Pension means test is effectively a ‘tax’ on older Australians

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The heavy ‘tax’ imposed by the Coalition’s toughened Age Pension means test will adversely affect even those with average super balances, according to new research from Betashares in a report published in The Australian.

The income and assets test is designed to coerce retirees into spending more of their retirement savings or invest in risky assets, says the exchange-traded funds provider, whose research questions the validity of Australia’s retirement income system.

Retirees with super balances between $350,000 and $600,000 would derive less income from having these retirement savings than they would if they were on the Age Pension with less than $263,250 in savings.

For each $1 of income a fortnight above $174, the Age Pension payment is reduced by 50c, which Betashares senior investment specialist Roger Cohen refers to as “an effective tax rate for a retiree of 50 per cent”.

From 1 January 2017, the assets test reduces the pension by $3 a fortnight for every extra $1000 in super, which was up from $1.50 before the changes.

Based on the income test alone, someone with $350,000 in superannuation would be deemed to receive $543 a fortnight in income – $369 over the full-Age Pension threshold. When taper rates come into effect, he or she would lose $184.50 in pension.

Similarly, a person with $600,000 in superannuation would be deemed to earn $832 a fortnight and would lose $658 off the full-Age Pension rate.

“Because the pension is means-tested, increased wealth of superannuation assets does not automatically translate to a retiree being better off with more income,” stated Dr Cohen in his analysis.

“The system results in a strong incentive to either spend, or to move investment towards ultra- high-potential returns, with resultant increased risk.

“For a retiree caught in the ‘retirement trap’, additional assets are better off spent, or if they are invested, must generate returns that are well in excess of 7.8 per cent per annum to exceed the pension entitlements that are lost.”

According to 2018 ABS data, the average super balance for men aged between 54 and 74 was $446,000 and $378,000 for women the same age.

“Common wisdom tells us that accumulating more savings through our working lives should result in higher income in our retirement years. However, our analysis shows that for certain people, under the current system accumulating more money can actually produce the reverse,” said Dr Cohen.

“Without considering the eventual policy changes from the retirement income review, our research shows people in retirement can only escape the ‘retirement trap’ if they accumulate an asset base well over half a million dollars.”

Do you think the means test should change? Have you found the toughened test a hindrance to a happy retirement?

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106 Comments

Total Comments: 106
  1. 0
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    The increased asset test encouraged (and still does) people to spend money on frivolous things like expensive cars, overseas travel and, although not in the frivolous category, extensive renovations in one’s own home. I am not greatly impacted but a lot of friends are and some are looking around for more expensive homes just to get the pension card. That card is worth quite a lot and very desirable for someone not minding to be called pensioner.
    Have mentioned before, a modest home and a million dollar place, is valued the same $210’000 for Centrelink purposes. Old people are not stupid otherwise they would not have accumulated assets.

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      Mariner
      Don’t forget Australia is basically the only country in the civilised world that means test the aged pension even NZ doesn’t in Germany they are assessed as individuals as both pay taxes in Italy my mother also received part of my deceased fathers pension

    • 0
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      marls – same here. My mother got her pension in Switzerland till she died last year. All she had to do is including the pension in her taxation form, same as you say in New Zealand. Australia did not have a means test. The Hawke Govt brought that in after it defeated the Fraser Administration and of course the Lib/Nats won’t do away with it. Same as we are stuck with the 67 year age pension. Ireland brought it to 66 and there are moves to get it back to 65. Protests in France because they want to bring it closer to 65 and we here in Oz were kissing Mr Rudd on both cheeks when he announced it out of the blue after the Budget speech.

    • 0
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      I am concerned that The Caring Bear @ KCCB has not responded to this debate.

      I am concerned for his welfare

    • 0
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      Tricky he may have either been effected by bush fires or is on holidays, lets hope he is okay, even though I hardly ever agree with his comments, we do notice those who have not posted for awhile.

    • 0
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      He is waiting to receive instructions from the PARTY.

    • 0
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      I wonder why they call it new research, as this concept has been discussed umpteen times even in YLC – yes, of course both Assets and Income Tests are Pensioner Taxes, with the Assets Test ramped up to nasty levels by the Liberals since Jan 2017.

