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Pension Reform

For retirement planning advice please seek the advice of a registered professional financial adviser rather than relying on anything I write here.

All figure in this page are for 2019/2020. They will change over subsequent years.

A reduction in the government pension occurs when a person's assets or income is above a certain set point and will cut out if those values reach a certain cut off.

At present the pension cuts out at approx. $74,700 for a couple. I ask is it reasonable for a couple getting over $70K per annum to still receives a government pension, no matter how small? Especially considering the ASF figure for a comfortable lifestyle is $61,786. And the government must consider that a couple can live at least a modest lifestyle with an income of $33,700 as this is the amount they provide for a couple on the full aged pension. The formula used to decrease the pension for a person with increased income needs to be reviewed.

The pension cuts out when a couple has assets of $863,500 for a couple that own their own home. This figure excludes the value of the house they own and are living in. Again I ask the question whether a person with over $800K of assets (exc. their house) should be getting even a small pension. They could have the $800K in a super fund that has been built up in a subsidised tax reduced environment and still qualify for a part government pension as well. Even if they used $40K per year and the assets did not earn any interest (which is unlikely) they could still live on it for twenty years - and anyway the pension would not be abolished for them, it would just begin to cut in at a lower level of assets (suggest possibly half what it is now) as a safety net which is what the pension should be. It would also increase at a quicker rate as the value of assets diminished below that threshold.

A person's eligibility for a government pension does not take account the value of the residential home. I would question the total residential home exemption, and suggest that only the first $1.5 million of the home's value be exempted (though there is a perfectly valid argument against having even that level of exemption). The vast majority of houses in Australia are valued below this so it will not impact that many people. (The value of this exemption, as with a lot of the other exemptions in this article would be indexed to increase over time.) If a person is living in a $10 million mansion then they don't really need a government pension, even if they don't have any other more liquid assets they can call upon. They can take out loans against the capital value of the house to fund their retirement. There is a government loans scheme for this, as well as many private reverse mortgage offerings. The people that benefit most from the residential house exemption are the will beneficiaries.

See another possible form of pension reform on the Superannuation Reform page.

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