Concessional caps’ sweet spot around $50,000
The sustainability and retirement sweet spot for concessional contribution caps is close to that which prevailed in 2007 with the Government's current settings still far too low, according to a panel of senior superannuation executives.
The panel, part of a breakfast hosted by Money Management's sister publication Super Review and CommInsure, was asked what represented the sweet spot with respect to concessional contribution caps,with all of them agreeing that it was certainly higher than the $35,000 announced in the Federal Budget.
The concessional contribution caps stood at $50,000 in 2007 and were then progressively reduced down to $25,000 in Government's 2012 Budget — something which the panel agreed was too low to meet the needs of pre-retirees looking to top up their superannuation before they finished their working lives.
Economist and chief investment officer at Mosaic Portfolio Adviser, Matt Drennan, said he believed the cap needed to be lifted to help retirees meet adequacy in retirement, while Association of Superannuation Funds of Australia chief executive, Pauline Vamos, said her organisation had been very specific about the need to lift the caps.
The panel was also in agreement on the desirability of limits being placed on the extent to which retirees could access retirement lump sums, with LG Super chief executive Peter Lambert strongly supporting the encouragement of income stream-type products.
Vamos said this was consistent with the recommendations contained in an ASFA white paper, which found that while access to a lump sum up to a certain level was appropriate to meet various capital expenditure and other immediate needs of a retiree, there should be limits on the amount that could be withdrawn.
The white paper further argued that the tax treatment of lump sums should be less favourable than for a benefit taken as an income stream.
She said the white paper had noted that this would encourage individuals not to substantially run down their retirement savings prior to becoming eligible for the Age Pension.
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