Pension changes to hit middle Australia hardest

New analysis of the federal government’s proposed changes to the pension shows those on average incomes or below will suffer the heaviest impact to their retirement income.

 

Many average income earners are estimated to lose more than $100,000 over their entire retirement period. Average full time earnings are currently just over $75k per annum.

 

Modelling by actuaries Rice Warner, commissioned by Industry Super Australia, shows the impacts are quite significant – for some it will amount to a 10% overall cut in their retirement income, while the wealthy to very wealthy will remain largely unaffected.

 

The number of new retirees affected by the asset test change will more than double from 1 in 3 retirees today to around 7 in 10 by 2055.

 

The Rice Warner analysis shows:

  • Increasingly the impact will fall on those earning average incomes or below

  • For couples due to retire in 10 years time, the largest impacts are felt just below average earnings ($62,000 or 80% average full time earnings). They stand to lose $4,300 a year each or $112,000 each over their entire retirement

  • For those 20 years from retirement (aged 45-50 today) the big impacts start being felt by a couple earning as little as $45,000 who would lose $1600 a year each

  • By contrast, a couple on $145,000 each experiences the barest of impacts, losing just $136 a year each

  • Over the long run, there are more people affected on below average incomes than above (3 rungs below average earnings compared with just one rung above, in the first 10 years of this change)

  • Within 10 years around half of all new retirees leaving the workforce will be affected by these changes.

“The impacts of these changes are very significant for most of the working population. Executed in isolation they will reduce retirement incomes of middle income earners, not the well-heeled,” said David Whiteley, CEO of Industry Super Australia.

 

“We seriously doubt this was the government’s intention but these are the consequences when such changes are considered in isolation from the superannuation system.

 

“Most middle income earners don’t have discretionary income to make extra savings, so this change on its own means they will have to downgrade their retirement plans or work longer.

 

“The data makes a strong case for examining the interaction of the age pension with the super system, with consideration of a more efficient, equitable structure to increase self-reliance in retirement for as many people as possible.

 

“If the government wants to significantly scale back the age pension then it must offset the impact by making serious reforms to super to fill the retirement income gap.

 

“At a minimum, changes need to include fast-tracking the Super Guarantee and restructuring tax concessions at the higher and lower ends of the income scale.

 

“This analysis demonstrates the need for a properly considered review of retirement incomes, not measures driven by the budget cycle.”

 

21 May 2015.