Whilst the age pension might be here to stay, the percentage of people eligible to receive a pension upon retirement will greatly diminish over time. I believe that this is the major concern of people when they say that the pension won’t be there when they retire.
The reduction in the percentage of retirees eligible for the pension is due to the interaction between increasing compulsory super guarantee (SG) amounts and the pension asset test limits. For example, a home owning couple each on minimum wages for 40 years with SG at current rates would likely receive total super payouts exceeding the pension assets test cut off point.
SG rate 10% for all years (the actual rate is scheduled to rise to 12% over the next 4 years)
Super fund tax rate 15%
Investment earnings CPI plus 5% p.a.
Each member of the couple working for 40 years (full time equivalent) out of approximately 50 years between leaving school and reaching pension age.
Someone not receiving a pension because they fail the assets test might not be a problem. However, having people plan their retirement based on a false belief that they will receive the age pension is a big problem. People quoted in the article would be fully aware of this issue, but chose not to mention it.
If a couple or a single at some point in their retirement fall below the threshold of assets or income (depending on which is the higher amount leading to ineligibility) then they would get a pension. I think that the current cutoffs for pension entitlement are quite decent. Sure some are in borderline difficulty because of the way their finances are arranged, this is why getting good financial advice before retiring is very important as you made mention of. If someone at current rates are not entitled they would be what most people consider to be fairly well off.
All the above doesn’t mean that I think pensions shouldn’t be available to all regardless of income or assets, there is an argument that at some point the entitlement should be curtailed. I think it shouldn’t be but I see why some do argue for it. I believe that it should exist for all as a UBI (Universal Basic Income).
To get a least some Age Pension the following are the cutoffs, if getting rent assistance if not a homeowner the limits are slightly higher.
Having less income than they thought they would in retirement is a problem for those affected. Articles stating “Australians can have confidence that the age pension will be there when they retire” or similar, without providing proper detail are less than helpful as they are likely to mislead people.
Everybody needs to be aware that one day they will not be able to work and so keeping an eye on how you will survive financially then is essential. Everybody needs some kind of investment strategy involving their super, a possible pension and their other assets. The world changes and we must keep pace.
The Services Australia’s Centrelink service does provide a free professional help service called FIS (Financial Information Service). The officers (FISO) who provide this service do so both as seminars (more broad advice) and personal (more detailed to a person or couple’s circumstances). They do not provide investment recommendations but the advice does include how choices and current situations would impact pension eligibility.
I think when it comes to retirement planning that expert advice is very advisable, many Unions and Super schemes do link members to Financial Advisers often with a fee free portion of time allocated. A lot of people struggle with what a future may mean, they currently go from hand to mouth in their daily grind and don’t envision the needs at retirement, getting advice can help clarify that and hopefully give them some plan.
UBI would for most of us provide a level of clarity not yet seen. Even with that in place, financial advice for retirement would be needful in my opinion to get the best possible outcome.
I availed myself of that ‘advice’ and found it was not terribly valuable, excepting to highlight how one could have very different outcomes depending on the choices made. The balance between having assets and income or assets or income is but a tip of an iceberg.
Precisely my point - it is overly complex and convoluted.
Most of these decisions are complex and will remain so even if we have a flat rate pension for almost everyone or indeed everyone.
How do you maximise the benefit you want from your savings? All of us have wants and needs, not all can be accommodated for everyone. This then remains the province of financial experts to help a person to eek every last drop out of what they have or will have. I think it will remain a complex issue unless we are so rich that dropping a $100 in the street would not be worth our time picking it up, even then we may think it is still complex.
I have previously posted how simple the US system is. First the voluntary IRA to shelter from taxes for retirement:
A) contribute pretax dollars in a ‘traditional IRA’. In retirement withdrawals are taxed similarly to wages.
B) contribute post tax dollars in a "Roth IRA’. In retirement withdrawals are tax free.
There are constraints on qualifying for a "roth IRA’ so the most well off cannot take advantage. There are also forms of ‘IRA’ by various names such as a 401(k) and others, but they all work the same way in retirement. There are no taxes along the way for either version of IRA (eg our 15% super tax while in the accumulation phase).
For clarity all workers in the US and their employers have to contribute to ‘social security’ and every one who has worked 10 years in the US is entitled to that pension - not means tested but depending on income up to 80% might be taxable. It maxs out at about $4,000 pcm but most get a bit less than half that, so something else is necessary unless one is happy to retire in poverty.
One does not need a financial planner to play the IRA game although might want an investment adviser to inform IRA investments.
You have provided the answer to the question - keeping pace with available information. However, unhelpful or incorrect statements in the media get in the way of this objective.
That is a bigger problem that relates to much more than retirement investments. Whether the topic is world affairs, science or finances (anything that can be complex and subtle) you can be sure some journalist will say something silly or misleading. Although there are very educated specialists, in general journalism there seems to be no requirement to understand what you are summarising or passing on to the public.
It seems clear from the article that the aged pension will be available into the future, and it will be increased to at least be indexed to official inflation.
But Governments have, and continue to tinker with elligibility criteria. Age at which you can access it. Asset tests at which the pension starts to decrease and then stop entirely.
My planning for retirement has been how to have enough income and liquid assets to live comfortably if the aged pension DID NOT EXIST. I consider it to be a safety net payout if I had stuffed up my savings and investments and become basically destitute.
I would also say it is a safety net if you only had part time work, casual employment, unable to work and other reasons that income would not allow for a decent Super or savings balance. This is partly why it’s rate of payment should be adequate for a basic reasonable lifestyle in retirement not below the relative poverty rate as it is for many of those on it now.
Some are lucky to have been reasonably secure in employment and salary/wages sufficient to grow decent savings… this is not the majority of earners in this Country.
