<em>Illustration: Karl Hilzinger</em>

Illustration: Karl Hilzinger

Is contributing extra money to super still worth it? If you're lucky enough to be earning more than $300,000, the answer is a flat no. Not because of the extra 15 per cent tax you'll be paying on your contributions from July 1 - though that's disincentive enough. But by limiting everyone to concessional contributions of just $25,000 for the next two years, the government has ensured you can't put aside any extra money anyway.

On a salary of $300,000, your employer's 9 per cent compulsory super contributions already exceed the new cap - $27,000. So forget all the ''will I or won't I?'' questions.

The simple fact is that you won't be able to make extra concessionally taxed contributions whether you want to or not.

But for the rest of us, the question is more valid. There can be no doubt the government's decision to raid the superannuation honey pot to help fund its surplus has confirmed a long-held suspicion by many people that putting too much money into super is a risk.

Once the money is there, you're locked in. But the government can change the rules to suit whatever short-term political objectives it has. That introduces a legislative risk that not everyone is prepared to take.

For those interested in saving, especially those earning between $180,000 and $300,000, super is still one of the best games in town. Your concessional contributions are taxed at just 15 per cent. Next year with the new tax rates, that will mean a saving of 17.5 per cent for those on the 32.5 per cent marginal rate (before Medicare), 22 per cent for those on the 27 per cent tax rate and 30 per cent for those on the 45 per cent rate earning less than $300,000.

Any earnings within the fund are taxed at a maximum rate of 15 per cent and once you start a pension your earnings are tax-free. From a tax perspective, it's a great deal - especially if you don't want to take on the extra risks involved with other tax-advantaged strategies such as negative gearing.

However, by limiting the ability of the over-50s to save through super by deferring a measure that would have allowed older people with less than $500,000 in their accounts to continue to contribute up to $50,000, there's a real risk that the government will force more baby boomers to take on those extra risks, potentially with dire consequences.

The unfortunate truth is that while saving for retirement is best started early (so that you can benefit from many years of compound interest), most people only really start thinking about retirement in their 50s. Fortunately, this is the time when many of them actually have the capacity to top up their savings. The kids have grown up, the mortgage is paid off or at least under control and they are likely to be at the peak of their earning capacity.

Squirrelling spare dollars into super at this time makes good sense. But if the government makes it harder to save through super, what do you do?

Some advisers have been recommending higher-income clients consider using structures such as companies and family trusts to minimise tax, as these structures can allow income to be split with other family members. Borrowing to buy shares or property is also likely to attract more interest, as you can claim a deduction at your marginal rate on any losses on the investment and, so long as you've held the asset for a year or more, only half of any capital gain is taxable when you sell.

Some advisers are also expecting greater interest from clients on borrowing through self-managed super funds. While super funds are normally prohibited from borrowing, certain limited recourse loan arrangements are allowed. These arrangements must be structured so the security for the loan is only the asset you borrow against - the lender must have no claim on any of the fund's other assets. Like gearing outside super, it means you can leverage your investment by using someone else's money. The limited amount you have in super can grow faster.

That can sound mighty attractive to someone with limited savings and the prospect of retirement bearing down on them.

But like non-super leveraged investments, savings can disappear much faster if the investment does not make the returns you expected.

A 20 per cent fall in the sharemarket will generate a loss of about 12 per cent in a balanced super fund (depending on how much of the fund is invested in shares and whether or not the manager adds value), which is bad enough. But if you have bought $100,000 worth of shares outside super and borrowed half the money, that 40 per cent loss would leave you with just $60,000. You'd still owe $50,000, so your own $50,000 would be worth just $10,000 - a fall of about 80 per cent.

In short, while gearing strategies may have tax benefits comparable with super, they mean taking on more risk. And risk is not something we need to be increasing in the lead-up to retirement.

What the government did not reveal in its budget estimates is it is also likely to receive a windfall next year from over-50s inadvertently breaching the new contributions caps and being hit with penalty tax.

Last time it halved the caps, there was a massive surge in excess contributions and it would be naive to think that won't happen next year.

There is now limited one-time-only relief for people inadvertently breaching the limits, but the over-50s should be thinking about maximising their super. This measure does not encourage that.

Twitter: @sampsonsmh