‘Harsh tax’ hinders those who have responsibly saved to fund their own retirement, says ISA.
A couple retiring with $1 million in super will be worse off than a couple that retires with $400,000, according to new research from Industry Super Australia (ISA).
Analysis of the Age Pension means test revealed that in the next decade more than one million Australians will be caught out by an “unfair retiree tax that will mean they will end up with less spending money after saving more”.
ISA highlighted how asset taper rates cut the Age Pension by $3 a fortnight for every extra $1000 in savings that retirees have over the asset threshold.
This means couples who have saved $1 million to fund their own retirement will be hit by an “effective retiree tax” and will receive less annual income than those who have just $400,000.
“This harsh rate drastically wipes income from those who saved more,” ISA statement said in a statement.
“The trick tax arithmetic creates a disincentive to save and punishes those who have taken responsibility for their retirement during their working life and built a modest nest egg.”
The taper rate, which doubled from $1.50 to $3 back in 2017, has been a hot issue of late, with some decrying it as a “heavy tax on retirees” and others saying it makes the pension system fairer for all and not just the wealthy.
ISA believes it does not favour “hard-working Australians” who retire with $400,000 to $875,000 in super. A couple with more than $875,000 will have $12,000 less per year to spend than if they had retired with $400,000, estimates ISA.
“This perverse pension test means their retirement income actually goes backwards with the more they save,” says ISA.
“These workers have saved hard their whole life only to reach retirement and find out they are being penalised for their financial responsibility,” says ISA chief Bernie Dean.
“It provides a disincentive to save, it flies in the face of reason and is just plain unfair.
“These responsible retirees, who took their savings upon themselves, deserve to be given a leg-up by the government – not dragged down by an unfair retiree tax.”
Reinstating the taper rate to $3 in 2017 taper rate “caught more than 330,000 retirees in the taper rate trap and more than 700,000 people who will retire in the next decade will also be impacted”, says ISA.
“These middle-income workers find that instead of their diligent saving delivering them a comfortable retirement, their incomes are falling off a means-tested cliff as their part pension is wiped.”
Rather than scrap the taper rate or set it back to $1.50, ISA said that a $2 rate would reward retirees who save, leaving them with more income in their post-work years.
What do you think of taper rates? Are they unfair? Or do they balance the system?