Friday Reflection: When ‘pension’ is simply the wrong word

happy retired couple outside at sunset

My wife and I are self-funded retirees and I’ve been annoyed since retiring about the terminology used in managing our super savings.

Could someone please enlighten me as to why, when I draw down from my super account as an income stream, it’s called ‘pension mode’? A quick look at Google will tell you that ‘pension’ is defined as a regular payment made by the state to people of or above the official retirement age.

Clearly, this is not the case for retirees who are self-funded or those taking a part pension. We draw from funds that we have personally saved over many years of work in preparation for our earned retirement.

It may be semantics, but referring to a person’s self-saved and self-generated funds as a pension is misleading and confusing; it does not delineate the source of the funds. Nor are super funds guaranteed by the government, they are subject to high volatility, with many highs and lows to manage over time.

This is not the case for the government Age Pension, which is fixed and stays intact irrelevant of market conditions, though it is indexed twice a year.

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Many gain a part government pension based on savings and assets, supplemented by what they draw down from super accounts to support their lifestyle, but their drawdown is still called pension mode although not sourced from the government.

Further, fully self-funded retirees are exactly that – fully self-funded. They receive no government pension or benefits, even though the funds they draw down continue to be referred to as pension mode.

Yes, in generating super savings there are tax concessions that we can take advantage of, that are provided to encourage people to be as financially independent as possible in retirement.  But let’s not forget that in exchange, retirees who were able to save enough during their working life or have assets beyond the government pension cut-off point, have no lien on government funding, government pension, health cards, concessions and bonus or stimulus payments.

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I believe we have a strong government-supported pension system. It’s there for good reason, and while the term pension may be a convenient way of bundling retirement age income streams, be it government or self-funded, I wrestle with the suggested ownership of these funds through this terminology.

As a self-funded retiree, we are not able to access the many pension card benefits, including utility concessions etc, although we continue to support the provision of these benefits in our society though ongoing taxes on earnings, albeit concessionary.

Personally, I insist that my financial adviser refers to money we take from super accounts to live on as our drawdown, as this is what it is.

Just a personal point of view, but referring to our super funds as a pension niggles me. Our funds are our funds. We saved them and we live on our drawdown. It’s not a ‘pension’ from the state or government as defined in the dictionary.

Finally, I read the article in YourLifeChoices about preserving the COVID drawdown rates. Note here that the term drawdown rate is actually used but subsequently just bleeds into what is referred to as a super pension fund. Great point on the preservation of the reduced drawdown percentage, as the one-size-fits-all percentage does not fit in reality; super fund balances vary significantly. I’m happy with the current reduced 50 per cent level to drive income streams. If we need more money, we can draw down as required.

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Written by Brenton Wooding

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