Superannuation – super funds return 5.3 per cent in 2015

The 2015 median investment return on balanced super funds was 5.3 per cent.

According to new estimates by SuperRatings, the 2015 median investment return on balanced super funds was 5.3 per cent and experts believe we are in for similar growth in 2016. This is the fourth year in a row where super funds have delivered growth and some are suggesting by the law of averages, that a negative year is not far away.

“While it is nearly impossible to predict returns for the coming year, discussions with funds have suggested that most expect the low-return environment to be with us for the short to medium term, with returns estimated to be low to mid-single digits in 2016,” said SuperRatings CEO Adam Gee.

Centra Wealth Group managing director Zac Zacharia has suggested that the likelihood of negative yearly return depended less on the year and more on how a person’s funds are invested.

“If you are approaching retirement you need to be a little more proactive, and it pays to have a closer look at your investments, at least once a month.” said Mr Zacharia.

“Everyone who sets and forgets in a balanced fund has to expect a negative return at least once every seven years, in line with market cycles,” he said.

How did your fund perform in 2015? Do you know what type of investment plan your funds are currently invested in? Are you going to start 2016 by reconsidering your investment strategy?

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    COMMENTS

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    5th Jan 2016
    10:00am
    This morning's market downturn is an example of what I believe will continue the rest of the year, so select your super options with care.
    MICK
    5th Jan 2016
    2:30pm
    Much worse predicted. But who do you believe? Certainly not the mainstream media.

    5th Jan 2016
    10:28am
    This highlights the stupidity of the Government's recent legislation to reduce the taper rate for asset-tested pensioners. In a low return environment, many retirees will be struggling to achieve an adequate income. Some couple who will lose the pension are getting less than $22,000 a year in income. Sure, they can draw on capital. But if a retiree is facing another 20 or more years in retirement, with high inflation, reducing their capital puts far greater pressure on the social security system in coming years. They will quickly move to being eligible for a part-pension that will increase rapidly over time.
    Meanwhile, a couple with fewer assets can earn more than $72,000 a year and still retain the pension. How is this fair? Clearly, many of those who can't earn, but have assets, will be under-privileged retirees who won compensation after suffering a major workplace or motor vehicle accident (and who, under the assets test regime, are denied the proper benefit of that compensation!), and people who struggled to save because they were disadvantaged in earlier life and feared poverty in old age. Many will have gone without a great deal to acquire a modest savings nest egg for old age. Meanwhile those who lived the high life and didn't save are funded in retirement by the taxpayer. It's not just unfair, but it totally destroys all incentive to ''work, save and invest'', which is what Scott Morrison says is necessary to restore the economy to health.
    Under the new regime, a couple with $823,000 in assets - INCLUDING non-returning personal and household items and motor vehicle(s) - will get NOTHING, and be disqualified from thousands of dollars in benefits. But if they are earning 3% (bank interest) return on their assets, and have, say $80,000 in non-returning assets, their income is only $22290 per annum, and they are forfeiting around $38,000 per annum as punishment for savings.

    For retirees earning what the government says is an ''average'' (5%) return, the new taper rate takes $78 a year for every $50 they earn. How can ANYONE justify this? It's absurd!
    *Imagine*
    5th Jan 2016
    11:16am
    Exactly Rainey.
    The new taper rate reduces the pension by $3 per fortnight for each $1000 in assets. That is 26x3 or $78 per year. Equivalent to 7.8%.

    So if you invest $10 000 at the expected return of 5% you will get a return of $500. BUT if you spend the $10 000 on a holiday, an upgrade to the house or just ’disappear’ the asset, then your pension INCREASES by $780 per year (7.8%). Imagine what is going to happen prior to Jan 2017. I suggest investment accounts will be reduced and come Jan 2017 more money will be required to pay part pensions - not less.

    I would not be surprised to find that the real push here was to get retirees with cash to spend up and kickstart the economy. An equivalent of the pink bat and school building scheme, but sneakier. No that wouldn’t be right, I must be getting cynical.
    Adrianus
    5th Jan 2016
    11:41am
    Rainey, I'm not sure that the government would be wise to use welfare as an incentive to "work, save and invest"?

    "Meanwhile those who lived the high life and didn't save are funded in retirement by the taxpayer." If you were really concerned about the taxpayer then why not decrease welfare?
    One Labor MP John Gray has suggested that single mothers should have compulsory contraception in order to qualify for welfare benefits.
    We don't have the money Rainey.
    Anonymous
    5th Jan 2016
    11:41am
    If you have income earning assets of $743000 as per Rainys figures and you are not getting around 6% on shares term deposits etc to give you an income 0f about $44500 then you are a dickhead.
    That should be all you need to live on.
    LiveItUp
    5th Jan 2016
    11:55am
    If a couple can't support themselves on assets of $823,00 there is something very wrong. Once they start spending their capital they will get more pension. I really can't see that this is any different from any other self funded retiree.
    *Imagine*
    5th Jan 2016
    12:33pm
    The assumption here by some is that the assets are fluid, that is they can be spent or that they earn interest. If you have assets tied up in say a family shack by the river, how do you sell off a bit of it to live? You have to sell it all and alter your lifestyle choices. The system is broken. To earn the equivalent of a $33 000 government pension a couple will have to invest $660 000 at 5% ignoring tax payable. So if you really want fairness then treat the government pension as a retirement loan to be payed back from the estate after death, similar to an education loan. This will recoup money from the high wealth home owners whose assets are not counted.
    LiveItUp
    5th Jan 2016
    12:38pm
    I agree. The family home should also be included and the pension paid back from the estate after a person dies.

