Keating calls for contribution limit increase

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Paul Keating has suggested big changes to superannuation. Photo: Lee Besford

Former prime minister Paul Keating has said the government should increase the current concessional contribution limits on superannuation.

“Frankly you should be able to put $100,000 in super over 50 if you’re able to do that,” he told the ASFA 2012 Conference in Sydney on Wednesday.

The current concessional contribution limits of $25,000 are “too low”.

“Certainly for those over 50, I believe those caps should be increased,” he said. “$25,000 is simply too little.”

SMSF attack

In a strike at the self-managed superannuation sector, Keating also said that in most instances SMSFs were not cost-effective for amounts below $600,000 and he questioned whether the majority of SMSF trustees had the requisite knowledge to manage their funds.

“How many self managers have the required level of financial expertise,” he said.

In response to those remarks tweeted from a number of sources, criticism by the financial planning community was swift.

Jeremy Cooper,chairman retirement income at Challenger and architect of the Simpler Super reforms tweeted “too high by miles”.

The accepted industry standard for a minimum amount for a SMSF is $250,000 to $300,000.

“Way back when I was at ASIC, we said $200k,” Cooper tweeted. “Nearly all SMSFs have 2 members, so 2 people can get more scale than 1.”

Longevity risk

Keating also stressed that changes needed to be made to the current superannuation system in order for it to meet the increased longevity needs of the Australian population.

He said the current system would only meet the needs of people in the 60 to 80 age bracket, or Phase I, but a new solution needs to be introduced for Phase II or those in the 80 to 100 age bracket.

To solve the Phase II dilemma, he put forward two suggestions. One involved a proportion of income being quarantined into an annuity-style product for the later years and the other was for an additional 3 per cent to be made in superannuation contributions, above the 12 per cent SG that will be reached in 2020, into a universal longevity fund to provide for those in the 80 to 100-year-old age bracket.

“This would take the form of a government administered universal social insurance scheme with a fully funded, carefully constructed universal product,” Keating said.

“As the government provides a default instrument and is in a superior position to pool risk . . . there is arguably the case for an appropriate agency to operate such a longevity fund within the government itself.”