Why we need to review superannuation contribution capping

28 March 2019

Mark Wilkinson , Partner, Superannuation |

Australia’s superannuation contribution rules are some of the most complex in the world. This is evident by the fact that a retiree by the name of Colin Ward recently found himself liable for a tax penalty of $209,250. Colin was trying to re-organise his retirement savings and inadvertently exceeded the cap on the amount of non-tax deductible contributions that could be made to a fund in a given period.

Unfortunately, this is not an unusual experience. The fact is that there have been numerous examples of taxpayers inadvertently breaching caps and triggering disproportionate penalties under the tax legislation.

Why is it important to review contribution caps?

While the contribution caps are complex, this is not the only reason they need to be reviewed. It is a simplistic assumption that an individual will commence work at the age of 18 and will work continuously and without interruption for the next 45 to 52 years, all the while having superannuation contributions made for their benefit by their employers.

While some employees will be able to achieve this outcome, many will find themselves out of the workforce for extended periods due to life events such as:

  • Illness
  • Study
  • Unemployment
  • Child rearing
  • Caring for elderly and infirm parents.

In addition, for many of us the Superannuation Guarantee Charge has been paid at rates lower than 9.5 per cent of ordinary times earnings for most of our working lives, which will result in a small accumulated benefit.

These issues may combine so that when we reach retirement, we have a smaller accumulated superannuation balance and little time to catch up the shortfall between our current accumulated balance and the amount that is required to fund a comfortable lifestyle in retirement.

One potential solution to inadequate retirement savings would be the introduction of lifetime concessional and non-concessional contribution caps.

Example 1:

It may be that the Government introduces a lifetime concessional and non-concessional contribution cap of $1,000,000 each, meaning that a total of $2,000,000 could be contributed to superannuation over a person’s working life.

What difference would this make? 

A family that has struggled with school fees and home mortgages would be able to increase the superannuation contributions made in later years when it is more affordable.

Individuals that have left the work force to look after children or elderly parents would be able to contribute at a higher level when they return, making up for the amounts that were not saved in the period they were out of the work force.

The fundamental problem with our current contribution system is the assumption that everybody is able to contribute in the same way each year. This is unrealistic, and a series of lifetime caps would provide people that are not currently able to save for retirement with the opportunity to do so in the future.

Need help with your superannuation or financial planning?

If you found this information useful, please do not hesitate to contact your local BDO Superannuation expert.


Before making any investment or financial decisions you should consider, with or without the assistance of a professional adviser, your particular objectives, and financial circumstance or needs.

The information contained in this article is purely factual in nature and does not take into account your personal objectives, financial situation or needs. The information is objectively ascertainable and, therefore, does not constitute financial product advice.

Further, the above information is provided as an information service only and, therefore, does not constitute financial product advice and should not be relied upon as financial product advice. If you require personal advice that takes into account of your particular objective, financial situation or needs, you should consult your BDO advisor who will be able to assist you in their capacity as Australian Financial Services licensee.

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