    From memory however an education loan is not paid back from the estate after death. That's where it has gone wrong with some registered training organisations signing up people to do course who will never be in a position to pay it back.
    Adrianus
    5th Jan 2016
    12:49pm
    I disagree with the notion that our government should have a mortgage over our home. Taxpayers should not be funding lifestyle choices. If you are in need of a short term loan go to a bank, that's what they specialise in. Otherwise put your case to Centrelink. It's interesting to see how far some people push this "unfairness" test.
    MICK
    5th Jan 2016
    2:37pm
    The normal right wing 'opinions' from the normal poster(s).
    The truth is that retirees should not be the main target for governments as these people need the opportunity to pay their own way. When you come after them the end result is that they have to dig into capital early on and then fall on the pension later on. Of course the current government is of the opinion that retirees should live in a tent and use the equity in their home as well. The view of an evil government which is seeking to keep the 99% poor and the 1% rich. The game plan never changes.
    Rainey: whilst the post from robbo is offensive and a return of 6% is for the most part nonsense I would have thought that you could live comfortably off around $800 000 and probably earn around 4% easily without too much risk. That's the pension. Well done if you can achieve that. Many can't.
    Peterrj
    5th Jan 2016
    11:11pm
    Agreed mick, first 'Offensive Language' violation for 2016 is recorded against robbo who is now placed in probation for the next three postings! NB The 'truth' is not considered to be a valid excuse to offensive language! OK!!!

    But mick, you get the first 'Dob In' violation for 2016. However, because Rainey is a mate then no penalty will be imposed this time ... because you were defending a mate, which is in keeping with the Aussie tradition ... But dobbing in isn't!

    Bonny, you get the first 'Duh, I can't believe that is made that typo mistake' award for 2016! You base your posting claims on just 823 dollars and no cents ... Which makes no sense!

    Rainey, you get the first 'I finally understand my own stats' award for 2016. You have just admitted that my stats were correct having earlier stated that I was absolutely wrong as the difference between interest earned and cash lost from the above is $28 aka 28 cents and not your earlier claim of 160% or $1.28 aka $128.

    Imagine, you get the first 'Crazy cynical' award for 2016. If you think that pink bats is even close to the purpose of the new taper rates then that's really crazy!

    Frank, you get the first, 'What the ???'' award for 2016 for repeating that single mother's should have compulsory contraception to be able to claim welfare benefits. WT???

    And I can't leave out Fast Eddie, he gets the first 'Where are you?' award for 2016 for missing this posting!!!! He gets a running reprimand!
    Anonymous
    6th Jan 2016
    7:52am
    Mick ever heard of shares they pay more than 6% dividend at the moment especially bank shares are at about 8% and there are other such instruments that pay quite well and are safe.

    But I guess worrying about the labour party and the fools who run it and all the so called rich liberals you wouldn't know what I am on about.
    Peterrj
    6th Jan 2016
    9:49am
    Hi Robbo, one down and only two more posts to go to end your probation!

    OK, what you say about returns is correct and I think that I got 8.7% return from my Balanced Super option.

    However retirees are vulnerable to market crashes as you would know. Not whinging but we got hit, not as badly as many, in the GFC ... Luckily we were still both working at that stage and saved some more. So your suggestion and my investments come at a great risk.

    Some, perhaps many in retirement, are playing it much safer and putting their cash into the Cash Super option which is paying below 3%. I respect their decision and don't criticise them for doing so.

    Rainey has a valid point if you take on board what he is saying. However, his conclusions are dependent on what figures are personally relevant to the individual.
    Peterrj
    11th Jan 2016
    10:47am
    Rainey, '... that someone who struggled and went without to save (ie have cash in Super) should now be effectively ''taxed'' (by denial of pension benefits) at the rate of 160%.'

    You know that this 160% is a false claim!!!

    Go back to your last post where you 'accidenty' got the facts and figures correct.

    Rainey, "For retirees earning what the government says is an ''average'' (5%) return, the new taper rate takes $78 a year for every $50 they earn."

    Imagine adopted your figures and further explained, "Exactly Rainey. The new taper rate reduces the pension by $3 per fortnight for each $1000 in assets. That is 26x3 or $78 per year. Equivalent to 7.8%. So if you invest $10 000 at the expected return of 5% you will get a return of $500. BUT if you spend the $10 000 on a holiday, an upgrade to the house or just ’disappear’ the asset, then your pension INCREASES by $780 per year (7.8%)."

    So the real difference is 2.8% if the invested rate is 5%.

