Means testing for old age pension is a poor idea. We should follow other countries e.g. UK and pay the pension notwithstanding. How one is expected to exist on savings when interest rates are below one percent beggars belief. Reliance on retirement ‘income’ turns pensioners into paupers automatically under current rates of interest.
Pensions should not be means tested. It’s impossible to earn enough income to exist with bank rate below one percent. Reliance on income from savings turns pensioners automatically into paupers. At one percent one needs capital of $3000000.00 to produce income of $30000. It’s crazy.
You’re right; living on 1% of your capital is not going to work. The government is trying to communicate through the Retirement Income Review the expectation that retirees spend down their capital to make their retirement funding satisfactory — not just rely on interest and dividend earnings. As they spend it down, if they’re on the Part Age Pension, then their Age Pension payments will go up as a benefit of the means testing. The government study found that people aren’t spending down their retirement nestegg but dying with on average 90% of their wealth. That’s not the intention of compulsory super; it’s to create a nestegg for people to spend down and supplement that with the Age Pension.
[“That’s not the intention of compulsory super; it’s to create a nestegg people spend down and supplement that with the Age Pension.”]
Really? Is that officially documented somewhere? Do we know what actual monetary value the 90% represents – $100K? $1M? I suspect that many retirees are are not over spending their nest egg because there is always the risk that investments could go south at any time. Then one also needs to be mindful of the capital required to place one’s partner into a high care facility should the need occur.
Jeremy Duffield
on February 11, 2021 at 3:09 pm
The Government has been trying to document that in the “Retirement Income Covenant.” Yes, the major reason that people don’t spend down is uncertainty about the future. But often those fears are exaggerated. For instance, our health and age care systems provide a lot of support for elder Australians (unlike in some other countries). And the Age Pension kicks in to help…so that nearly 80% of people are expected to get some Age Pension by the time they’re 80.
Karen
on February 3, 2021 at 1:23 pm
The comfortable range of $62k seems low when you take into account all the bills James refers to. Our health insurance is $5k, car rego and insurance another $4k, and I haven’t even added in power bills or rates.
I agree that the current estimate is too low for a comfortable retirement. Medical expenses are not tax deductible , car insurance , Health Insurance costs are increasing every year and the cost of travel for a comfortable retirement should be estimated. Most of the utilities are
transferring costs for printing to the end user meaning that a computer and printer renewal each 2- 3 years needs to be included. House maintenance costs are increasing very rapidly and this is an essential part of maintaining the House after retirement without the normal cash flow of a Salary
I suspect that at least $20,000 extra would be need for a comfortable retirement
It has always amazed me how my income tax(much at the higher end) was not valued as much as another person paying less income tax, particularly when they are able to get a pension and I am not. Just magic, isn’t it?
Ian
One of the unfair things is the deeming. Why is the deeming rate more than double the best investment rate one can get. The pension is reduced by the earnings if over the allowed earnings but for many they don’t earn what the government estimates. This deeming rate actually prevents many pensioners from getting what they are entitled to.
When talking about retirement expenditure insurances including car, household, health & contents should be included to get a realistic yearly figure.
Means testing for old age pension is a poor idea. We should follow other countries e.g. UK and pay the pension notwithstanding. How one is expected to exist on savings when interest rates are below one percent beggars belief. Reliance on retirement ‘income’ turns pensioners into paupers automatically under current rates of interest.
Pensions should not be means tested. It’s impossible to earn enough income to exist with bank rate below one percent. Reliance on income from savings turns pensioners automatically into paupers. At one percent one needs capital of $3000000.00 to produce income of $30000. It’s crazy.
You’re right; living on 1% of your capital is not going to work. The government is trying to communicate through the Retirement Income Review the expectation that retirees spend down their capital to make their retirement funding satisfactory — not just rely on interest and dividend earnings. As they spend it down, if they’re on the Part Age Pension, then their Age Pension payments will go up as a benefit of the means testing. The government study found that people aren’t spending down their retirement nestegg but dying with on average 90% of their wealth. That’s not the intention of compulsory super; it’s to create a nestegg for people to spend down and supplement that with the Age Pension.
[“That’s not the intention of compulsory super; it’s to create a nestegg people spend down and supplement that with the Age Pension.”]
Really? Is that officially documented somewhere? Do we know what actual monetary value the 90% represents – $100K? $1M? I suspect that many retirees are are not over spending their nest egg because there is always the risk that investments could go south at any time. Then one also needs to be mindful of the capital required to place one’s partner into a high care facility should the need occur.
The Government has been trying to document that in the “Retirement Income Covenant.” Yes, the major reason that people don’t spend down is uncertainty about the future. But often those fears are exaggerated. For instance, our health and age care systems provide a lot of support for elder Australians (unlike in some other countries). And the Age Pension kicks in to help…so that nearly 80% of people are expected to get some Age Pension by the time they’re 80.
The comfortable range of $62k seems low when you take into account all the bills James refers to. Our health insurance is $5k, car rego and insurance another $4k, and I haven’t even added in power bills or rates.
I agree that the current estimate is too low for a comfortable retirement. Medical expenses are not tax deductible , car insurance , Health Insurance costs are increasing every year and the cost of travel for a comfortable retirement should be estimated. Most of the utilities are
transferring costs for printing to the end user meaning that a computer and printer renewal each 2- 3 years needs to be included. House maintenance costs are increasing very rapidly and this is an essential part of maintaining the House after retirement without the normal cash flow of a Salary
I suspect that at least $20,000 extra would be need for a comfortable retirement
Agree – the ASFA standard seems quite unrealistic to me.
It has always amazed me how my income tax(much at the higher end) was not valued as much as another person paying less income tax, particularly when they are able to get a pension and I am not. Just magic, isn’t it?
Ian
One of the unfair things is the deeming. Why is the deeming rate more than double the best investment rate one can get. The pension is reduced by the earnings if over the allowed earnings but for many they don’t earn what the government estimates. This deeming rate actually prevents many pensioners from getting what they are entitled to.