The Federal Government's move to block access to the aged pension for "wealthy" retirees is "flawed" and will result in "unfair" consequences, according to a QUT expert.
The part-pension eligibility threshold for assets was reduced to $823,000 in yesterday's (TUESDAY) Federal Budget, meaning around 91,000 people no longer qualify for the benefit, and another 235,000 will have a reduced pension.
Dr Anup Basu, a senior lecturer and pension expert in the QUT Business School, said the policy was designed to be a "fair" change but instead would have "unfair consequences".
"The age pension was always meant to be a safety net for those who did not have sufficient means of sustenance in their old age," Dr Basu said.
"So lowering of the asset threshold should make the pension accessible to only those who are in need of it, and not to wealthy retirees who can look after themselves.
"Yet simple arithmetic shows that the changes are deeply flawed."
Dr Basu said a retired couple aged 65 who own their home and have $823,000 worth of liquid assets would be able to draw an annual income of below $29,000 in the current 'low interest' environment if they purchased an inflation-protected lifetime annuity based on the rates offered by one of the major providers.
"The current pensions asset test treats annuities at a reducing asset value which may make the couple eligible for part pension in future," he said.
"A lifetime annuity would involve handing over their entire savings to a private provider but gives retirees a guaranteed regular income for lifetime, just like the age pension.
"However, the 'guarantee' of a private provider is certainly not equivalent to that of the government as adverse circumstances may change the ability of the provider to pay the promised income in future. So buying annuity is not completely risk-free investing.
"In contrast, a retired couple who own their home and have liquid assets up to $375,000 would receive the full pension and associated supplements close to $34,000 per year, plus the benefits of many other government concessions.
"The 'wealthy' retiree couple who bought the annuity, would not get back their original savings of $823,000, at least if they live as long as the average Australian.
"But the retiree couple on full age pension has full control over their savings. They can spend it in whatever way they want and even leave some for their children to inherit. So much for saving towards retirement!"
Dr Basu said "wealthy" couples could opt to self-manage their retirement assets to generate more income but would face the risks of share market meltdowns and property crashes.
"Less wealthy couples, however, would be receiving a risk-free government pension and probably sleeping better at night without having to worry about financial markets," he said.
"Of course, if the markets turn sour, 'wealthy' couples' assets would decline and they would become eligible for age pension.
"This could lead to a perverse outcome where 'wealthy' couples are tempted into more risky investments in search of higher returns - safe in the knowledge the age pension is there to fall back on if the risk doesn't pay off."
Dr Basu said the change in the pension eligibility threshold was driven by a desire to save dollars in the budget rather than formulate fairer pension policy for future generations.
"In reality, it is impossible to craft good retirement policy by tinkering with age pension while ignoring superannuation," he said.
"The hurried dash to find budgetary savings has led to a change that will result in unintended adverse consequences, as is often the case with policy on the run."
Media contact:
Rob Kidd, QUT Media, 07 3138 1841, rj.kidd@qut.edu.au
After hours, Rose Trapnell, 0407 585 901
