The Alliance for a Fairer Retirement, comprised of representatives from consumer groups and financial services industry bodies including the AFA and Australian Investors Association, moved to welcome the government’s announcement of the review last week, while pointing out that the retirement system should “ensure incentives are in place to encourage those who can save for an independent retirement to do so and avoid disincentives”.
New Alliance spokesperson John Maroney, who had replaced Deborah Ralston after her appointment as a panellist to the review, said just 30 per cent of retirees were currently completely self-sufficient in retirement, while around 40 per cent of those over 65 had no super at all.
The group pointed to current disincentives in the pension taper rate in particular that were distorting the relative spending power of self-funded versus publicly funded retirees.
“The net present value of the age pension can be over $800,000 for a couple in their 60s — this is supplied by the taxpayer with no effort required or additional savings on the part of the claimant,” the Alliance said.
“If a couple who own their own home accumulated $870,000 at retirement, they would find they are not eligible for the age pension. They may derive great pride from their independence from government welfare; however, with the present taper rate, their income could be no higher than a pensioner couple with half their assets.”
The group added that the current taper rate, combined with the lack of automatic adjustment in deeming rates for the pension income test, created incentives for retirees to reduce their assets or take dangerous risks with their super investments to make up for the lost income.
“At present, the age pension taper rate (the rate at which the pension is withdrawn) equates to a ‘tax’ of 7.8 per cent on assets over the age pension asset limit, well in excess of market rates of return available to part-pensioners on these assets,” the Alliance said.
“This creates an incentive to reduce assets in order to maximise the pension.”
As a result of these distortions in the system, the group said, the inquiry should also examine “where [there] are gaps or issues that indicate a lack of fairness in terms of either horizontal (between people with similar circumstances) or vertical (between different generations) equity in the existing three-pillar retirement system”.
Why would I put any extra in super if I can get $36k for a couple from the pension when at todays interest rates ie ! percent in the bank I would need $3.6 million in the bank.
The solution is the reverse. A $1 for $1 taper and inclusion of the family home in the assets test. The age pension is welfare and is aimed at avoiding destitution only. It is not a taxpayer funded retirement scheme. Taxpayers, especially young workers with families to support, should not be expected to fork out for “comfortable retirement” for people who did not save. This mob should be attacking limits and inflexibility on tax-deductible contributions.
Yes but with the ridiculous contribution limits to contribute $800k at a max CC rate of $25k/annum you need more than 37 years of max contributions to reach only $800k in net contributions!
Yes you get earnings along the way but how many workers can contribute max CC EVERY year through the mortgage and school years??
The system is broken and better incentives are needed. Not necessarily with the aged pension as I think the “safety net” level is too high, thresholds should be lower. The aged pension was instituted as a prevention of poverty measure not, as my mum says ” if we didn’t get the aged pension we couldn’t afford our trips to Europe”, this frankly is ridiculous.
$1.6M is a fair cap but you should be able to get there much quicker as most people jam into super only from their mid 50’s and the limits need to be wider.
Sure, the private capital requirement v the government pension looks like a disincentive however, there is no reversion with the government pension. You die, and so does the eligibility. The advantage however for private capital over the government pension, if it has been invested prudently and sustainable (generally via sound financial advice and appropriate tax management strategies), there will be a legacy.
Whatever your legacy objectives are, there will be more to give and that has to be a good thing.
It is about time this “entitlement” attitude to government funding is replaced by ambition and self-sufficiency. Those that can, will and those that can’t, for whatever reason, there is the welfare safety net and that is a much better approach to transfer payments than the (too often) middle class welfare of today.
The government can only fund what it does by tax and I would much prefer tax to be directed at genuine need rather than enabling ‘comfort’.