The Government has announced substantive changes to its superannuation proposals. The $500,000 lifetime cap on after-tax contributions has gone, the $1.6m cap on pension accounts will partly extend to accumulation phase balances, annual after-tax contribution caps will significantly reduce. Surprisingly, some people with relatively modest means will be among those most affected.

A Bill containing the most straightforward 2016‑17 Budget superannuation changes was released on 7 September 2016. More substantive changes were announced, without an accompanying Bill, on 15 September.

Ironically, following Labor and cross-bench pressure some of the most adversely affected will be those that don’t have the resources to make repeated large contributions to super, but need to catch up their super when their circumstances permit.

Abandoning the proposed $500,000 lifetime cap on after-tax contributions will help. Extending the $1.6m cap on pension accounts to accumulation phase balances will not affect most people. The extension itself will only prevent after-tax contributions, but most people will not be within reach of $1.6m anyway.

However, capping annual contributions, particularly after-tax contributions, is a more delicate matter. On the one hand Government needs to encourage regular retirement savings. Caps on contributions do that because people can’t then put off saving.

The Budget proposal to reduce annual pre-tax caps from $30,000 to $25,000 remains. However, instead of the additional $500,000 lifetime cap on after-tax contributions, the current $180,000 annual cap will be reduced to $100,000 from next year. This will cramp people’s ability to catch up their super.

Consider for example people planning to release cash for retirement by downsizing their home. The existing 3 year aggregation rule will continue for individuals up to age 65, so after-tax contributions of up to $300,000 once every 3 years will remain possible. This is down from $540,000, but still substantial i.e., $600,000 for a couple; but with capital city house prices now commonly $1m or more, is it really enough? And what of equity? Why shouldn’t these people be allowed to catch up to those fortunate enough to be able to contribute an extra $100,000 to super year after year?

Reversal of the Budget decision to allow individuals aged 65 to 75 to contribute to super after they retire will compound the problem.

Budgetary constraints limit what the Government can do, but system integrity depends on fairness. It’s a delicate exercise.