The aged pension system, particularly in light of recent threshold changes, is overly complex and leaving retirees without a clear indication of what their income will be – potentially allowing for significant error, according to a prominent actuary.
Managing director of NetActuary, Brian Bendzulla says he is concerned that retirees will see that their pension has reduced following the changes with the new asset testing, and consequently make significant changes to their retirement planning which could be inappropriate in the long term.
“I think this whole area is simply too complex. I feel very sorry for pensioners see that their pension has gone down with the new test, and they’ll perhaps make the wrong decision,” Mr Bendzulla told SMSF Adviser.
“[It] doesn’t really allow them to work out how they need to change their plan for retirement income. Using more of your personal assets now means you get more pension sooner. Aged pensions vary so much as thresholds go up and personal assets come down. It’s a terrible system.”
Pension systems in Canada, New Zealand and the UK work more efficiently as retirees know what they’re going to be paid as a pension, he said.
“Overseas jurisdictions really just cut out all the bureaucracy of Centrelink, pay everyone a pension and the rich claim it back through the tax system, because the pensions are not accessible income,” Mr Bendzulla said.
“This would be a radical change [however] as what we’d have to do is pay the SG contribution across to the government in exchange for a non-means tested aged pension. It would solve their budget problem though.”
“We really run a huge Centrelink bureaucracy and a huge tax bureaucracy, we actually don’t need both, we can use one to do it.”
Mr Bendzulla said the new changes to the aged pension system were “most unfortunate” and he would like to see a “kinder and simpler system”.
“It’s fine and proper to put limits like the $1.6 million, but I think it’s most unfortunate where the aged pension gets tinkered around with,” he said.
“I think that’s the real one where you need stability. Personally, I think the government has misjudged it. I think there’s going to be a lot more heat when retirees actually look at what’s affected and what’s happening with the credit across to their bank account.”
Mr Bendzulla stressed that practitioners should ensure, that when clients look at their retirement income sustainability level, not to base these decisions solely on short-term changes in their aged pension.
“Take into account the offset that you’ll get more aged pension sooner rather than later. You’ve got to look at the whole totality of your planning duration to get it correct,” he said.
“I’d hate for someone who was receiving $18,000 before and are now getting $8,000 to think they need to cut their retirement income by $10,000 when they probably only need to cut it by $2,000.”
SUBSCRIBE TO THE SMSF ADVISER BULLETIN
- 21 Aug 2016Risks flagged with real estate appraisal valuesBy Miranda Brownlee
- 21 Aug 2016Lawyer challenges ATO view on two fund strategiesBy Miranda Brownlee
- 18 Aug 2017ATO locks in details, addresses panic on real-time reportingBy Katarina Taurian
- 18 Aug 2017Data feeds unreliable for new reporting, says mid-tierBy Miranda Brownlee
- 18 Aug 2017Tax component confusion spurs potential tax liabilitiesBy Miranda Brownlee
- 18 Aug 2017Contributions triple in June quarter, survey showsBy Staff Reporter
- view all
- ATO locks in details, addresses panic on real-time reporting
The tax office has addressed several points of confusion with the new events-based reporting regime, locked in key deadlines, and outlined w...read more
- Data feeds unreliable for new reporting, says mid-tier
With an estimated 20 per cent of SMSFs still encountering errors from data feeds, one mid-tier firm believes the ATO should allow SMSF pract...read more
- view all