The winding back of tax concessions to superannuation proposed in the federal budget means many thousands of older workers may not have enough funds for a comfortable retirement, experts say.
Tax-deductible super contributions through salary sacrifice will be halved to $50,000 a year for those aged 50 or older, and $25,000 for those under 50, under proposals outline in the budget.
The government will also cut its super contribution from $1,500 to $1,000 a year for those on annual incomes of less than $60,000 a year.
University of NSW associate professor of actuarial studies John Evans said the federal government had “pulled out the rug” from people approaching retirement because of the proposed changes.
“The (super and pension) are completely inconsistent policies. They are sending a very strong signal.
“If you can afford to pay for yourself, then don’t rely on the old age pension, but we’re not going to give you any incentives to save.”
The government also announced a $32.49 a week increase for the full single rate age pension, effective September 20 but also will progressively increase the retirement age to 67 by 2023.
Pensioners with private incomes above $3,588 for singles and $6,240 a week for couples will have their payments reduced by 50 cents for each additional dollar earned.
University of NSW department of banking and finance senior lecturer Dr Thomas Henker said the changes represented bad policy.
“It leaves inadequate superannuation balances,” he said.
“Many superannuation portfolios for people in the workforce and retirees have already been stgastated by what’s going on in the market at the moment.”
Prosperity Advisers, an accounting and financial services firm, says the changes will be particularly distressing for older workers who decided recently to contribute extra to their super.
Prosperity Advisers tax director Stephen Cribb said people aged 50 and over who contribute to their super through a salary sacrifice scheme would see a large difference when they cashed in their savings.
“In real terms, in terms of concessional super contributions, after contributions tax … people will end up with about $120,000 to $130,000 less in their super savings.
“It leaves quite a hole that needs to be filled and people have to look at how they’ll fund their retirement.”
In 2006, then Treasurer Peter Costello allowed people to make a post-tax contribution of up to $1 million to their superannuation before June 30, 2007.
The changes were designed to accommodate retirees who were planning a big injection of funds into their superannuation just before retirement.
That limit for post-tax contributions was changed to $150,000 from July 1, 2007.
“For people who are nearing the retirement age, the approach that the government had previously taken was to allow people who were close to retirement to get there with appropriate superannuation savings,” Mr Cribb said.
“So what’s happened is that really, without much notice at all, the (current) government has halved the ability of those people who are 50 and over to contribute to super.
“There was an accelerated rate of contribution they would make until 30 June 2012, so we really had three years left to run on that.”