Scott Morrison just ditched one of the most contentious parts of the government's super changes

Pope Francis loses his cap too. Photo: Andreas Solaro/AFP/Getty Images

The Turnbull government has scrapped one of the most controversial parts of its changes to superannuation, ditching the $500,000 lifetime non-concessional cap on contributions, replacing it a $100,000 annual maximum. The change cuts the existing annual non-concessional contributions cap of $180,000 per year by $80,000.

The new plan will cost the Budget $400 million in revenue over forward estimates.

Under the changes announced by treasurer Scott Morrison today, people under 65 will continue to be able to “bring forward” three years’ worth of non-concessional contributions, which the government says are typically less than $200,000. They will be able to contribute $125,000 each year and, if taking advantage of the non-concessional “bring forward”, up to $325,000 in any one year until such time as they reach $1.6 million means-tested ceiling.

Anyone with a superannuation balance of more than $1.6 million will no longer be eligible to make non-concessional (after tax) contributions from 1 July 2017. That limit will be tied and indexed to the transfer balance cap.

“This ensures that we focus the entitlement for after tax contributions to those Australians who have an aspiration to maximise their superannuation balances and reach the transfer balance cap in the retirement phase, where a zero tax on earnings applies,” the treasurer said.

The plan was endorsed by the Coalition party room this morning following several months of backbench anger after treasurer Scott Morrison first announced the change in the 2016 Budget and takes another problem off the table for prime minister Malcolm Turnbull.

Despite the changes only affecting people with more than $1.6 million in superannuation savings, which Morrison argued was just the top 1% of Australians, the Coalition had faced sustained widespread anger from core members of constituency, as well as confusion about how it worked.

The start date for catch-up concessional superannuation contributions will also be deferred by a year to 1 July, 2018, to offset the cost of changes to non-concessional contribution arrangements. Morrison says the changes leave 96% of Australians better off or unaffected, adding that the changes were reasonable

He said there were people with superannuation balances of up to $100 million and the changes addressed a core issue in a “trifecta of Australian dreams” of having children, paying off your house and saving for your retirement.

Revenue Minister Kelly O’Dwyer said “We believe these measures are properly targeted”.

To offset the cost of the reduced annual non-concessional cap, the treasurer has ditched plans to harmonise contribution rules for people aged between 65 and 74. If they satisfy the work test, they will still be able to make additional super contributions to superannuation.

“While the government remains supportive of the increased flexibility delivered by this measure, it can no longer be supported as part of this package, without a net cost to the Budget,” the treasurer said.

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