The May budget is expected to include changes to superannuation aimed at making savings on the budget's bottom line.
The changes, if any, are unknown. However, we do have an idea of the general direction of the government's thinking.
While the government wants people to save a reasonable amount in super and reduce the dependence on the age pension, it also wants to slow the growth in the super tax concessions that rival the costs of the age pension.
Measures under discussion include increasing the tax on contributions into super which, for most people, is 15 per cent.
There could also be a decrease in the annual cap for "non-concessional" contributions – the contributions on which tax has already been paid.
There could even be a decrease in the cap on how much can be salary sacrificed into super, called "concessional" contributions.
Non-concessional contributions
The annual non-concessional contributions cap is $180,000, but under the "bring forward" rule, up to $540,000 can be contributed to super as a one-off in any three financial-year period. There are age restrictions on the "bring forward" rule.
Some financial planners and industry experts say it may be time to make the most of the current rules in case the rules become less generous in the future. Usually the existing rules apply – or are "grandfathered" – for contributions already made.
They say that someone, for example, who has received an inheritance should consider putting the money into their super now, up to the $540,000 limit, before the budget.
Sam Henderson, chief executive and senior financial adviser with Henderson Maxwell, says he has recommended to a couple of clients that they put in the $540,000 before the May budget.
"We are probably being a bit paranoid but it is certainly something that we are looking at for our clients who have the opportunity to put significant amounts of money into super," he says.
Salary sacrifice into super
Louise Biti, a director of Strategy Steps, which advises financial planners, says she is even considering putting a bit more into her super just in case the cap on salary sacrifice is lowered in the budget.
For over-50s, the cap or limit for salary sacrificing is $35,000 a year (technically, the cap is for those aged 49 years or over on June 30, 2015).
The cap includes the 9.5 per cent compulsory super. It means that a 50-year-old earning $100,000 can salary sacrifice up to $25,500 extra over the current financial year.
For under-50s the cap is $30,000. "If you have the ability to do it before budget night, why not?" Biti says. "You make sure to use the limit to your advantage rather than wishing that you had [acted]," Biti says.
Another idea being floated is to make contributions tax equal to a person's marginal income tax rate minus 15 per cent, rather than the flat 15 per cent rate that applies to most people now.
Higher earners
Those earning more than $300,000 pay a contributions tax of 30 per cent and the income at which that applies could be lowered.
Labor policy wants the income threshold to be lowered to $250,000 a year.
Phillip Gillard, a financial planner at Shadforth Financial Group, says any changes to super would be targeted at higher-income earners and those with large superannuation account balances.
He would be very surprised if there was any change in the concessional cap.
There is the issue of women who return to work full time after raising children who need a reasonable cap to catch up in building their retirement nest eggs.
Most people do not have the free cash until later in life when the kids are older and the mortgage is smaller. Until then, they are unlikely to get anywhere near the concessional cap, Gillard says.
For the majority of people there is likely to be nothing in the budget on super that will affect them, Gillard says. "I do not think that they should be too concerned about potential changes to superannuation – they are not in the firing line," he says.
No need for panic
As the last several years of budget changes to super have shown, governments usually start changes on July 1, not on budget night. That gives time to reorganise super strategies.
Even high earners should be careful about any knee-jerk reactions based on what may or may not happen in the budget.
Gillard says people should remember the "$1 million opportunity". This was where, at the time of former treasurer Peter Costello's changes to super, there was a window to put up to $1 million into super.
Then the global financial crises hit and sharemarkets everywhere crashed. Gillard says some people even borrowed the $1 million to put into their super.
He advises against anyone borrowing $540,000 to make non-concessional contributions in anticipation that the cap could be lowered.
Any contribution to superannuation needs to be made considering the purpose, the benefit and the way the funds will be invested, Gillard says.
Twitter: @jcollett_money
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