Age pension and superannuation changes hit home

The Australian

10 January 2018

Glenda Korporaal

It has been a year since stricter asset tests for the age pension came into force — overshadowed by a flurry of changes to super­annuation that hit mid-year.

But the longer-term financial impact on those affected is now becoming more apparent.

The Self-Managed Superannuation Fund Association threw a spotlight on the issue yesterday.

In a statement, chief executive John Maroney said it was now apparent that the changes to the means test taper rates and thresholds have had “significantly adverse and presumably unintended consequences”.

He said the steeper taper rate that took effect from January 1 last year is now actively discouraging middle-income wage earners from saving to be self-sufficient in retirement.

Maroney argues that the changes have created a “black hole” for people directly affected by the changes that makes them worse off in terms of income — encouraging them to spend up (or cut back on their savings) to reduce their assets to qualify for the pension. He cites the example of a home-owning couple who have a superannuation balance of between $500,000 and $800,000.

For couples in this situation, he says the taper rate (the rate at which higher assets reduce entitle­ment for the pension) is the equivalent of about 7.8 per cent a year. With today’s low interest rates, this is well above the amount that a retiree could expect to be receiving from their investment or time deposit.

(Under the steeper taper rate that came into effect in January last year, retirees lose $3 of age pension a fortnight for every $1000 above a certain assets threshold, compared to losing only $1.50 of age pension for every $1000 over the threshold before January 2017.)

The couple in question is better off spending their money, reducing their assets to enable them to qualify for the pension, or shifting their assets from financial assets into non-financial assets such as the family home and getting as much of the pension as they can.

The pension may not be much, but for those who are eligible, it is a worry-free government guaranteed amount that a retiree can ­depend on rather than an investment, where returns can be vulnerable to market swings as well as administration costs, or cash in the bank or time deposits, which don’t pay much these days.

(A three-month bank time deposit pays about 2 per cent, rising to 2.7 per cent for 24 months.)

And as any retired person knows, there are many more benefits to keeping the pension than just the pension itself.

The SMSF Association agrees that some means test is necessary for the sustainability of the age pension (there has to be a cut-off somewhere), but argues that the current situation is “not appropriately integrated with the broader retirement system”.

Maroney says the government should scrap the assets test and move to a more appropriate, simpler way of integrating superannuation and the age pension.

He supports the idea suggested in the Ken Henry-led Australia Future Tax System Review that has a single means test that ­applies a deemed income rate to financial and non-financial assets.

While it is not likely to happen in this government’s term (the government has indicated it has no stomach for further changes to the pension or super system within the lifetime of this parliament at least), it does raise a longer-term debate about fairness.

The SMSF Association’s comments yesterday follow the very vocal comments made for some time by the Melbourne-based Save Our Super group that was set up in response to the sweeping superannuation changes announced in the 2016 budget.

Online publication Super­Guide has been working with Save Our Super to highlight what it calls the regressive impact of the stricter assets tests. The group argues that there is a “savings trap” as a result of last year’s asset test changes that particularly hits ­people with assets of more than $400,000 and below $1 million.

In an article published on the Save our Super website ( in November, writer Trish Power argues that a single person who owns their own home would be better off in terms of total retirement income having $300,000 in super than by having $400,000, $500,000 or even $600,000 in super. Power points out that a home-owning single person is hardest hit when they hold $550,000 in super. At this level they receive less total income (super pension plus age pension payments) than a single person who has $300,000 in super.

Power argues that the January 2017 changes “ambushed more than 300,000 retirees who could do little to mitigate their circumstances” and “threw into disarray the retirement plans of many hundreds of thousands of Australians within five years of retirement”.

Save Our Super, which describes the situation as Retirementgate, has engaged in a letter-writing debate over the issue with federal Assistant Treasurer Michael Sukkar that can be read on their website.

Sukkar challenges the assumptions in the Save Our Super paper, arguing that it is not the role of the age pension to support retirees with a higher level of assets to maintain their capital base.

He argues that the steeper taper rate was introduced to encourage people to draw down their private savings more rapidly.

Whether it is a “black hole” or a “savings trap”, those hit by the 2017 changes should by now have at least assessed if they can re-­arrange their affairs to minimise the adverse impact of the changes.

There is no appetite for more radical changes to super in the short term, but the SMSF Association comments yesterday could revive the debate over the fairness of the current super and pension situation.