travelling etc.

The simple fact is that even if you can afford to contribute $25,000 to super every year of your working life, you would probably not have enough to live comfortably in retirement without an age pension. Now more than ever, we must all look to investing beyond our “normal” superannuation either by making after-tax (non-concessional) contributions to super or creating wealth outside super, where it can be accessed before retirement if needed.

There are simple and effective strategies to plan for your financial future and to protect your assets when times are tough, even for the most conservative of investors. These include realistic strategies to pay off your mortgage sooner.

Now more than ever it is important to seek professional financial planning advice about what your options are.

Call me direct to make a free no-obligation appointment to discuss your financial needs. Phone 0411 488 443.

Byron Murphy

P.S If you receive a letter from the ATO regarding Excess Contribution Tax please be aware this is just an advice letter. Please contact us or your super fund with any enquiries.

 

PS