The Australian
15 December 2016
James Kirby
Steve
It’s time for Australia to do away with the means test for retirees, like New Zealand. Until we do, this nation’s saving’s policy will become totally stuffed
James
There has been a great interest in overseas pension systems since it became clear this year that our own superannuation system is now dreadfully complex, regularly inconsistent and in patches – unfair. ie the example cited in the answer to Sean below which is surely a classic ”unintended consequence’.
In fact your idea has been given some academic weight recently in a new report from the ANU Tax and Transfer Institute – however you might be disappointed to know the authors conclude a straight copy of the NZ system here would be ‘unsustainable” due to our aging population…NZ does seem to win on many key scores such as older worker participation.
My personal view is that the superannuation system has been fixed by band aids too many times now – including the latest band aids from the Turnbull government – as a result politicians are very unlikely to be willing to open this subject up again so soon.
Sean
Hi James. My wife and I have about $800,000 in assets and currently receive a modest part pension. We understand our entitlement will be much lower from January.
I have been told there may be some Centrelink benefit over time by investing some of our money into a long-term annuity (say $200,000), but it seems to me that locking in current low annuity rates for many years just to get a small Centrelink dividend over time is far inferior to investing the same amount “in ourselves”.
By that, I mean taking a number of domestic and overseas trips and generally living it large while we are both still quite healthy and active. I reckon we can spend about $200,000 making the next two years the best of our lives.
For doing so the Government is happy to give us an immediate guaranteed effective return on our “investment” of 7.8% (additional $15,600) each and every year for life.
Given current market conditions, this is more than we can sustainably draw off our capital if it remains invested as is in our allocated pensions (let alone an annuity), so we will actually increase our annual cash-flow by making this investment.
Further, if we travel mostly within Australia, we are unrestricted in the length of time we can be away from home (and not lose our Centrelink) as well as stimulate the local economy to boot. (We can even rent out our home on airbnb while we’re away to offset our travel costs and keep the dream alive even longer!)
This seems like a win-win-win. Am I ready you ask? You bet I am. Am I missing something?
James
Your extensive question gets to the heart of what is wrong with the current system – but to answer you directly first: Yes you will certainly lose a lot of the access you currently have to a part pension when the new changes come into effect on January 1.
Take a look at a feature we ran in the WEALTH section on Oct 4 called Saving or Slaving: Finding the sweet spot in super we found that someone with $700,000 in super assets did not do as well as someone with $500,000 in super assets under the new system – by this I mean the combined income they get from their super and their pension access was better with the lower savings than the higher savings …this is a most unfortunate outcome of the super changes and many people – like yourself – will likely find it to their advantage in some fashion to spend more and save less….
One observation though of course – in terms of missing something – is that an individual with higher super savings will always be in a stronger position in terms of total wealth – and should be less dependent on changes to government welfare policy…I will try and give a more specific answer to you Sean if we have time today…