    Or if the cash is invested at say 2.8%, which is close to the Cash Super option, then the difference is 5% .... in any case, this is nothing like your difference of 160%!
    tj
    5th Jan 2016
    11:14am
    Does anybody subscribe to the theory of take your super in lump sum and blow it while you are on ''the younger side'' of retirement then hopefully rely on the OAP in your ''older years'' Maybe then you wont die of the stress of worrying about the stock market crashing again.Just a thought
    Greg
    5th Jan 2016
    11:31am
    Yes, I think about that....luxury car, holidays, eating out more etc. Live for now...just like the kids of today.
    MICK
    5th Jan 2016
    2:38pm
    tj: "Buy low, sell high".
    Peterrj
    5th Jan 2016
    6:43pm
    tj, no, I don't fully support your theory of spending all your Super having a one off fantastic time in your retirement.

    Can I suggest that can play the game a bit smarter. I can't do the deemed income stats on Cash in Super due to there being just too many variables. However having cash in Super that exceeds the minimum Assets Test and less than the max Assets threshold may reduce your Aged Pension payments!

    So spending cash held in Super between these thresholds will probably give you a greater Aged Pension payment.

    But here is the tip. If you have Assets ie cash in Super which is on the minimum Asset threshold you get the full Aged a Pension payment PLUS the interest on that cash depending upon how it is invested! So NOT spending ALL your Super means higher Aged Pension Payment plus a bonus of extra cash income from the Super invested!!!! How good is that??? And it gets better ... You achieved that by what means??? Ans: By Spending your cash above the min threshold having the life of Rielly having a really great time like you have never had before!!!!

    Nope,never thought of that!!!!
    anicca
    5th Jan 2016
    11:23am
    As usual Rainey makes a lot of sense. Irrational policy by the Government which is detrimental to this country in the medium to long term.
    Greg
    5th Jan 2016
    11:28am
    That's because their main concern is short term and this years election.
    MICK
    5th Jan 2016
    2:41pm
    I'd more say that governments go after the easy targets. Multinationals and rich citizens are too difficult. Pensioners roll over and are easy pickings. That is why for the life of me I cannot understand the BS going around in the heads of voters. IF YOU WANT TO STOP BEING A TARGET THEN VOTE THEM OUT. Independents are not part of a perverse game as are Liberal and Labor with Liberal being the immoral low life of politics. Look at any of the front bench and you'll see what I mean.
    Anonymous
    5th Jan 2016
    4:24pm
    Give it a go Mick what about the future Labour Prime Minister accused of rape and not charged because of the crooked Victorian Labour Government and also Mr 14% ripped of the workers in his crooked union by taking a kick back instead of giving them a pay rise that they deserved.
    Have a look at the rest of the front bench Tania Pisasblak (cant spell her name) married to a drug runner. Penny Wong what does she do with her bloody kid.All the rest low life unionists without a brain between them
    Adrianus
    5th Jan 2016
    11:51am
    Zac Zacharia could be right with his forecast. He would also know that the cycle being 7 years is certainly no guarantee.
    Peterrj
    5th Jan 2016
    6:45pm
    Any tips for the next Melbourne Cup winner????
    Adrianus
    5th Jan 2016
    7:07pm
    Yep Peter, that's what it takes a crystal ball and a ouija board.
    Did you get a response from Rainey regarding the $1.28?
    Sickofit
    5th Jan 2016
    7:27pm
    I suppose I'm very lucky to be in the government's PSS super. I'm covered for life even if I live to be 1000 years old (I wish), it's CPI linked and not taxed.
    Peterrj
    5th Jan 2016
    10:00pm
    Sickofit, lucky? Didn't you have to get out of bed every day to go to work and pay your tax to be so lucky? And in retirement what 'pensioner' benefits do you receive?

    On the other hand, a person who has never worked a day In their life, never paid any tax and lived on welfare, can be entitled to be paid the tax free full Aged Pension for life which is indexed to the CPI three times a year while also reaping pensioner benefits.

    And you call yourself lucky?
    Sundays
    5th Jan 2016
    10:07pm
    Yes, sickofit if you were also receiving a part pension from Centrelink that has been reduced or cancelled with changes to the treatment of defined benefit schemes since 1 January. (Except military pensions) yes lucky, but unless you have other savings there is no large amount of capital left to draw down on or leave to your estate.
    Mez
    5th Jan 2016
    9:25pm
    I certainly had good returns by checking my super balance and performance at least at the end of each month otherwise it would have been a lot less if I had not reallocated my asset classes online according to good or poor performance and I am no mathematician nor accountant nor investment advisor!
    Anonymous
    6th Jan 2016
    9:27am
    Yes good to see Mez check it as often as you can especially if you are in a managed fund or such they have a way of disappearing quickly.
    Personally I run my own superannuation fund and can check it as many times daily as I want so if I lose anything its my own stupid fault.
    41Alpha
    5th Jan 2016
    11:39pm
    My wife and I are with HESTA, not happy, we have even lost money with our funds in Cash and Term deposits. which can't seem to be explained .
    Peterrj
    6th Jan 2016
    12:36am
    And do you know how much was lost in the Aged Pension payments for 2015? Nothing, they went up!

