Chartered Accountants Australia and New Zealand head of superannuation Tony Negline said for those earning anywhere between 80 per cent and about 180 per cent of average wages – that is between $65,000 and $150,000 – “it takes a lot of effort and sacrifice over many years to save a meaningful amount of money towards retirement”.
“Indeed, they would be better off living in the best home they can afford than bother saving anything more than compulsory super,” said Mr Negline.
Mr Negline gave an example of an individual who commenced a pension after December 2014 where the account balance is deemed under Centrelink’s income test.
“Apart from the home and super, the person owns $50,000 worth of personal use assets including a car and has no other assets. [This case study] will consider the assets test thresholds that applied from 1 January 2017,” he said.
“There is $200,000 in super assets, [so] the super pension will pay $10,000 and the recipient will be eligible for the full age pension of $34,382 including the pension and energy supplements. Total income is therefore $44,382.”
If there is $500,000 in super assets, then the total income would be $45,732 – a part-age pension of $20,732 and $25,000 (5 per cent X $500,000) from their super pension, he said.
If the individual has $700,000 of super assets, then a super pension of $35,000 (5 per cent X $700,000) and a part-age pension of $5,132 will provide total income of $40,132.
“If the same individual had $1 million in super assets, they receive no age pension and need to live off all their super pension of $50,000.”
“If, there is $1.6 million in super assets, meaning no eligibility for an age pension, then income from the super fund is $80,000 a year (5 per cent X $1.6 million).”
Mr Negline said the government claims it is changing the super system to make it fairer and more equitable with the introduction of the $1.6 million pension cap, the $250,000 income threshold for higher contributions tax, the lower contribution caps and the refund of contributions tax for lower income earners.
“Based on all these [examples, however] these arguments do not really hold because the new super laws and the age pension tests discourage saving especially for those earning average weekly wages,” he said.
According to Mr Negline, the ‘sweet spot’ is around $339,143 in super assets.
“At this level total income from both the super fund and a part-age pension will be $50,236,” he said.
“[It may be] time for the government to consider bringing in some behavioural economists when tweaking the superannuation regime as the latest changes could have unintended consequences.”
Behavioural psychologists!!?? Game theory? You are giving the Government and the bureaucrats way too much credit. There is zero consideration of how these changes affect different scenarios, and total
disregard for long term consequences. We will continue to have 70% plus of the ever-growing cadre of retirees at least partially dependent on the age pension until my 20 year old children retire and probably beyond. This whole exercise was about raising money for a financially and intellectually bankrupt Government, plain and simple. The alternative Government, whose unconstrained spending spree between 2007 and 2013 got us into this mess, are no better. The only way I will be able to have a dignified retirement is by working till I drop off the perch, or migrating to New Zealand. A tough choice!
I totally agree they need to bring in behavioural specialists when tweaking the rules, and not look at them in isolation from each other.
For people whose retirement assets are within the means testing bands ($380,500 – $827,000 for a homeowner couple) then if you pull your money out of super and do up your bathrooms and kitchen, then your age pension will increase, your ‘investment’ grows tax free, and you can access the capital again later when you eventually downsize.
Also, super offers no tax benefits for most retired Australians anyway thanks to SAPTO. If you’re 65 or over then the Seniors & Pensioners Tax Offset effectively gives you a tax-free threshold of $28,974 ($57,948 for a couple). You need a lot of assets to generate taxable returns more than that these days!
Your money will also be safe(r) from the extreme legislative risk super is exposed to, and you won’t have to pay for as much advice either.
Surely someone at government has heard of game theory??
None of the Super reform changes will alter behaviour as described. If access to even a $1 of a state pension was a priority for an individual, the pre-Super 17 rules or the post Super17 rules provided/provide the same opportunities to do this. It wasn’t about the lower end of super savers.