By Steve Blizard 14 November 2016
The belief of a large number of retired Australians was that the government aged pension would help supplement their superannuation incomes.
However, from January 1, that support is being lowered to a much reduced and narrower asset base for all retirees.
The Coalition government has passed legislation that perversely incentivises Australians in a certain target range of assets to take money out of superannuation, only to become even more reliant on the government pension, not less.
For a married couple, from 1 January 2017, once their assets rise above $816,000 there is no aged pension, yet you are allowed to have $375,000 in assets and still receive a full aged pension.
Once your assessable assets fall within the target range, to maintain income at the age pension level, you need to earn 7.8 percent on your money.
Many retirees are not fortunate enough to have an investment adviser who knows how to generate such a consistently high return, albeit with additional risk.
As a result, targeted retirees are being incentivised to exit superannuation, either gradually or quickly, in order to begin receiving a full or partial government aged pension.
From the government’s stand point, it expects an initial boost to revenues, as pensions are set to be slashed on the 313,000 people expected to be affected.
On questioning one Federal Minister on these changes, I was given the following reply, “The government can no longer afford the financial largess of Peter Costello, so we are going back to the asset test that existed under John Howard”.
While that answer may appeal to Treasury boffins chasing budget savings, it doesn’t cut the mustard with partially self-funded retirees facing net real interest rates today that are 50 percent lower than during the Howard era.
Social services minister, Christian Porter, is giving speeches outlining cuts to Centrelink benefits whereas “Human Services” Minister, Alan Tudge, is set to implement pension asset test legislation that by default will do the exact opposite.
The Centrelink system requires an army of bureaucrats monitoring the assets of millions of retirees, who are compelled to report their portfolio each time their shares change by $1000 in value.
Research into the Department of Social Services Annual Report 2015-16, reveals that the agency paid out $325 million in salaries to 2,396 employees, including $23 million in personal remuneration entitlements to those at the senior management levels.
Of this, 1,990 are based in the department’s Canberra headquarters monitoring all retiree assets and income.
In dramatic contrast, New Zealand has far less wasteful inefficiency, as no income or asset tests for retirees exist across the Tasman.
Not only can Kiwi retirees have unlimited assets, it is even possible to have a full-time job and continue receiving the aged pension.
Australians can respond quickly to new incentives, so within a decade, future governments will regard the decision of the 2015 Abbott government, which passed the legislation, as a classic example of gross irresponsibility.
With rising health insurance and aged care costs, retiree income streams are even more reliant on a partial government age pension.
Therefore the incentive to re-arrange one’s financial affairs in order to receive an income top-up is now far greater than in 2007.
The steely response from the government reflects a Cabinet that is totally out of touch with problems confronting self-funded retirees.
Little wonder the Senate cross-bench continues to grow after every Federal election.