    Being Self Funded is not all joy. My wife lost half of her Super savings in the GFC and we were some of the more lucky ones!!!!
    Anonymous
    6th Jan 2016
    9:34am
    That's bullshit 41 alpha you need to ring the trustee of that fund and demand an explanation there is no way you can lose money in cash and term deposits I think you must have it in something else apart from that.
    Perhaps they have handed your money to the union or worse still the Labour party.
    Peterrj
    6th Jan 2016
    10:06am
    41Alpha, I tend to agree with robbo but I would have expressed it another way! I checked and found that the HESTA Cash option paid 2.48% last year. And a Term Deposit should (?) have returned extra cash for you? Something does not add up??? Even if you 'lost' money the Fund has a duty to tell you why!!!! Pick up the phone and ask 'Why?' And get back and tell usthe full story. Best of Luck with that phone call!!!
    Adrianus
    6th Jan 2016
    10:35am
    I can understand why a HSU boss is on the board of HESTA, but why ACTU and ASU bosses? Does it seem to be a little top heavy with union bosses? The HSU Super scheme for it's union bosses seemed to perform really well. Somehow that is not translating to a similar performance for the HESTA members? Anyway, I'm sure there is a valid reason.
    MacI
    6th Jan 2016
    2:34pm
    To help me understand the implications to our retirement finances of the change to the Assets Test in 2017 I have developed a spreadsheet to model the change. I used the same parameters as the ASIC Moneysmart Retirement Planner, i.e. inflation rate, moderate investment return (5%) etc. I also used the fees charged by our Super Fund. My conclusion is that pensioners will only be moderately worse off.

    In regard to Aged Pension entitlements in Present Value terms during a life time here are some examples:

    A couple with $825K in assets at age 65 and drawing a retirement income of $58K per annum would receive a Total Aged Pension (in Present Value terms) for the old and new Assets Test respectively as follows:

    Age 70 - $96K and $44.5K; Age 75 - $210K and $158K; Age 80 - $351K and $316K; Age 85 - $514K and $483K; Age 90 - $683K and $652K.

    A couple with $525K in assets at age 65 and drawing a retirement income of $53.5K per annum would receive a Total Aged Pension (in Present Value terms) for the old and new Assets Test respectively as follows:

    Age 70 - $158K and $156K; Age 75 - $309K and $316K; Age 80 - $475K and $482K; Age 85 - $644K and $650K; Age 90 - $812K and $819K.

    A couple with $325K in assets at age 65 and drawing a retirement income of $47K per annum would receive a Total Aged Pension (in Present Value terms) for the old and new Assets Test respectively as follows:

    Age 70 - $198K and $198K; Age 75 - $367K and $367K; Age 80 - $535K and $535K; Age 85 - $704K and $704K; Age 90 - $872K and $872K.

    From the foregoing I make the following observations:

    1) Even a couple with $825K in assets is not that much worse off. If they are able to live until 85 then they only draw $31K less in Aged Pension over the period of their retirement.
    2) Even a couple with $825K will have drawn pension payments of $483K in Present Value terms by the time they reach 85. With the proportion of population in the workforce ever decreasing something has to be done to reduce the tax burden. I suspect the Asset Test won't be the last change to Aged Pension and Super rules.
    Peterrj
    6th Jan 2016
    10:40pm
    Macl, these are mind blowing stats and I can't fully understand them. I don't challenge your figures but please correct my different conclusions.

    First up I can't (as in 'I am unable' to) factor in the inflation rate so my Conclusion excludes inflation. OK?

    I like putting the total assests as $825,000 as that exceeds the max Assets Threshold and makes the person ineligible to even part Aged Peanion Payment after 2017 ... hence they become fully self funded.

    Without doing any maths I had trouble accepting 'pensioners (aka Aged Pensioners) will only be moderately worse off.' You later conclude 1. Even a couple with $825K is not much worse off. How can pensioners and non pensioners both be worse off at the same time???

    In fact, with out doing any stats (so it is a wild unsubstantiated claim open to challenge) today's part Aged Pensioner with $825k is going to be hugely worse off in 2017. That conclusion is dramatically different to your conclusion 1 'not much worse off'.

    Please comment upon my unsubstantiated conclusion and then I will proceed to analyse your stats.
    Peterrj
    6th Jan 2016
    11:05pm
    For your further deliberation:

    It is generally accepted that "More than 300,000 Age Pensioners will have their Age Pension cut, with just under 100,000 of those affected Australians losing all Age Pension entitlements, taking effect from January 2017."

    What stat supports your conclusion that these 100,000 will only be 'moderately worse off"???

    Even though you have factored in 'inflation' , which I can't, do your stats include Pensioner Benefits like free aka bulk billed doctor's visits, cheaper prescriptions, discounts for utility bills, registration waiver and a host of other pensioner discounts offered by the private sector which self funded retirees are not able to claim???
    Peterrj
    7th Jan 2016
    1:15am
    As a guess, those with $825k get about 5% return on their investment in 2016 and 2017. No need to work those stats out because they get approximately the same income from that investment each year.

