Assets Test Hits Super Pensioners
Well may the government say “no changes to superannuation” but when we look at the anatomy of the Age Pension Means Test, it becomes pretty clear that the Asset Test changes in the Budget of equivalent to $2.4bn are a hit on Superannuation linked income of people who retired between 2007 and now.
To see this we need to order typical retiree asset categories in decreasing order or current income rate counting for Age Pension Income Test. At the Asset point where Age Pension will be eliminated by the Budget ($823,000), the following is a possible scenario of a couple retiring in 2007.
* Term Deposits $200,000, rate of interest 4%, Income $8,000pa
* Cash at bank $50,000, rate of interest 2%, income $1,000pa
* Super Balance $573,000, Drawdown rate 5.9%, Super Pension $33,636pa, Income counted for Age Pension Income test $4,930pa, equivalent rate of income for age pension means test 0.9%
* Total assets $823,000 (equal new Asset Test limit)
* Age pension under current rules $15,365pa (as per addendum to Scott Morrison’s release 7 May 2015)
* Total Income $58,000pa (equal ASFA comfortable retirement)
Thus given there is no change to Income Test limits, we need to look at the assets ordered in effective rate of return order (as above) as applies for Income Test. Our conclusion is that the Budget Asset Test changes are really an attack on super pensions for people who have already retired between 2007 and now.
How would someone with this position who retired in 2007 go about replacing $15,365pa income by drawing down extra super? Our calculations show that if super drawdown had to increase from $33,636pa to $49,000pa ($15,365 plus $33,636) their super capital would run out at age 84. This is based on 5% return on super and 4% living cost inflation.
We would expect the eventual implementation of this might include some phased introduction. It looks to be quite a dislocation of arrangements already put in place by retirees after proper advice.
Posted Wednesday, 13 May 2015
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