Post-tax superannuation contributions plummeted in the third quarter as savers delayed making decisions about their retirement savings because of uncertainty about the changes to super taxes.
Australians pumped just $3.7 billion of after-tax money into super in the three months to September, a fall of 29 per cent from the same period last year, figures published by the Australian Regulation and Prudential Authority on Tuesday show. In the year to September, post-tax contributions fell 17 per cent to $19.2 billion.
Industry executives blamed the sharp fall on changes to super taxes and contributions limits announced in the May budget. Some of the changes, such as the reduction in the annual pre-tax contributions limits and the introduction of a $500,000 lifetime limit on non-concessional contributions, backdated to 2007, were heavily criticised, creating uncertainty over whether they would be passed into legislation.
The proposed $500,000 lifetime non-concesssional contributions cap was eventually scrapped and replaced by an annual $100,000 limit. In the run-up to the legislation being introduced to Parliament, Labor revealed it opposes some of the measures, including the ability to make catch-up pre-tax contributions and a measure that would allow individuals under 75 to claim tax deductions for personal super contributions.
"It shows how sensitive to policy changes people are, especially those leading up to retirement," said Jordan George, policy director at the SMSF Association.
"I would have expected this. Legislative changes are the biggest factor affecting people's confidence in super. It's an ongoing theme. People will wait for certainty," Mr George said.
"Primarily the reason is around not having confidence in the regulations moving forward. Clients are uncertain where the regulations will land," said Mark Fenech of Profectus Financial Group.
In addition to the general uncertainty, financial advisers were recommending that clients abide by the proposed lifetime contributions cap announced in the budget, which was backdated to 2007. Savers who had already made after-tax contributions of $500,000 were advised against injecting more money, in many cases until the draft legislation was published.
Experts predicted after-tax contributions would rise in the coming months after the new tax and contributions regime is passed by Parliament, expected this week or next week.
"I think the passing of the legislation will ease the problem," said Mr Fenech.
"I think you will see those figures start to bounce up," added Mr George.
However, industry executives said they expected the latest changes to the super rules, which includes placing a $1.6 million limit on tax-free pensions, would prompt savers to look for alternative vehicles to super, such as negative gearing strategies and family trusts.
"People are allocating wealth outside super," said Mr Fenech.
Pre-tax voluntary contributions edged up 4 per cent in the year to September, according to the APRA data, but the fall in post-tax contributions meant total contributions declined 1.5 per cent during the past 12 months.
Despite the decline, total super assets rose 7.4 per cent to $2.1 trillion between September 2015 and September 2016, thanks to rising asset prices.
The value of assets overseen by self-managed super funds rose 8 per cent to $636 billion, a slower pace that the rate of growth of assets managed by retail, industry, corporate and public sector retirement schemes combined.
Benefit payments to retirees, either through lump sums or private pensions, rose to $65.7 billion from $62 billion in the year to September.
