If you’ve worked your whole life, managed to put some money aside yet still qualify for a full age pension when you hit 67, you could be a big winner from Prime Minister Scott Morrison’s decision not to raise the pension age to 70.
Moving onto the pension three years early could save a single pensioner $64,420 and couples $97,110 in today’s dollars on drawdowns on their superannuation.
While it’s not possible to put a figure on total savings, it means that the 90 per cent of Australians who live in retirement on a mix of super and the pension will get a benefit.
Mr Morrison put up the white flag on the unpopular measure first flagged by then-treasurer Joe Hockey in his 2014 “horror” budget that helped end Tony Abbot’s prime ministership.
“I’ve been talking to my colleagues about it. We’ll ratify it next week. The pension age going to 70 is gone,” Mr Morrison told Channel Nine on Wednesday morning.
Instead of raising to 70 by 2035, as planned under the Abbott-era policy, the pension age will now climb from the current 65 and six months to 67 by 2023 under an earlier Labor measure.
Dante De Gori, CEO of the Financial Planning Association, told The New Daily that because for many people it was not possible “to choose when you retire” the change could save older people from poverty.
“Losing your job for older people can be a significant problem. Newstart is a pitiable amount and you have to show you are actively looking for work,” Mr De Gori said.
That reality means that a lot of older people would have to draw on superannuation (available from 60) if forced to retire before pension age. That would significantly reduce their balances before the pension kicks in at retirement age.
Take, for example, three people forced to retire at 67 who have considerable super savings but are still eligible for a full pension. Were the retirement age to be 70 and they substituted the pension with super, they could find themselves withdrawing an extra $21,476 for a single and $32,370 for a couple.
The effects on their savings would look like this:
The situation would be even worse for those with very low superannuation balances, said Paul Versteege, policy co-ordinator with the Combined Pensioners and Superannuants Association.
“Two-thirds of the 826,000 people between 60 and 64 who retired last year had super of less than $40,000 and nine out of 10 retirees used their super to pay off the mortgage or other debts.
“If you retire at 60, or lose your job more likely, and have $80,000 in super to tide you over to age 70, you could withdraw about $11,000 a year assuming a 6 per cent return,” Mr Versteege said.
“With the pension age at 67 you can withdraw $14,000. That $3000 a year extra may not seem much, but if you are getting about $12,000 in Newstart it does make a significant difference.”
The proposal to raise the pension age to 70 was highly unpopular and was blocked in the Senate, along with a range of other 2014 budget measures.
Ian Yates, CEO of aged lobby group COTA, said he was “pleased to see it come off the table. It was a politically unpalatable measure that was tough on older people.”
Along with scrapping the measure the government should review the “taper rate” move introduced last year which sees pensions cut more quickly once asset triggers are reached, Mr Yates said.
That measure will leave 51 per cent of retirees “comfortable” compared to 62 per cent under the old system according to Association of Superannuation Funds of Australia figures.
ASFA chief executive Martin Fahy said the pension-age decision “recognises many Australians find it difficult to work into their late 60s due to the nature of their occupation and/or their health”.