An article in the Australian suggests that there’s no point in saving for retirement any more and they make some questionable claims around the upcoming changes to age pension recipients that will apply from January 2017. I want to take the time to address some of the points made and clarify some of the misinformation. I also want to make a political point which for some reason was missed in the flurry of outrage on behalf of pensioners.

On January 1, 2017, changes to the aged care assets test will see more than 100,000 Australians lose their part pension payments in entirety. More than 300,000 will have their pension payments cut. There is a perception many retirees are rolling in money. They have assets many could only dream of.

It’s the opening gambit and already the game is lost due to the admission that the affected pensioners are asset rich and have a perception of being able to fund their own retirement. Whatever your political opinion, the government has decided this is where a change will be made to the current arrangements and it’s now up to pensioners to adapt and make the most of their situation. And the point is made later on that pensioners will have to draw down on their capital instead of being (as) reliant on the government purse – which is exactly the desired impact of the changes.

Let me ask the question, who among us could lose 20 per cent of our household incomes and come away unscathed?

This is a little misleading. While the pensioners in question may lost 20 per cent of their social security income, they still have their asset base and as mentioned, the desired outcome of the changes is to ‘encourage’ more pensioners to use their own resources and self-fund their retirement.

With the loss of the pension, the government will also cancel retirees’ pensioner concession cards which allow them to enjoy discounts on council rates, car rego, energy bills and public transport tickets.

Pensioners losing their age pension as a result of the changes will immediately become eligible for the Commonwealth Seniors Health Card. The core benefits of these cards remain the same (i.e. healthcare benefits) and the ancillary benefits are subject to relevant state based legislation. Given the card retains eligibility for the Energy Supplement, the net impact to pensioners should be minimal due to the change of concession cards.

It’s important to remember retirees at this sort of level are often asset rich but cash poor, living off modest returns from their investments.

And the government would argue that asset rich retirees should be self-funded (or at least more self-reliant than they are currently) and social security entitlements should be provided only as a safety net to those without income or assets.

In practical terms those who have saved more for their retirements and managed their investments well are being punished.

To say that this is punishment for saving is wrong. The whole point of saving is to defer consumption today to provide a future benefit. What the author doesn’t address here is whether they think the age pension should be a reward for attaining a certain age or a safety net for disadvantaged folk who have not been able to save adequately for retirement. The government is trying to address what it sees as an imbalance in the welfare system where (by the author’s own admission) asset rich retirees are still accessing income support payments despite having adequate means.

The government says these savings will reduce the budget deficit by $2.4 billion over the next four years. I think any sensible person would agree budget repair needs to be addressed but there is an inbuilt retrospectivity at work here.

Retrospectivity is such a dirty word now in politics and public discourse but this is simply not a retrospective change. Although I can see how you can come to this conclusion given your perception that the changes are a punishment imposed on retirees.

What is not addressed here is the short-sightedness of this policy. Sure, the government may save $2.4 billion over the next four years in age pension payments but those funds have to come from somewhere and for a retiree with, say, $600,000 in superannuation savings, it is unlikely that they will be able to fund their whole retirement and will over time become more reliant on the government as their asset base diminishes. The current policy simply defers the budget problem rather than addressing it with a longer term solution. I would have rather seen a piece addressing this point in detail rather than plain, old fear-mongering.

For the next generation of retirees, there is an active disincentive to save. There is a form of social engineering going on here. The government is telling the punters, don’t save or at least don’t save very much for your retirement or we will be into you.

The government isn’t taking anything away from retirees now or in the future. They aren’t adding a disincentive to saving – unless you think living on a meagre age pension is the aspiration of the majority of the population. Instead they are reinforcing the idea that those retirees who have means, should use those means to fund their own retirement with the government providing a safety net. From my perspective, this is an incentive to save. If you can build up sufficient assets to provide for the entirety of your retirement years without any reliance on the government then you are not at risk of becoming a political football, subject to the whims of short-sighted, populist governments.

Categories: Retirement Planning

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