Treasurer Scott Morrison confirmed the U-turn on the proposed limit, which would have applied to after tax or non-concessional contributions made into a superannuation scheme – a state-backed savings arrangement where people invest in funds that will replace their income on retirement.
Morrison revealed the cap will now be replaced by an annual non-concessional $100,000 limit, down from the current $180,000.
The backflip comes after months of criticisms and concerns from the country’s MPs and financial services sector over plans to apply the original A$500,000 lifetime cap, announced in May, retrospectively to payments dating back to 1 July 2007.
The overall Australian superannuation fund limit will remain at $A1.6m and anyone under 65 will still be able make three-year’s worth of non-concessional contributions in one lump sum.
“The previous limits may have resulted in their UK pension remaining in the UK if the expat had previously reached the A$500k limit.”
People aged 65 to 74 will still need to meet the work test in order to make additional contributions to their super accounts.
The government’s decision to replace the lifetime cap with a reduced annual limit is expected to cost the budget A$400m over four years, and A$2.2bn over 10 years.
‘Inflexible’ work test
Speaking to International Adviser, Darion Pohl, managing director of UK-based expat advisory firm Prism Xpat, said the new rules will benefit British expats living in Australia, who are aged under 65.
“The lifetime non-concessional cap of A$500,000 had meant that in many cases, these people would not have been able to move their funds to Australia for their retirement, and would hence be locked into paying Australian marginal rate tax on the drawing of benefits,” he explained.
However, Pohl raised concerns over the Australian government’s decision to carry on with the work test rule for those aged between 65 to 74, arguing that it makes the country’s pension system more inflexible.
“The move to retain the work test for over 65s will lead to less flexibility – however still provides an opportunity for comparative benefit as long as the work test rules are adhered to,” he said.
‘Positive step forward’
Brett Evans, managing director of Brisbane-based advisory firm Atlas Wealth Management, which specialises in servicing Australian expats living overseas, agrees the move is “a positive step forward” for clients living in the UK as they can now transfer their UK pensions back home without fear of being penalised.
“The previous limits may have resulted in their UK pension remaining in the UK if the expat had previously reached the AUD$500k limit,” he told IA.
Evans added that the lifetime cap was only announced after the “incorrect public perception” that the majority of superannuation funds were holding very large balances.
“However this was incorrect and it was actually only a very small minority,” he said.
