A recent paper by advocacy group, Save Our Super, originally produced for SuperGuide, has uncovered financially devastating repercussions for Australia because of harsh Age Pension and superannuation policies made in haste and with hubris, and implemented with gusto by Federal Treasurer, Scott Morrison.
Treasurer Morrison may now be in a bit of a political pickle, and at career crossroads, considering the disturbing and rather astounding findings contained in Save Our Super’s paper, authored by Jack Hammond QC and Terrence O’Brien, and summarised in the SuperGuide article Retirement and income savings trap caused by Coalition’s 2017 superannuation and Age Pension changes.
Although the federal government pushed the Age Pension and superannuation changes through parliament with Robin Hood promises of taking from the rich and giving to the poor, the reality reads like a political satire (but without the humour). The policies do not take from the rich, but instead take from middle Australia, and in a rather heartless fashion.
For a retired couple who own their home, the practical effect of the 2017 Age Pension changes is that you receive more total retirement income (including Age Pension) with $400,000 in super, than you do with $800,000 in super, or even $1 million in super. Under the new rules, the most desirable savings targets are $400,000 or $1,050,000, and to accumulate over this $650,000 divide using the post-July 2017 concessional contributions limits would take 26 years.
Can you hear it? Take a moment – yes, the stampede to spend retirement savings on cruises and other holidays, in renovator stores and on other treats as Australia’s retirees realise they have been conned, and are now being punished for saving for their retirement.
I call this policy and budgetary debacle, Retirementgate, and unless the inequities of this outcome are fixed, heads must roll, either in the department that advised the Treasurer, or the Treasurer himself.
Retirementgate will haunt this government, and the Treasurer, and future governments. Any legacy the Treasurer is hoping to leave will be tainted by this budgetary stuff-up.
Some points to consider from the Save Our Super paper:
- Retirement savings ‘sweetspot’ is now $400,000 for a home-owning couple, which will give a couple 94% of the full Age Pension, delivering a total income of $52,395 (based on September 2016 Age Pension rates) For assumptions, see Save Our Super’s paper (link at end of article).
- Under the new rules, regardless of whether you saved $600,000 or $800,000 or even $1 million, you cannot secure more than what you secure with $400,000 until you have $1,050,000 in super and you will then be relying solely on your super savings.
- In effect, financially, it is better to have $400,000 in super rather than $600,000 or even a $1 million in super, due to the harsh effects of the Age Pension assets test.
- According to the paper, as a result of the July 2017 superannuation changes (lower contributions caps), overcoming this massive savings trap from $400,000 to accumulating more than $1,050,000, would take 26 years assuming a person fully utilised the lower $25,000 concessional contributions cap.
- Doubling the effect of the Age Pension taper rate from 1 January 2017 (losing $3 for every $1,000 of assets over the assets test threshold, rather than losing $1.50 for every $1,000 of assets), means that Australian couples are effectively taxed 150% for lifetime super savings between $400,000 and $800,000. This hit means that doubling super savings will convert to about $11,000 less total income each year.
Retirementgate is not going away, and the harsh effects of these policies will play out for decades to come, and result in the next generation paying for this government’s political and financial mistake. Based on Save Our Super’s paper, the changes will not help the Federal Budget’s deficit, but will cost the fiscal bottom line, as retirees change spending behaviour to match the disincentive to save under the current retirement rules.
For a summary of Save Our Super’s paper (which includes a link to the longer paper), see SuperGuide article Retirement income and savings trap caused by Coalition’s 2017 superannuation and Age Pension changes.
As a supporting reference, see SuperGuide article Retirement savings trap: 13 findings from Save Our Super’s paper.
For more information about the July 2017 super changes, and the January 2017 Age Pension changes, see the following SuperGuide articles:
- Age Pension: 300,000 Australians lost entitlements on 1 January 2017
- Age Pension assets test rules (March 2019 to September 2019)
- Latest superannuation rules: 2018/2019 guide
- Retirement phase: A super guide to the $1.6 million transfer balance cap
- 2018/2019 guide to non-concessional contributions (after-tax super contributions)
- 2018/2019 guide to concessional contributions (before-tax super contributions)