    However, a couple with a home and $825k would get a pension payment of about $11,000 to $12,000 or there abouts in 2016 PLUS those much sought after pensioner concessions that would be worth say $2,000/yr?

    However those 2016 pensioners lose the status of being a pensioner in 2017 and lose all of their the part pension payment and lose all pensioner concessions.

    No I haven't done the stats using a pension instrument measuring device that includes inflation etc like you have so can you use your measuring device and tell us how much those with $825,000 lose in 2017 compared to what they receive in 2016?

    This then let's us know what you mean by (current) pensioners will only be 'moderately worse off' with the new thresholds.

    I don't think you have done the 2016 v 2017 stat? That would be the building bloc for later comparisons ... no?
    MacI
    7th Jan 2016
    8:20am
    Peterrj - In regard to a couple with $825K in assessed assets I am not arguing that they are not significantly worse off Aged Pension-wise when they start retirement at 65. I am arguing that over the course of their retirement - say to age 85 - they are not much worse off than under the current Assets Test ($31K by my estimates). This is because as they draw down on their capital they become eligible for the Aged Pension. Naturally this depends on the rate at which they draw down on their capital. If they choose to live more frugally than the $58K per annum that I used in my example and therefore reduce the rate at which they draw down on their capital then they will be worse off Aged Pension-wise than the couple I used in this example.

    Because it is the early years of the change to the Asset Test that will have the severest impact to the Aged Pension for those with significant assets it is true that couples much further into their retirement years will be significantly worse off. However, I believe most people would think that a couple with $825K at say age 75 would be able to survive quite comfortably for their remaining years even with these cuts.

    It is true that I didn't take account of the concessions available to Aged Pensioners but if a couple has to pay more for these items then they will draw down on their capital quicker and reach the Aged Pension upper threshold quicker.

    I know it is a bitter pill to swallow to have the Aged Pension cut so severely and I speak as one who is impacted. However I do think these cuts are reasonable and fair in the current and projected economic climate along with the changing demographics that will see an increasing burden on our children and their children to fund the Aged Pension for Baby Boomers. There are many relatively wealthy retirees who think that they should not have to draw down on their capital to fund their retirement. They complain that with the impending reduction in the Aged Pension they can't live on their earnings but why should taxpayers have to prop them up to preserve their capital when they have significant assets to draw upon? I say lets serve the greater good rather than self-interest.
    Peterrj
    8th Jan 2016
    12:24am
    Marcl, I note that at the outset that you have not attempted to crunched my stats like I asked you to do? I am left wondering if re doing the stats, as I suggested, then that result would not support your assertion that the change to the Asset threshold would only 'moderately impact upon retirees with $825k'???

    My stats, which you have not challenged like I asked you to do if they are wrong, suggests that these part Aged Pensioners will lose about $13k to 14k just in the first year when the new thresholds commence ... yet you say that "a couple with $825K in assets is NOT that much worse off. If they are able to live until 85 then they only draw $31K less in Aged Pension over the period of their retirement." Aye??? So over the next 20 years they lose only ($31k - $14) an additional $17k????

    Originally you said that 'they are not much worse off' yet now say, "I am not arguing that they are NOT significantly worse off Aged Pension-wise when they start retirement at 65." The latter tends to support my stats that these retirees will be 'up the creek without a paddle'!

    I am still at a loss how you crunched your stats but it is obvious that you heavily factor in that the couple will draw down on their Super savings to make up for the missing part pension payment and, eventually, the more they spend the more they then will be paid the Aged Pension.

    # "... as they draw down on their capital they become eligible for the Aged Pension."

    # "If they choose to live more frugally than the $58K per annum that I used in my example and therefore reduce the rate at which they draw down on their capital then they will be worse off Aged Pension-wise ..."

    # " ... if a couple has to pay more for these items then they will draw down on their capital quicker and reach the Aged Pension upper threshold quicker."

    So at age 85 they would have blown their $825k savings and only missed out on $31k income from the Aged Pension over these 20 years??

    Hence your conclusion the new thresholds only moderately impact upon the $825k retirees except that they no longer have their '825k???

    Did I get that right???

    So in a nutshell: Aren't you are saying that the quicker you deplete the $825k the less worse off you will be??? That's a mind bender!!!

    Then out goes the stats and in comes the politics, "There are many relatively wealthy retirees who think that they should not have to draw down on their capital to fund their retirement. They complain that with the impending reduction in the Aged Pension they can't live on their earnings but why should taxpayers have to prop them up to preserve their capital when they have significant assets to draw upon? I say lets serve the greater good rather than self-interest."

    I am only interested in the stats and the academic exercise to work out the true stats, nothing else .... but your stat of 'only missing out on $31k' over 20 years is highly suspect!! I see it as the product of a particular political point of view as you state above.

    NB: A retiree with assets of $825,000 in 2017 would have to have rocks in their head!!! If you don't know why I say that then do some quick research about Aged Pension thresholds. And while you are at it, try and work out your income which includes deemed income if relevant. The clock is ticking and 2017 will be soon upon us. Don't forget the gifting rules apply to each financial year. Tic Toc Tic Toc Tic Toc .......
    MacI
    8th Jan 2016
    11:55am
    Firstly, just to make sure we are on the same page. I am not contending that a couple well into their retirement will not be significantly affected by the change to the Asset Test. Nor am I contending that a couple starting their retirement years will not be significantly affected in the early years of their retirement by the change to the Asset Test.