      Instead of continuous talk (a lot of frivolous comments now appearing on such repeat topics), what is needed is action by Retirees – put Submissions to the Retirement Income Review before 3rd Feb 2020 – it is quite easy if you look at that web page, to submit by Email or Post. Ideally, they should scrap ALL tests and give out Age Pensions to ALL from Age 65yrs and Residency say 15 yrs, with Centreklink removed from the Admin. Tell these jokers in Canberra to give it serious consideration.

  2. 0
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    Why doesn’t this surprise me from the Government. They let their high-end buddies off from paying little or no tax because that’s where so many of their own perks come from – large party donations, expensive tickets to events, expensive wines, holidays, the list goes on. Meanwhile they don’t care two hoots that many pensioners and low income families are struggling to pay bills and put food on the table. Hit the easiest target. Again. This Government is so out of touch with reality it’s astounding. They go on about getting older people back in the workforce but offer no incentive to do so – particularly for DS Pensioners where the earning threshold is ridiculous – then they introduce this. And people voted for them. Pleased to say I didn’t!

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      Correct OLDCHICK. I never voted for the LNP government and never will. Morrison (the charlatan) in cahoots with Abbott and the Greens changed the pension assets test as from 1.1.17 to the detriment of my planned retirement, which resulted in me losing $16K per year. The did this on the pretence of saving the budget bottom line, but they allowed the top end of town to,pay less tax (or none at all) and have allowed the rich to keep the benefits of negative gearing and franking credits which theyre not eligible for, and which is anathema to equitable fairness in our society.
      Morrison and his LNP government are a bunch of cretins and the sooner they’re disposed of the better.

    • 0
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      Like you Thommo I was also duded by the changes from 1 1 17. This mob make it impossible for the average Joe to effectively plan for your future.
      Bottom feeders who are callous and calculating, only aiming to serve and protect their own. Seniors and pensioners are fair game unfortunately. The whole “Age” question requires a serious rethink and restructure, as to be honest does the Health System, but SLO MO and his mob will, like the Banking Inquiry, ignore & drag the chain,using every ( any ) excuse to defer. Their fall back now of course is Drought & Fires. Next will be impact on Budget / Surplus so either no change or further slug. All in all a joke perpetrated by both Fed and State LNP. None of us on struggle street are laughing.

    • 0
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      Agree thommo although the ALP should never have reneged and offered aged pensioners franking credits either. No tax paid no refund would have been fairer. All it did was point out how really wealthy a lot of full aged pensioners are if you add up all their assets.

    • 0
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      They’ll blame the need for this change, like everything else they stuff up, on “the Mess” the ALP left the country in after the GFC. They completely ignore the fact that we came through that better off than most other countries. Sure, mistakes were made but how long are they going to play the same old tune? We now have the lowest interest rates in our history, slow economy, no consumer confidence and now a blackened charred country with no water and no tourism will be the outcome of all of that. Add in the Coronavirus and the impact that will have on tourism. Their plan, take even more money off the poor people. Must keep that budget surplus!!

  3. 0
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    Once again that dirty word “Deemed” raises its ugly head.

  4. 0
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    Between ‘Smokin’ Joe’ Hockey wanting us to ‘work until our organs can be harvested’ and Josh Frydenberg introducing “a tax on retiree’s savings of up to 50%,” the next thing we’ll see is an LNP policy for ‘compulsory euthanasia’ for those wanting a pension after a working life of 50 to 60 years.

    A ‘plague’ on all of their Australian Taxpayer funded investment properties and grants to their shooting clubs.

  5. 0
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    Stage II?

    “In politics, nothing happens by accident; if it happens at all, it was planned that way.” – FDR.

    So we need to look at the game plan and the end game…. governments respective have started down the runaway train of enforced superannuation as a retirement, first addition to pension, and increasingly as a total substitute. Then before it has had a ‘working life’ of around 50 years to even start to bite properly – i.e. nobody retiring today, public servants etc apart, is retiring with a full superannuation payment – governments start whining about the ‘cost’ of social security.

    Apparently nothing else ‘costs’, but social security does (and LNP are not alone in this). Governments can spend $100Bn in the blink of an eye on some Offshore purchase – money gone forever from the local Budget – but seem incapable of seeing that money spent on social security actually primes the local Economy and thus Budget.

    This can not be anything but deliberate – even elected nodding clowns aren’t that stupid.

    So what is the end game?

    I have my views – anyone??? Anyone??

  6. 0
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    It’s very disappointing that successive governments make retirement harder. For goodness sake, aged people who have had the foresight to save for retirement should be applauded not derided.

