The government changes to concessional contribution caps are not likely to provide a significant boost to a person’s retirement savings, according to ING national technical manager Graeme Colley.
In the May budget the government allowed people over 50 with a superannuation balance of less than $500,000 to make additional contributions to their superannuation of up to $50,000.
The marginal relief, however, is unlikely to make a significant difference to adequacy, according to Colley.
To illustrate this point, ING put together a scenario where a 50 year-old female with a zero superannuation balance made full use of the higher caps with an assumed return of 7 per cent each year.
Under these circumstances, by the age of 60 the individual would have only accumulated a retirement savings balance of $195,800.
“So the difference can be another $200,000 if they start from scratch,” Colley said.
In additional calculations, ING also determined a person aged 50 now will require $1.402 million in capital in order to live comfortably, which represents a multiple of 15 against a current day salary of $60,000.
Using the accumulated concessional contributions caps with annual earnings of 5.95 per cent after tax, the calculated numbers show the funding shortfall would be around $627,000, leaving the individual with a retirement savings balance of $775,000.
“What we see coming out of it is the need to save over a longer period of time,” Colley said.
“This may mean using mechanisms like salary sacrificing at an earlier age,” he said.
Another suggested strategy might be the use of negative gearing outside of superannuation to boost the total amount of assets available upon retirement.
