Why bother saving for retirement?

Much of the discussion about the imminent changes in Age Pension rules is about the winners (not many) and losers (more). Although maybe the real news is that there is now little incentive to save for retirement.

But surely the aim of our retirement income system is that we all strive to become self-funded, you ask? Well yes, that’s the message promulgated by governments over the past 20 years, particularly the Howard Government when it introduced its massive concessions on superannuation.

Next month’s changes to the Age Pension asset test mean the cuts are being made in the wrong way, to the wrong people. This is no way to encourage Australians to save for their retirement. Quite the reverse, in fact. 

Why do I say this? The tightening of the assets test means that people who saved by the rules and expected a part Age Pension in return are being punished. For example, an individual (single homeowner) who could previously hold $793,750 in assets must now only hold $542,500 in order to qualify for that part Age Pension. So their expected income on the new allowable assets, given the pitifully low rate of return on investments of most sorts, will probably amount to $17,631 per annum, based on a 3.25 per cent return, assuming all assets held are of a financial nature. This is $5173 less than a full Age Pension.

They will also lose their Pensioner Concession Card, which means they may no longer have access to valuable concessions offered by state, territory and local governments.

So it would seem tempting at one level to simply spend the contentious ‘extra’ assets on a slap-up cruise or home renovation in order to retain the expected Age Pension. Except, as Noel Whittaker has quite correctly pointed out, this is rather short-term thinking when you may well live another 30 years and could need this money for health or aged care needs.

So the ‘sensible’ retiree will cop it on the chin and try to exist on a much lower income than they had planned or expected.

The fundamental problem here is two-fold. The punter’s ability to plan retirement income is effectively reduced to zero when governments change the rules at the stroke of a pen. Back in the day, both sides of politics were more inclined to recognise the need to ‘grandfather’ contentious financial legislation. But with our current budget deficit such a political nightmare, cuts to services and welfare seem to be the preferred strategy. The related legislative changes are introduced with little warning and no leeway consideration for those who have previously been told to plan long term.

The other problem, less ‘headline’ material but just as important, is the lack of financial literacy support offered to Australians of all ages. When you are in your 20s and 30s, this might mean a better understanding of how to create an effective budgeting strategy that may help you achieve the dream of home ownership sooner rather than later. For those in their later 30s and 40s, this might be help with the juggle of mortgage repayments and household expenses, while starting to put away some discretionary income for eventual retirement. And for those in their 50s and 60s, it’s all about retirement planning and the role that superannuation, private savings, property and the Age Pension might play in their retirement income mix.

Independent and trustworthy information is difficult to locate, which is why YourLifeChoices receives and answers up to 30 questions a week on these topics. But where, we ask, is a wider-scale, government-sponsored literacy program to help those who have saved hard and are now genuinely baffled by the rapid-fire changes undercutting their retirement dreams?

It’s been a long year and those charting the proposed, and then actual, changes to retirement income are exhausted from both the number of amendments and the complexity of much of what has come to pass. This includes the team at YourLifeChoices so I thank Leon, Kathryn, Amelia, Kate, Ryan, Alice, David, SJ and Lucy, led by the indefatigable Debbie and Drew, for working so hard on behalf of our 220,000 members.

We will continue to share all the retirement news you need on a daily basis over the break and in 2017. In the meantime, thank you, valued members for your strong support, and sharing your opinions and ideas so generously in 2016.

With warm wishes for a safe and happy festive season, Kaye

Related articles:
Retirement planning disconnect
Retirement ages and stages
Retirement: the risk is all yours

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