  7. 0
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    I wonder if that income they are talking about is from all of what I have in annuities, allocated pensions, savings etc.?
    Will my 2013 Commodore suddenly be worth a fortune to them? Maybe I should start whittling away my savings, maybe get someone to install electric windows to the car, or would that make it more valuable?

  8. 0
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    I understand why Hockey was shipped off to Washington. He was a fool.

    He and Cormann not only managed to make smoking cigars really uncool but also pretty much destroyed the Superannuation system with their means testing using deeming( dreaming made up nonsense ).

    I was in a compulsory scheme and nobody can explain why my 48% non concessional income stream id deemed as only 19
    0%. I’ve been asking since the budget and not one person can explain how it is fair and why it doesn’t mean saving non concessional amounts is now a very bad bad idea.

    • 0
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      Should read 48% non concessional deemed as 10%. Why?

    • 0
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      Is that Cormann or Con-Man ??

    • 0
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      Yes, john, it did look remarkably like Conmann… der Cormannator…

    • 0
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      Masy one ask why such Johnny-come-latelys are running our nation and its economy on our behalf? How much grounding does he have in The Australian Way?

      https://i.imgflip.com/3nb0bb.jpg

      (my creation)…

    • 0
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      Hockey left town with a lynch mob on his heels… afraid to come back, too…

    • 0
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      Are you allowed to ask TREBOR? Perhaps it’s been a very sly invasion and the invaders are now making up the rules. Heaps didn’t pass the s44i clause and some are possibly breaching s44ii. Commercial in Confidence, On Water Matters, Home Security with it’s own Black Guard and all that jazz. It would not be the first or last time that sort of thing went on.
      Rather than the Cook Statue I’m surprised they haven’t raised a statue of Eric Campbell on the Yarra.

    • 0
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      TREBOR you are wondering why Johnny -come -lately pollies are runing,(or not) our country?, well maybe you had better ask all those quiet Aussies who voted them in what they think of them now, this govt goes from one debacle to another, the Sports Rort the latest episode.

  9. 0
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    Well, it’s been a month or two since the last pensioner bashing by the Govt and so here we are again.
    I’m really sick and tired of living in a stressful situation. Maybe what the Govt really wants is a mass suicide of pensioners. Or maybe, we should go on a killing spree of politicians, this would really save a lot of money. Just once I would love to live my final years in a peaceful no stress relaxed environment. Can’t see that happening though.

  10. 0
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    Both the LNP and Labor are like the nazis. The LNP got in power thru lying, cheating, bullying and conniving. Labor lost as they are like the bumbling guards in hogans heroes, unable to explain their policies clearly !!

    • 0
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      So true… however, as above – nothing happens in politics by accident – obviously Shortenski The Rich didn’t want to explain it simply and easily – Labor WANTED to fumble the ball….

      We need a whole new crop of politicians with a different slant on life … on all sides… at least Lambie knows something about the rough end of the pineapple… and she does listen…

    • 0
      0

      Labor had policies they took to the last election, well thought out, but no one bothered to read them, the lying Liberals just ranted on with lies and stupid people believed them. Labor might not be perfect, but they are more likely to help those who need it than the Liberals.

    • 0
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      Well – craw-fishing about franked dividends, and splitting ‘interpretation’ between pensioners and others and so forth – instead of sticking to a well-explained policy – was fatal.

      One in – all in – either abolish franked dividends to stop the confusion and obvious rorting, make individuals, trusts, companies, private super funds and so forth pay their way and obey the rules – and the Budget would be in permanent black.

      You gain income – you pay income tax…. end of story.

    • 0
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      Exactly TREBOR. I was happy losing franking credits until rich people, pensioners, churches and so forth who pay no tax were to be exempt from losing that refund. It was way too class warfare , unfair in my opinion, I think they wanted to lose the election. Otherwise why do that silly franking thing for less than $6 billion. Makes no sense.

      They could have just said no refund of provisional tax or paying provisional tax for shareholders and argued that’s what everyone else in the world does. Let people sort out their own bloody taxes not have some company they are invested in do it for them. Duh! How dumb an idea is it really?

      It may make the Accounts look good for a tad but as most of it is repaid anyway why trouble the company, tax office and individual and corporate taxpayers for a damn fool idea.

    • 0
      0

      You could be right, Rae – Labor didn’t seriously want to win that election – they certainly came across that way. Next question is why…

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