    My examples are for a couple retiring at age 65 and looking at the impact across the whole of their retirement years. In the case of a couple with $825K earning 5% per annum on their assets and spending at the rate of $58K per annum (about what is required for a 'Comfortable Retirement') the difference in Aged Pension income between the current Asset Test and the new Asset Test is about $51K by age 70, $52K by age 75, by age 80 $35K, and by age 85 $31K.

    For this example, by my reckoning, the difference in Age Pension at age 65 (I am assuming a couple is eligible for the Age Pension at 65) is about $14100, 66 $12000, 67 $10000, 68 $8100, 69 $6350. By the time the couple reaches 74 they will actually start to receive more Aged Pension under the new Assets Test. I refer you to the following article http://www.superguide.com.au/smsfs/300000-retired-australians-to-lose-some-or-all-age-pension-entitlements that includes a chart produced by the government when the policy was announced that shows there is a 'sweet spot' between $451K and just under $300K in assets where Part Age Pensioners will receive an increase and some Part Age Pensioners will qualify for the full Aged Pension. This explains the catch up in the latter years of retirement. As a couple draws down on their assets they reach the 'sweet spot' and start to catch up on lost ground.

    You asked for the assumptions and other data used in my projections. I hope the following will convince you that I have endeavored to be thorough in my calculations:

    As far as I could I used the same assumptions as published by the ASIC MoneySmart Retirement Planner. This was deliberate so that I would have a 'standard' to measure my results against. The Retirement Planner uses the following assumptions - inflation 2.5%, 1% Rise-in-living-standards, and 5% return on investment. I used the fees from my Super Fund, i.e. 0.1% plus $416 per annum. I used the current rates and thresholds for the Income Test except for deeming rates - I used 3% and 4.5% for the low and high rates which are more like the long term average rates. The minimum draw down rates on Account Based Pensions. I used the current Asset Test threshold and taper rate for the current Assets Test and the new rates for the new Asset Test. I have tested my results against the MoneySmart Retirement Planner which applies the new Asset Test in its projections and the difference is only marginal.

    The projections in my initial comment were based on the Asset Test threshold that applied at the time the new Asset Test was announced, i.e. $286500. I have updated by calculations to use the current threshold of $291500. I have also adjusted the full Aged Pension to that projected by the government at 1/1/2017 when the new Asset Test applies. These updates have little effect on outcomes - the '$825K' couple will be $32K worse off over 20 years in terms of the Aged Pension they receive.

    I have not argued anywhere that a couple will be better off the quicker they deplete their assets - only that their Aged Pension entitlement will increase more quickly. That said, I am sure there are some retirees considering this very strategy - especially the idea of investing in their home which at least for the time being is not assessed as an asset for Aged Pension purposes.
    Peterrj
    11th Jan 2016
    11:30pm
    Macl, now I get it, silly me, "I have not argued anywhere that a couple will be better off the quicker they deplete their assets - only that their Aged Pension entitlement will increase more quickly."

    A couple with $825,000 won't miss out on much Aged Pension payments by the time they reach 85 because they will have used up a lot of that $825,000 to make up for the short fall of missing out on the Aged Pension payments as they will eventually, when they have spent enough from the $825,000, they will eventually be paid the full Aged Pension!!!! See no financial harm done by the changes to the upper threshold limits ... Except they just won't have that $825,000 nest egg to buy their way into a retirement village or to pay for expensive health care at a later date!!!

    Yep, can't see the new 2017 thresholds having much adverse financial impact on the lives of those with $825,000 in Super what so ever!!!!

    Well done Marcl with those stats!
    Adrianus
    7th Jan 2016
    6:35pm
    There was nothing that could be considered "steady as it goes" about today. This first week of the year has seen more than $80b wiped off our share market.
    If one was sceptical one may think China is rebalancing the world economy? They seem to want these market corrections on the Shanghai Exchange.
    If these uncertain conditions continue throughout the year there is no chance super funds will have anywhere near 5.3% average returns.
    Peterrj
    8th Jan 2016
    12:42am
    There is no such thing as a sure thing and predicting a Super return of 5.3% per year in advance is crystal ball stuff!

    A mate of mine got the gitters and moved from Balanced to Cash ... He now gets a grand return of 2.5%.

    As I have been told on almost every occasion, in retirement one should have more in Cash as even in Balanced it's a risk that retirees should be very cautious about.

