Post by Banjo on Apr 5, 2016 7:01:04 GMT 7
Middle Australia to feel age pension pinch the most
New changes to the age pension test will see the level of government support fall for middle-income earners, while high-income earners will benefit most.
The majority of Australian workers will be hit by impending changes to the age pension assets test, according to global financial consultants Mercer and the Australian Institute of Superannuation Trustees.
With the federal government having recently initiated debate around the overall objectives of superannuation, Mercer and the AIST have jointly called for an urgent review of pension asset test changes set to come into effect from the start of 2017.
Under the changes, Centrelink will reduce pension payments by $3 per fortnight for every $1000 in assets that an individual or couple has above new defined asset test thresholds. This is double the current $1.50 taper rate.
The pension assets test does not apply to the family home itself, but does to its contents and any other assets owned. Average superannuation balances at retirement will put many Australians close to or over the asset test thresholds.
Financial modelling by Mercer and the AIST shows the pension test changes will result in the overall level of government support for individuals on average incomes during their working lifetime dropping by up to 40 per cent.
According to their calculations, those on average incomes receive about $300,000 in government support between the ages of 20 and 67, factoring in compulsory superannuation payments at lower tax rates.
At the same time, the top 10 per cent of wage earners receive double the level of government financial support (between $500,000 and $600,000) because they generally have the financial capacity to deposit more money into superannuation at concessionally taxed rates of 15 per cent through salary sacrifice arrangements.
Assets test threatens super integrity
AIST chief executive Tom Garcia said the new test was “extremely harsh and threatened the integrity and sustainability of the super system by disincentivising voluntary saving”.
“A retirement income system where high-income earners are effectively receiving almost double the financial assistance from the government to save for their retirement than individuals on the part pension is not a fair system nor a sustainable system,” Mr Garcia said.
Mercer senior partner David Knox said that while low-income earners would most likely get the full age pension as a matter of course, and high-income earners would have too many assets to be entitled to any pension, it was those in the middle income bands who will be heavily impacted.
David Knox
“The doubling of the asset test taper from 1 January next year will hurt many retirees who do not have a large retirement nest egg. An increase in the taper to $2 would be reasonable but a $3 taper is tough, especially in a low interest rate environment,” Dr Knox said.
He said many retirees with cash balances above the pension assets test thresholds invested their funds into term deposit accounts, and they often received less income because of low interest rates than those receiving the age pension.
“We’ve got one of the best retirement savings systems in the world – but there is always room for improvement as there is always a risk with continuous tinkering,” Dr Knox said.
“If the government is serious about making the super system fairer, we need it to acknowledge that the new asset test was ill-conceived and needs fixing, ideally with a less aggressive taper rate.
“There is a lack of understanding about the impact of the changes, and there will be an immediate effect for many people.”
thenewdaily.com.au/money/2016/04/04/middle-australia-feel-age-pension-pinch/
New changes to the age pension test will see the level of government support fall for middle-income earners, while high-income earners will benefit most.
The majority of Australian workers will be hit by impending changes to the age pension assets test, according to global financial consultants Mercer and the Australian Institute of Superannuation Trustees.
With the federal government having recently initiated debate around the overall objectives of superannuation, Mercer and the AIST have jointly called for an urgent review of pension asset test changes set to come into effect from the start of 2017.
Under the changes, Centrelink will reduce pension payments by $3 per fortnight for every $1000 in assets that an individual or couple has above new defined asset test thresholds. This is double the current $1.50 taper rate.
The pension assets test does not apply to the family home itself, but does to its contents and any other assets owned. Average superannuation balances at retirement will put many Australians close to or over the asset test thresholds.
Financial modelling by Mercer and the AIST shows the pension test changes will result in the overall level of government support for individuals on average incomes during their working lifetime dropping by up to 40 per cent.
According to their calculations, those on average incomes receive about $300,000 in government support between the ages of 20 and 67, factoring in compulsory superannuation payments at lower tax rates.
At the same time, the top 10 per cent of wage earners receive double the level of government financial support (between $500,000 and $600,000) because they generally have the financial capacity to deposit more money into superannuation at concessionally taxed rates of 15 per cent through salary sacrifice arrangements.
Assets test threatens super integrity
AIST chief executive Tom Garcia said the new test was “extremely harsh and threatened the integrity and sustainability of the super system by disincentivising voluntary saving”.
“A retirement income system where high-income earners are effectively receiving almost double the financial assistance from the government to save for their retirement than individuals on the part pension is not a fair system nor a sustainable system,” Mr Garcia said.
Mercer senior partner David Knox said that while low-income earners would most likely get the full age pension as a matter of course, and high-income earners would have too many assets to be entitled to any pension, it was those in the middle income bands who will be heavily impacted.
David Knox
“The doubling of the asset test taper from 1 January next year will hurt many retirees who do not have a large retirement nest egg. An increase in the taper to $2 would be reasonable but a $3 taper is tough, especially in a low interest rate environment,” Dr Knox said.
He said many retirees with cash balances above the pension assets test thresholds invested their funds into term deposit accounts, and they often received less income because of low interest rates than those receiving the age pension.
“We’ve got one of the best retirement savings systems in the world – but there is always room for improvement as there is always a risk with continuous tinkering,” Dr Knox said.
“If the government is serious about making the super system fairer, we need it to acknowledge that the new asset test was ill-conceived and needs fixing, ideally with a less aggressive taper rate.
“There is a lack of understanding about the impact of the changes, and there will be an immediate effect for many people.”
thenewdaily.com.au/money/2016/04/04/middle-australia-feel-age-pension-pinch/