Financial experts have weighed in on the future of the Age Pension, with most agreeing that the government may have a tough time funding the Age Pension of the future, but, by and large, it seems to be safe.
A rapidly ageing population coupled with a diminishing workforce means Australia’s Age Pension system is under pressure, says Anthony Keane.
Australian Bureau of Statistics data shows that around 80 per cent of retirees received a full or part age pension in 2016-17, and only 21 per cent were fully self-funded.
But the number of self-funded retirees is rising along with the maturity of the superannuation system.
The Actuaries Institute estimates the cost of funding the Age Pension in its current form should actually reduce as a percentage of the economy, from around 2.7 per cent of GDP in 2017 to around 2.5 per cent of GDP in 2038.
“This reflects recent tightening of means testing, later retirement ages and further growth in superannuation balances,” says the institute.
This could mean that future governments will have the ability to manipulate the pension system to ensure money goes to those who really need it.
However, in what would be bad news for retirees, the first ‘tweak’ to the pension system would most likely come in the form of putting the family home on the block.
The Government already tightened up the assets test in 2017, and if this trend were to continue, it indicates that the family home may not be safe from the assets test in future.
“A lot of people became self-funded retirees, not because they wanted to but because the government reduced the benefit,” says Planning for Prosperity financial adviser Bob Budreika.
“People will have to be more self-reliant. I believe that ultimately the government will assess a person’s home as an asset as they do for aged care. They will nibble away at the benefits – I think they will be forced to.
“It does become ridiculous having someone with a substantial asset and relying on a source of income from the government, so the kids end up with the house tax-free,” he added.
Mr Budreika also suggested that there could be stricter super access rules, such as a mandatory setting aside of a portion of retirement savings to provide a steady retirement income stream.
There have also been suggestions that a portion of super savings could be set aside to pay for any health or aged care needs in retirement, further reducing the reliance of older Australians on the public purse.
Do you think the family home will be safe from the assets test for the foreseeable future? What do you think of having portions of your savings taken from you to pay for aged care and healthcare? Would you be happy to have your super doled out to you to ensure a steady retirement income stream, or would you rather have total control over your retirement savings?
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