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This commentary is written by Robin Bowerman, Principal, Corporate Affairs & Market Development at Vanguard. The title is A super lesson

It was first published on Wednesday 11 May 2011

And is read by Michael Mullins

Please remember that advice in this podcast represents a general view. It is recommended that you seek specific financial advice, before making investment decisions.

Many investors are not very good at learning lessons. This is shown time and time again such as when investors fail to adequately diversify their portfolios even after losing badly on a single stock.

This week’s Budget gives super fund members a one-off chance to learn their lesson about the possible consequences of making contributions that overshoot their concessional contributions caps.

Under the Budget measure, fund members who exceed their concessional contribution caps by up to $10,000 from July 2011 can request the refund of the excess amount – provided it is their first breach of the caps.

In turn, refunded excess contributions will be taxed at an individual’s marginal tax rate, which may be lower than the excess contributions tax otherwise payable.

Commentators have used a variety of tags to describe the Budget measure including as “a get-out-of-jail-free card”. Like in the game Monopoly, the card can only be used once.

Based on the latest information from Assistant Treasurer and Minister for Superannuation Bill Shorten, the median excess concessional contribution in 2007-08, 2008-09 and 2009-10 was significantly under $10,000.

And the $10,000 threshold announced in the Budget should mean that some of the experiences where members overshot their caps by a few dollars yet triggered huge excess contributions tax bills may not be repeated after July 1. (Such large tax bills usually applied when members had exceeded their excess contributions cap and had, in the same tax year, made large non-concessional contributions.)

But the multi-thousand-dollar question is whether those who overshoot their concessional caps once will ensure they never do it again – even inadvertently?
   
And that concludes the column

A super lesson

from Robin Bowerman, Principal, Corporate Affairs & Market Development at Vanguard Investments Australia

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Please remember that advice in this podcast represents a general view. It is recommended that you seek specific financial advice, before making investment decisions.