The Federal Government announced in the last budget that superannuation contribution levels were to be halved to $25,000 for those under 50 years of age and to $50,000 for the transitional period to 2011 for those over 50, effective 1 July 2009. So what impact is this likely to have on retirement income streams and what can we do about it?

For the past 20 years, previous Australian governments, both Labor and Liberal were committed to the increase of retirement savings. The reason for this is the aging population and the future impact on the country’s Social
Security system.

Australian Bureau of Statistics (ABS) projections show that by 2030, Australia will have only 2 people working for every 1 retired. Clearly, this ratio would make it impossible to fund Age pensions and so the need for Australians to self fund during their retirement.

The reality is that the SGC alone for the entire working life of an employee is not capable of adequately funding retirement income let alone those who have been working for a considerable period prior to 1992.

By providing Australian workers with the opportunity to make concessionally taxed salary sacrifice contributions to super, the Australian government was facilitating a solution to this considerable problem - and it was working for them. As we all know, a reality of life is until you reach the mid forties or fifties and the mortgage is paid and the kids have finished school, saving for retirement is difficult. It seems that the current government has been advised poorly on these issues.

In the circumstances for those who have been in a position to make salary sacrifice contributions to superannuation above the new contribution caps, alternative strategies need to be considered.

Here are just two examples,
but many more exist:
Non Concessional contributions
There is no doubt that the superannuation environment is the most effective for retirement savings because of the concessional tax on earnings. Non- concessional contributions are those made from tax paid money and whilst the benefit of a tax deduction has been lost, the investment of funds in superannuation provides taxation benefits in respect to reduced tax on earnings and benefits relative to payments out of the fund.

Gearing investment
In order to obtain taxation deductions and leveraged investment growth, a moderately geared non-superannuation portfolio may be to advantage. Obviously this strategy is not for everyone and advice must be sought to determine its appropriateness.