In a deal struck overnight, the federal government has gained the support of the Greens to have its proposed changes to the age pension pass through Parliament, with the changes set to save $2.4 billion in the federal Budget.
Responding to the deal, federal Labor MP Jenny Macklin said the changes will “do nothing for pensioners except see them have their pension cut”.
“Within ten years, more than half of all new retirees will be affected by this cut,” Ms Macklin said.
“Around 330,000 Australian pensioners are set to lose. This includes 90,000 pensioners who will be kicked off the pension altogether.
“Single pensioners will lose as much as $8,000, [and] couples will lose as much as $14,000,” she said.
However, Greens Senator Rachel Siewert said changing the assets threshold and taper rate will make the pension system fairer.
“More Australians who don’t have the advantage of a healthy super balance will be able to access a full pension when we undo John Howard’s tampering with taper rates,” Ms Siewert said.
The changes in the federal Budget would only affect part-pensioners, with the government estimating that 170,000 with modest savings would gain some age pension, while 330,000 with more assets would lose some of their entitlement.
Under the proposal, home-owning older couples with assets between $800,000 and $1.2 million would lose their part pension altogether.
Opposition leader Bill Shorten said yesterday that Labor would fight the government’s attempt to “cut the pension for hundreds of thousands of pensioners”.
Russell, now just re run all of those numbers with a return of 7% and factor in a gradual draw down of capital…
Russell, your modelling seems to assume that the current generous age pension system will continue as is. It won’t. It is unsustainable financially and unsustainable politically. Australia is not Greece. We cannot use deception and blackmail to continually sponge off other countries.
You also seem to have ignored capital drawdown on either liquid assets or the principal residence. The age pension is supposed to be a welfare safety net for the poor, not an inheritance maintenance scheme.
You’re not supposed to just live off the interest Russell unless you plan to hand over an untouched inheritance, and that’s not the taxpayers fault. . Retries will need to invest wisely, i.e. seek advice if need be. Account based pensions are supposed to be drawn down.
I am very surprised at how many financial advisers have swallowed Morrison and Abbott’s story hook, line and sinker. Have a look at the table below. The more you save the lower your total income will be in retirement. Why would anyone bother saving for their retirement in the future? There is a strong incentive not to do so. If you advisers are trying to build up a business to sell when you retire you would be well advised to stop doing so now.
Income Analysis for Retiree Couples
Interest earning rate3.00%
Investment Age Investmt Total
Assets Pensions Income Income
$375,000$33,717$11,250$44,967
$400,000$31,767$12,000$43,767
$500,000$23,967$15,000$38,967
$600,000$16,167$18,000$34,167
$700,000$8,367$21,000$29,367
$800,000$567$24,000$24,567
$807,267$0$24,218$24,218
$1,498,893$0$44,967$44,967
I look after solely HNW clients, all whom have at least $500k investable assets, most who have closer to $1m.
OUt of around 70 clients, only 1 or 2 have shown any angst at these proposals. Most affluent retirees know its non-sensical to give them welfare when they have $1m in super earning them $70k pa before they even touch capital, not including their family home which the kids will get one day too.
How dumb is Labour not understanding we cant give give give forever. Finance 101 – SPend less than you earn!
The bit that needs to be stated explicitly is that the tax advantages enjoyed by superannuation are there so that cash can be accumulated for spending in retirement. Spending principal and interest ought to be the standard scenario, not “worst case”. Taxpayers should be helping finance retirement incomes, not inheritances.
These changes head in the right direction, but we also need better annuity products that provide longevity guarantees over a balanced investment mix, allowing a safe spend down of both principal and interest over a lifetime.
Russell, it’s more a question of whether that level of pension payment for those on the asset test was appropriate in the first place.
Russell… Long term investment returns of a conservative or balanced portfolio are not far below that of 7.8% per annum. A long term return of 5% per annum is very easily achievable with fairly minimal risk. This just means that retirees will actually need to use some of their own capital instead of tax payer money…
Worst case scenario if their capital does get erroded the aged pension will still be there to bail them out anyways.
Russell, you cannot be serious in saying that a couple who owns their own home (possibly worth $1mill+) and with another $1mill in assets needs to be getting a top up from the age pension. How is that equitable or fair? The age pension access threshold was set at a time when the life expectancy wasn’t 65. Now with people having significantly higher life expectancy having well off people on the age pension is not sustainable. I’m happy to pay tax to support an old couple with nothing, but not clients worth $2mill +.
I pose the ethical situation to my clients in this situation that they should be asking themselves whether they think they should be claiming.
Bill Shorten is the king of fiscal irresponsibility. The people who’s pensions he seeks to preserve are the people who’s super he wants to tax. Take with one hand, give with the other and the admin cost burns a hole in all our pockets. The pension should be a safety net for people who have not enjoyed employer funded super for much of their working life not people who have more than $800,000 in super.
It is always curious when the detail of these things is discovered as to who would be affected. If the pension is there to support the people who are in position where that is the only income they have, then fine. This change seems to make sense. The people who are in this affected group are lucky enough to have other assets to fall back on. At the end of the day the ordinary pensioner would not have this luxury. Has there been any figures to say what proportion of pensioners will be affected by this? %?
Russell, I will be mobilising my accumulator clients to protest to politicians that they are paying too much tax to support an overly generous age pension system.
How can it be fair and reasonable that retirees who own million dollar plus homes and $800K in other assets are getting any taxpayer funded welfare handouts at all?
Scott Morrison’s recent changes are just a very small step in the right direction, and should be applauded. Yes, there are other inequities in the system which also need to be fixed, but they are not a sound justification to continue the age pension rort.
Rachel Siewert is saying that retirees with savings must earn 7.8% income on those savings just to replace the pension they lose because they have the savings. How can that possibly be fair or reasonable?
It is astounding that the Liberals would propose this, and very disappointing that the Grens who obvioously don’t understand the proposal support it.
All financial advisers should now get busy mobilising their retiree clients to protest to all politicians. This proposal can and must be beaten.
You would think that Labor would be supportive of attempts to rein in our excessively generous age pension system, that uses welfare money to support the lifestyles and inheritance values of people who are far from poor. Thankfully the Greens still have a social conscience.