Age pensions changes should be wound back: Industry Super Australia

Age pensions changes should be wound back: Industry Super Australia
Age pensions changes should be wound back: Industry Super Australia

The changes introduced by Scott Morrison to the age pension regime contained in Joe Hockey's May budget should be wound back, the lobby group representing union-backed super funds, Industry Super Australia says.

From January next year the asset threshold for a couple to qualify for a part age pension will fall to $823,000 from $1.15 million.

For retirees who quality for a government pension, the amount by which the pension is reduced for each additional $1000 of assets over a threshold will rise from $1.50 a fortnight to $3.

Fairfax Media report ISA accused the government of "ad hoc" policy making.

"The more aggressive taper rate undermines the incentive for people to increase their super contributions since an increase in retirement income from this source will be largely clawed back through lower pensions."

ISA cite ISA-Rice Warner modelling that indicates that the proposed changes to the Age Pension asset test and taper rate in the bill are "misguided" because they reduce the retirement incomes of Australians who currently are on modest incomes, and whose retirement incomes are projected to be below that sufficient for a comfortable standard of living in retirement.

"Over time, the changes would adversely affect about 40 per cent of Australians, and 8 in 10 single women," it suggested.

Adopting the same methodology as Australia’s Future Tax System Review, the bill’s proposal to double the taper rate to a $3.00 per fortnight loss of pension per $1,000 of assets results in an effective taper of 156 per cent assuming a 5 per cent return. 

The proportion of new retirees affected by the proposed change will increase sharply over time, ISA noted.

The proportion of new cohorts of retirees affected by the proposed asset test change increase from one in three today to seven in 10 by 2050. This influx will increase the overall proportion of the Age Pension population who are worse off from just over 10 per cent in 2017 to over 40 per cent by 2055.

ISA noted the policy change over time reveals that:

  • The impacts of the change increasingly fall on those earning below average incomes
  • For couples due to retire in 10 years’ time, the largest impacts are felt just below average earnings ($62,000 or 80 per cent average full time earnings). They stand to lose around $8,600 a year ($4,300 each) or $224,000 per couple ($122,000 each) over their entire retirement
  • For those 20 years from retirement (aged 45-49 today) the big impacts start being felt by a couple in decile 4, each earning as little as $45,000 today, who would lose $3,000 ($1,500 each)
  • By contrast, a couple in decile 9 on $145,000 each experiences the barest of impacts, losing just $113 a year each
  • Over the long run, there are more people affected on below average incomes than above (5 rungs below average earnings compared with just one rung above)
  • Within 10 years around half of all new retirees leaving the workforce will be affected by these changes

Jonathan Chancellor

Jonathan Chancellor

Jonathan Chancellor is one of Australia's most respected property journalists, having been at the top of the game since the early 1980s. Jonathan co-founded the property industry website Property Observer and has written for national and international publications.

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