The Federal Government's surprise move to cap superannuation concessions for the very well-off has met with a mixed response from retirees and industry players.
Treasurer Scott Morrison last night announced the biggest changes to superannuation since former treasurer Peter Costello removed taxation on super during the retirement phase in the 2006-07 budget.
Mr Morrison's moves go some way to unwinding the perceived inequity of Mr Costello's super changes, which have been widely criticised by experts for turning a retirement saving system into a tax-sheltered wealth accumulation and transfer system.
The main changes in this year's budget are a $1.6 million cap on the amount people can transfer into tax-free retirement phase super accounts, a lower threshold for the 30 per cent super contributions tax rate and a $500,000 lifetime cap on non-concessional contributions.
Seniors advocacy group COTA has warmly welcomed the changes, saying they bring the system closer to its originally intended purpose.
"COTA is pleased to see the Government move in a direction that ensures superannuation is used for the purpose it was originally intended — as a way for people to save for their retirement rather than a wealth accumulation scheme for Australia's highest earners," chief executive Ian Yates said.
"The changes, many of which COTA has called for over the last few years, will make superannuation much more sustainable and fit for purpose for the long term."
Deloitte's private superannuation tax partner John Randall agrees the moves to limit super concessions for the highest earners appear "reasonable", but may see a scramble to adjust investment plans given that existing investors are not grandfathered from the new $1.6 million cap.
"This amount will be indexed in $100,000 increments. However if you are already in pension phase and you have exceeded this level, you will have to move the excess monies back from your superannuation accounts from 1 July 2017," he said.
"This will pose administrative challenges for both members and administrators, especially for those individuals with multiple accounts."
Mr Randall added that the Government could have saved more money by aligning the 30 per cent super contributions tax threshold to the starting point of the top tax bracket.
"The Government could have gone further in helping to address the inequity and we would not have been surprised if it had been reduced to $180,000," he said.
Changes do not go far enough: CPSA
However, not everyone is happy with the changes.
Paul Versteege from the Combined Pensioners and Superannuants Association said they still leave far too many tax breaks available for the ultra-wealthy.
"We will [advocate] a cap on how much can be put in a super pension account, but it's a staggering $1.6 million," he said.
"And if you have more, you just leave it in your accumulation [contribution] account and pay a low 15 per cent tax on earnings, topping up your pension account as you take pension and lump sums out.
"Who has this kind of money? The wealthy."
Mr Versteege contrasted this with the retention of a maximum $500 tax rebate for low income earners' super contributions.
"The good old Low Income Superannuation Contribution has been left unchanged at a maximum of $500," he said.
"Generously, the Government has given it a new name. It's now called the Low Income Superannuation Offset, but $500 it is, $500 it stays.
"Who gets that kind of money? The poor."
However, the Government has added measures that allow many middle and upper-middle income workers to top up their super if they have been out of the workforce for a period, such as when having children.
That move has been broadly welcomed.
"We strongly support the Government's measures to allow those with broken work records, often women, to make top-up payments," KPMG's head of superannuation Dana Fleming said.
"This is a very fair and important move which will go some way to ensuring those individuals have a decent retirement package.
"Retaining the Low Income Super Contribution for low earners and allowing tax deductions for all contributions into superannuation are also welcome."