Middle earners in harm's way

Provided by RBF.

Retirement incomes of middle Australia will suffer as a result of proposed new Age Pension Assets Tests, say superannuation leaders.

The new test, announced in last year’s Federal Budget and set to come into effect on 1 January 2017, will replace the current $1.50 taper rate with a harsher $3 rate. In short, this means that your part-pension will reduce more quickly as your assets increase.

Mercer and the Australian Institute of Superannuation Trustees (AIST) say the new test will have a significant impact on the retirement outcomes of middle Australia. The latest AIST Mercer Super Tracker modelling shows the new taper rate would cut the level of government support for average income earners by up to 40 per cent, removing incentives for voluntary saving and threatening the integrity and sustainability of Australia’s super system.

Dr David Knox, senior partner at Mercer says the AIST Mercer Super Tracker modelled the long term implications of different policies on the adequacy, fairness and sustainability of our retirement income system.

The tracker uses 10 indicators to assess the progress of Australia’s retirement income system. The 2016 score is 68.8 out of a possible 100.

"We've got one of the best retirement savings systems in the world, but there is always room for improvement," Dr Knox says. "The doubling of the asset test taper from 1 January next year will hurt many retirees who do not have a large retirement nest egg and this will affect their retirement income. "An increase in the taper to $2 would be reasonable given the current budget constraints but a $3 taper is tough, especially in a low interest rate environment.”

According to Mercer, under the government’s planned $3 taper rate, middle income earners will receive government support for retirement, including super tax concessions and Age Pension, of about $300,000. Meanwhile, Mercer identified that the top 10 per cent of wage earners will receive $500,000 to $600,000 in super tax concessions across a working lifetime, double the level of government financial support toward their retirement than middle income earners.

"A retirement income system where high income earners are effectively receiving almost double the financial assistance from the government to save for their retirement than individuals on the part pension is not a fair or sustainable system," says AIST CEO Tom Garcia.

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