Personal Pension  

Australia drops £287k pension contribution cap

Australia drops £287k pension contribution cap

A rule that would have limited the amount of money British expats could transfer into an Australian pension scheme has been scrapped, at least temporarily, draft legislation released by the country’s Treasury has revealed.

The policy, announced in the Australian Budget in May, would have imposed a AU$500,000 (£287,000) lifetime cap on contributions to pension schemes, or superannuation funds as they are known there.

It was the most controversial feature of a suite of reforms aimed to reduce government spending on Australia’s extremely generous superannuation tax concessions.

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The draft legislation was finally released on Wednesday (7 September), and while it contained most of the reforms originally proposed, the headline AU$500,000 cap was absent.

Whether the cap had been scrapped outright was not clear. Treasurer Scott Morrison told Australia’s Sky News that “contentious” issues were still being negotiated.

“We will continue to work through some of the contentious items that have been part of this discussion but what we won’t walk away from is our commitment to arresting the debt and delivering the budget repair job,” Mr Morrison said.

The ruling Liberal Party has long been hostile to tackling expensive superannuation tax concessions, because they favour their traditional support base of wealthy voters.

Prime minister Malcolm Turnbull’s announcement of the policy a few weeks before this year’s general election shocked many in his own party, including his predecessor Tony Abbott.

Mr Abbott is thought to have fought hard behind the scenes to stop the cap - which has already been temporarily regulated - from becoming enshrined in legislation.

But Geraint Davies, managing director of Montfort International, an adviser that specialises in clients relocating from the UK to Australia, told FTAdviser in July that, even if the $500,000 cap was scrapped, the government is unlikely to reinstate the previous cap-free environment.

“The old rules were just too generous,” he said. “It wasn’t being used for retirement, as it should have been. It was being used for wealth creation.”

However, Mr Davies said there was “some rationale for tinkering” with the rules to “make them more appealing”.