Australians on lower incomes have been hit the hardest by changes to the age pension assets test, and current superannuation rules do not take into account increased longevity, according to retirement lobby groups.
In a pre-budget submission to the Treasury, the Australian Institute of Superannuation Trustees (AIST) has called for an easing of the tough new “taper rate” on the age pension assets test introduced in January 2017.
The taper rate is the rate at which pension payments are reduced once asset thresholds are surpassed. Under the changes, the rate was doubled from $1.50 to $3 per fortnight.
AIST research into the effects show the move is hurting those on below-average incomes.
The chart above demonstrates how the assets test changes affect different groups based on their wealth.
It shows that both the poorest and the richest retirees, on average, get the most from the public purse. The poorest 10 per cent of retirees can expect to benefit to the tune of $600,000 through the pension, other benefits and the tax concessions they have received on superannuation over their lifetime.
The wealthiest 5-10 per cent also do well but for them it’s just the super tax concessions that have allowed them to build up retirement piles big enough to live off without worrying about the pension.
But it’s those in the middle who have been clobbered. They lose out on the pension because they have assets above the $250,000 threshold for home owners, or $450,000 for those without a home.
They actually receive as little as half as much in government benefits for retirement than either the top or bottom 10 per cent because of their nest eggs.
“A fairer model would, in conjunction with the package of reforms outlined above, set an asset taper rate of $2.00, with the asset-free area being set at the midpoint between the old levels and new levels. This achieves fiscal savings that are at the midpoint between the old and new asset test,” AIST said in its report.
Council of the Ageing CEO Ian Yates agreed, saying “we think the $3 rate is too steep. It’s a problem that will grow as more people retire with larger asset bases”.
The Association of Independent Retirees (AIR) said the current superannuation system doesn’t recognise the effects of increasing longevity.
“We now have an increasing length of time being spent in retirement and more than ever there is a need for a prudent investment profile to deliver a regular cash flow to provide a self-funded pension over the whole of any retiree’s lifetime,” AIR’s submission read.
Mr Yates said the issue should be addressed by a comprehensive look at retirement incomes including the development of retirement income products to provide for aged care needs at the end of life.
“Remember, there are currently a number of people who die with as much super as they retired with.”