    A curious stat is: If the market drops by 50% and then regains by 50% you are still 50% worse off from just before when the market dropped by 50%!
    Adrianus
    8th Jan 2016
    9:57am
    Peter, your curious stat works if market drop means "drop in return". A balanced asset mix with a rising share market may have a bit of lead in the saddle with government securities. While the RBA eases on monetary policy to stop the ASX from over heating, this will have a negative impact on Bonds, particularly the long Bonds. Many of the big funds are not as proactive and selective as we would like to think. The investment strategies render them almost passive, insisting they operate in a tight band. As an example, how many of them reduced exposure in ore miners? And if so when did they do it? I remember having a beer with a fund manager who was bragging about getting a 30% return for his fund. I wondered why he was so impressed because at the time the pin method was matching that. I asked him if we could have this discussion in 18 months, what sort of return could we expect and how will that differ from other funds? To which he replied "fair comment." They all work within the parameters of their predetermined asset class mix. Many of them emulating the index of those asset classes. To some extent fund managers, and members, are victims of a regulatory regime meant to protect members. In many cases however, it has simply put all members in the same life boat paddling against the swell.
    We are all looking for China to solve our problems but are they a big part of the problem? This manipulation of an unsophisticated investor market to me is too much like North Korea's sabre-rattling.
    Adrianus
    8th Jan 2016
    2:24pm
    Peter, just thinking about your mate who switched. I've come to the conclusion that the main focus of any investment strategy is the time horizon. It becomes increasingly important the more one looks at economic cycles. Your mate could have looked at his draw down requirements over say the next 3 or 5 years, and switched only that amount to cash? The remaining balance in the more aggressive portfolio while exposed to some volatility would not affect his cash flow?
    Peterrj
    10th Jan 2016
    8:12am
    Frank, for all the 'nice' things said about Super, Super is really gambling with large sums of money. I don't gamble except for having a sweep ticket in the Melbourne Cup each year. Touch wood, I was cured of gambling when I was in the army at a boot camp. Rumor went through the camp that a particular horse was a dead set certainty to 'win'. I put down $50 on the nose, a rather large bet in those days, especially for me. The nag came last! I did my dough! That was the end of my gambling career!!! But for those who are fortunate enough to have Super cash now gamble, being gamblers or not, with their Super money. They can choose how the cash is invested in the Fund, which option will give them the biggest return and how safe is that option?

    Just as my 'army' horse failed so did Super funds in the GFC. The trouble with being in retirement is that one needs to protect the 'financial Super nest egg' because one can't recoup the cash if lost. Hence retirees should ( matter for them selves) well perhaps consider not being so adventurous investing in Super and having it in the Cash option?

    It may sound like a large and obscene sum of money but $1 million in Super in Cash has a return of under 3% which gives an income of less than $30,000 minus fees etc. Some may think that $30,000 sounds a lot of money and how poorly they are with their Aged Pension payment.

    But the aged pension for a couple pays $34,000 plus handy benefits.

    The millionaire retiree will have, in some cases, an income of just $30,000 and no benefits. And that $30,000 could be as low as $25,000. It may sound a silly question but how will they survive in 2017???

    In 2017 we will see 'struggling' millionaire retirees who retired under one set of financial rules only to now find themselves in a financial mess due to ever changing financial rules.

    Hey, I am not sticking up for millionaire pensioners, they can fend for themselves but that is the reality for them .... $1m in Super = Loss of Aged Pension and pensioner benefits and an income of less than the Aged Pension.

    And I will beat Bonny to the mark .... Bonny may say, 'Good, they can use up their capital instead of adding an extra burden to the public purse'. Bonny may go even further and say that many current pensioners should be forced to use up their capital including the value of their homes, instead of claiming the Aged Pension and only when they are all but destitute can they then claim the Aged Pension?

    If one looks to the long term financial health of Australia then Bonny has a valid point of view. Not that many on this site would agree with such a proposition.

    The reality is this: Like it or not, retirees are going to be forced to use more of their capital at a faster rate than they originally thought and pensioners with some assets will get screwed, and screwed and screwed some more by the Govt of the day no matter which political party is in power.

    In 2017 over 100,000 current Aged Pensioners will no longer be eligible for Aged Pension Payments and some 200,000 pensioners will have a reduction in their pension payments. Do we really care?

    The real 'fun', say just 4 Govt Budgets away ... will start when the value of the family home will be included in the Asset Test. It may creep in like this: The first $1.5 million value of the house will be excluded from the Asset Test but the value above $1.5 mill will be included in the Asset Test. Who could object to that???

    OK you can't eat the house so such condition, which will happen, (Bonny grins), could be to still draw the Aged Pension and when the house is eventually sold you then pay back the Aged Pension payments you have been given!!!!

    Ouch! What a radical idea? For some the Aged Pension could be come a loan to be eventually paid back on the sale of the house???

