THE Association of Independent Retirees (AIR) has warned the government that changes to part-pension eligibility will negatively impact over 300,000 retirees.
AIR Limited president Max Barton warned the combination of the reduction in the assets threshold for part pension eligibility to $820,000 for a couple with their own home and the accelerated cut in the withdrawal of the part pension or taper above $385,000, will mean a reduction or abolition of a pension or part pension for over 300,000 elderly Australians.
“These are people who, at the urging of the government, diligently saved for their retirement, under superannuation rules which are now to be changed,” Mr Barton said.
“Those with $850,000 invested, which is slightly above the asset threshold cut-off could be worse off than those with only $400,000 invested as the latter will receive almost the full pension.
Mr Barton said the changes would mean those affected would have to reconsider their retirement strategy and there would be a “perverse incentive” to reduce their invested capital by lump sum withdrawal to be eligible for their previous entitlement.
“Even if they don’t, for those with an account-based pension the increased percentage compulsory drawdown on their capital as they grow older will make them become full pensioners earlier than before,” he said.
“There is a case for the government to moderate the more severe rate of drawdown percentage increase for people in their eighties and nineties as people are now living longer in retirement. Retirees need significant assets to fund their retirement, including their everyday living income and other expenses, for an expected 30 plus years; their ability to adequately provide for this period of time in retirement may now be impacted by this decision.”
Mr Barton said the decreasingly low interest on the savings of older self-funded retirees in particular exacerbates the cash flow situation as that is where their money was principally invested.
“If $42,000 annual income is now considered necessary for a basic and modest retirement for a couple owning their own home, then a 3-4 per cent return on about $1 million investment will not achieve this, let alone the almost $60,000 calculated for a comfortable retirement,” he said.
Mr Barton recommended the government take the time to fine-tune these anomalies as the new arrangements are not due to commence until 2017.
“AIR has no argument with a fair pension for those who have not been able or encouraged to save, but the Government now has a task to restore faith in the retirement system and provide incentive to self-funded retirees, the majority of whom survive on low-income streams,” he said.
