Many workers nearing the end of their working lives will have had their superannuation plans destroyed by the new limits for superannuation contributions established in the 2012 budget.
It has long been the practice for older workers to make larger contributions in the latter years of their employment, but the 2012 budget puts a stop to these plans.
From 1 July 2012, the transitional concessional contributions cap for all members aged 50 years and over will be cut from $50,000 to $25,000 regardless of their super balance. This has two significant implications for members aged 50 and over:
- Do not inadvertently exceed the lower contributions cap in 2012-13
- Consider taking advantage of the $50,000 limit before 1 July 2012.
In order to avoid inadvertently exceeding the limit, it is important to understand how super contributions are counted for this test. Super is counted on a cash basis and this may not necessarily fall neatly into one financial year as an employer can legally pay the June quarter contributions in either June of a financial year or July of the following financial year. There is therefore the real possibility of an employer paying five quarters of super contributions for a super member in one financial year thereby placing the Member in breach of the rules through no fault of his/her own.
We have seen members fall prey to the top marginal rate payable on super contributions because they have paid the maximum cash contributions without realizing their employers were also paying life insurance premiums on their behalf through another super fund. This then puts them over the contribution limit. In this instance, the members are the ones who will pay the penalty out of their super account at their top marginal rate of tax.
So, in summary, in the 2012/13 year the lower contribution limit of $25,000 will mean that members will need to watch carefully to ensure that they don’t over contribute. Some will need to choose between life insurance and super savings.
Both members and employers must monitor very carefully when payments are made into Super Funds, calculating running totals throughout the financial year.