    OK I speculate, I have no opinion what is fair or just, but hopefully I have only referred to some facts of financial life for some.
    Adrianus
    10th Jan 2016
    11:48am
    Peter, I too learned about gambling at a young age during my time in the army.
    This is my horse story. The same, but different.
    The word had passed around that a little gelding was going to win at enormous odds. He was at odds of 50/1 and as the wet weather had forced two postponements over a couple of weeks his odds continually dropped to 7/1. By the time I placed my bet I was given odds of 7/2.
    I watched the each horse parade. I saw our boy and was about to throw away my ticket. Surely there was no chance of him winning against these horses??
    I thought at half the size his strides would be half as short and need to be twice as fast. I was right, as they left the barrier he looked like Joe Hockey running against a field of Usain Bolts.
    As they turned into the straight there were 8 horses in front of him. There was absolutely no chance of him getting through. A miracle happened.
    All the horses in front of him fell over or pulled up.
    I was a very disappointed winner as I waited in line to collect my winnings. I didn’t gamble again, but the lesson resonated with me so strongly that even now as I write, recalling the event it’s as if it happened yesterday, not 44 years ago. Jockeys are fearless. I could not even contemplate jumping of a horse travelling at 90% top speed.
    Peter, many people have a family home. In fact 80% of aged pensioners are home owners. For many homeowners the home is their biggest single “investment,” but how many homeowners would consider their home as a risky investment, or even think it is “like gambling”?? How many people think the purchase of gold bars is gambling?? What about shares in your own company? Or shares in a big bank? At what point does an investment take on a level of risk seen as gambling??
    If you consider the risks associated with Super, the top of the list would have to be regulatory or legislation changes. These are things we have little control over. However what we do have control over is the assets held in our account.
    How many people knew which horse was going to win that day 44 years ago??? Certainly all the riders knew. That thought crossed my mind, and as I lined up to collect I could see the other queues. Not that many, I pondered, but more than I expected and far fewer than those who weren’t collecting.
    Peterrj
    11th Jan 2016
    11:56pm
    Frank, 'How many home owners would consider their home as a risky investment or think that it is like gambling?' A good question and at a guess it would be few if any.

    But answer me this, 'Some cashed up retirees may be smart and put some of their assets into a new home or home renovations to decrease their assets to increase or preserve their Aged Pension Payment.

    Haven't they gambled that such a move is to their financial advantage? So is such a move a wise decision if part of the value of the home is later to be included into the assets threshold??? And what about fees based upon assets at a later stage when they buy themselves into a retirement village and/or care facility??? Is there a possibility that the decision to 'invest' in the family home could turn out to be a poor investment aka a poor gamble???

    The stakes are high and the rules of the game change at every throw of the dice!!
    Adrianus
    12th Jan 2016
    6:32pm
    Peter, perhaps the government doesn’t need to assess the family home? Perhaps they just need to slow down the number of pensioners adopting that plan as part of their retirement strategy? Who knows? But the point you make regarding risk is a valid one. If I can paraphrase you correctly by saying “there is an element of risk in all investments.” If that is what you’re implying then I agree with you 100%.
    Hang on Peter, you’re not of the hook yet!
    Let’s get back to the idea that Super is like gambling with big dollars?
    All those assets I previously mentioned are available to hold in a Super account.
    Well, maybe not the family home but someone else’s family home. What if we could get a weekly accurate valuation on the family home? Would it then be seen as a risky investment by more people?
    Is a bank term deposit seen as a risky investment?
    Well there was a time, recently in fact when Ken Henry and Kevin Rudd thought so, along with plenty of Australians. Or at least that’s what Henry and Rudd thought.
    Not all house prices have risen over the last 2 years as they have in Sydney and Melbourne.
    My point is risk is a perception more than it is a reality.
    I have seen houses purchased in 2008 to 2010 for over $1m and now are unloved at under $700k.
    The point I make However, is that the biggest risk with Super is in the hands of the politicians, not in the allowable/prudential investments. On some of my super assets I get 7% and 8% net plus growth, even if the share market drops by 30%.
    I think both sides of politics will support each other if they can gain from a proposed change.
    41Alpha
    7th Jan 2016
    10:57pm
    I'm seriously thinking of leaving HESTA, and moving to Australian Super, has anyone had problems with them ?
    Peterrj
    8th Jan 2016
    12:29am
    Did you make that phone call to HESTA? See your post above.

    I moved my Super from one Fund to another .... And lost out!

    As they say, past history of a Super Fund is no guarantee of furure earnings.
    MacI
    8th Jan 2016
    1:48pm
    Hi 41Alpha. I'm considering the same move. While I am happy with the fund I am with I am also considering a move to AustralianSuper. The long term performance of AustralianSuper trumps my fund - SunSuper. I don't think you would go far wrong if you went ahead with the switch but don't judge the outcome in the short term. Super Funds have long term strategies in play.
    Adrianus
    8th Jan 2016
    2:10pm
    Macl, many funds would appear to outperform SunSuper because they have a policy of holding back a smoothing amount of return. You would notice when the markets go south SunSuper may not drop as far?
    Lisette
    9th Jan 2016
    11:25am
    What are your options if you have bought an annuity. I think it can still be cashed in but what effect would it have on pensions based on income.
    Peterrj
    9th Jan 2016
    5:29pm
    Lisette, I would not have the slightest clue??? Ring your Super mob and ask them. And double check their answer with Centrelink!

    Trust no financial advice, from anyone, always double check and tripple check what you are being told!!!
    Adrianus
    9th Jan 2016
    5:56pm
    Lisette, I agree with what Peterrj suggests. But before you contact the Life Insurance company and Centrelink, a couple of things to consider.
    What type of annuity do you have?
    Are you considering aged care in the future?
    Good luck.
    Happy Jack
    9th Jan 2016
    11:26pm
    Where's germsjerk69 holed up?


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