The Financial Planning Association has criticised amendments to the Social Security Act that would see account-based pensions deemed to be financial investments.
In a letter to the Minister for Social Services, seen by ifa, the FPA has requested an inquiry into the new Bill, arguing that the proposed changes will discourage those approaching retirement from structuring their retirement savings prudently.
The FPA’s general manager, policy and government relations, Dante De Gori, said in the letter that the changes may cause unforeseen changes to the way people spend and invest their retirement savings.
“This approach may encourage irresponsible spending, or a deleteriously risk-averse attitude to retirement savings, and in either case retirees will continue to rely on the Age Pension – perhaps to an even greater extent than they would on an account-based pension,” Mr De Gori said.
Mr De Gori also argued that the new Bill will disproportionally affect Australians with modest means as they will be caught by the new income deeming provisions, whereas those with larger accounts will be caught by the asset provisions anyway and therefore be unaffected.
The government has suggested the changes will net $161.7 million in savings to the federal Budget.
The FPA, however, does not believe such savings are possible, but rather that people will still rely on the age pension to the same extent – or perhaps more.
Mr De Gori explained that the proposed amendments will encourage retirees to pursue other investments which will not be caught by the deeming provisions, or worse, will encourage them to spend their superannuation in order to increase their age pension entitlements.
“In either case, the Bill will negatively impact the retirement outcomes and investment decisions of Australian pensioners,” he said.