Australian govt scraps unpopular plans for ‘lifetime cap’
Australian prime minister Malcolm Turnbull has scrapped controversial plans for an A$500,000 lifetime non-concessional cap on workers’ superannuation contributions – which would have been back-dated to 1 July 2007, and would have included transfers from the UK – in favour of a compromise arrangement.
The lifetime cap was meant to raise A$550m over four years, but was strenuously opposed by parts of the super industry, wealthy Australians, and Coalition MPs.
Australians already face caps on their non-concessional contributions, but these are set at A$180,000 per annum, with the ability to pay in a lump sum of up to A$540,000 covering a three-year period if aged under age 65.
Under the compromise deal, individuals would now be permitted up to A$100,000 per annum in non- concessional contributions to be added to their supers, on an annual basis, until an overall Australian superannuation fund limit of $A1.6m is reached.
Those under the age of 65 will still be able to ‘bring forward’ three years’ worth of non-concessional contributions, although individuals with balances in their supers of more than A$1.6m will not.
The new deal will keep in place a “work test” for those aged 65 to 74.
According to Australian media reports, MPs and the Coalition government are still discussing the precise details of the changes, but amendments are currently being proposed to still ensure a total saving to the government over four years of A$3bn. Once a final plan is hammered out, it will be voted on by Australia’s MPs.
The news emerged in Australia on Thursday, in the form of an announcement by Treasurer Scott Morrison.
Darion Pohl, founder and head of the London-based Prism Xpat advisory firm, says the scrapping of the proposed lifetime super cap is a “big plus” for anyone who is likely to end up spending their final years in Australia.
“The reason it’s a plus is because people who are likely to end up in Australia for their retirement can now actually plan, on a global perspective, again,” says Pohl, who is himself Australian, and whose company specialises in looking after people relocating or returning to Oz as well as those coming from Australia and looking to spend time in the UK, or elsewhere.
“From an international point of view, it actually affects three groups,” Pohl adds.
“It affects, firstly, people who are based in Australia now, but who have worked overseas in the past; people who are living overseas and may emigrate to Australia; and Australian expats who may return to Australia. So, and obviously, the fact that they can now consider whether to retain funds overseas, or whether to move them to Australia, gives them a chance for proper financial planning, instead of not having an option, particularly if they already have A$500,000.
“Now, people can actually look at their finances and their pensions on a global scale, not just from an Australian perspective, and consider where they should hold [their assets], when they should move them, where they should move them, how they potentially might also benefit from Australia’s generous tax system in retirement – which in a lot of cases allows [pension payments] to come out tax-free.”
It’s also good news for financial advisers like Prism Xpat, Pohl admits, because maximising one’s retirement options will require the correct structuring of such elements as pensions, and avoiding potential tax traps.
As for UK pension transfers to Australia, such as recognised overseas pension schemes (ROPS, as HM Revenue & Customs now refers to what used to be called QROPS), Pohl says today’s news “slightly” favours Australian pension fund providers.
“What it means is that Australia-based ROP schemes can accept more funds in [than they would have been able to under the now-scrapped proposals], so more people will probably move funds to Australia as a result, as opposed to having their pensions paid out to them [in Australia] from an overseas ROPS,” he says.
To see a video of Australian treasury minister Scott Morrison announcing the scrapping of the lifetime cap, click here.
To read a profile of Prism Xpat in the October issue of International Investment, click here.