The FSC has released new modelling by Mercer that indicates a reduction in the annual concessional contributions cap would actually end up costing the government money.
The modelling tackles the scenario, widely hinted to be part of the May 3 federal budget, under which the annual concessional contributions cap is reduced from $30,000 to $20,000.
The Mercer ‘cameo’ looks at a female employee who earns an income of $65,000 for 10 years from age 20 to 30, then takes a 10-year break before returning to the workforce at $65,000.
At age 45, she is promoted and her income increases to $80,000. She is then promoted again, at 50, and thereafter earns $100,000.
“This person’s higher income after they returned from their career break has allowed them to first pay down their family home, and then salary sacrifice $20,000 per annum into their superannuation from age 50 to their retirement at 67 years,” the modelling states.
Under the current $30,000 contribution cap, the total cost to the government throughout the individual’s lifetime is $315,000, whereas under a lower $20,000 cap, the cost to the government is $326,000.
The $11,000 higher cost to the government under the lower concessional cap environment stems from a higher dependency upon the age pension.
Commenting on the modelling, FSC chief executive Sally Loane said her organisation will not support “any reduction to concessional contributions caps”.
“We hope that [the government doesn’t] lower the concessional cap because we don’t think that would have a good outcome for taxpayers,” Ms Loane said.
However, the FSC is interested in any measures that would “move the dial” for the 80 per cent of working Australians earning close to $80,000 and would help them move off the age pension in retirement, she said.
“We would certainly be open to ideas and policy that leads to a sustainable long-term savings policy,” Ms Loane said.
“When [the government is] setting the levers as a long-term savings policy, [they should] allow that group to come off the age pension and fund their retirement,” she said.
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