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Retirement Affordability Index


How to fix retirement income We asked the experts to tell us what the Government must consider in its retirement income review – what must change, and how

You’ve got a lot of living to do in retirement. Are you confident you can pay for it?

The cost of living certainly isn’t getting any cheaper. By using part of your super or savings, add a Challenger lifetime annuity to your retirement income and you’ll enjoy guaranteed income for life that can keep pace with inflation. It can complement your other income sources, like your super and the Age Pension. So like thousands of other retirees, you too can look forward with confidence. To find out more, go to or speak to your financial adviser. Challenger Life Company Limited ABN 44 072 486 938, AFSL 234670 (Challenger), the issuer of Challenger Guaranteed Annuity (Liquid Lifetime). This information has been prepared without taking into account any person’s objectives, financial situation or needs. Because of that, each person should, before acting on any such information, consider its appropriateness, having regard to their objectives, financial situation and needs. Each person should obtain and consider the Challenger Guaranteed Annuity (Liquid Lifetime) Product Disclosure Statement (PDS) before making a decision about whether to acquire or continue to hold the annuity. A copy of the PDS can be obtained from your financial adviser, our Investor Services team on 13 35 66, or at All references to guaranteed payments refer to the payments Challenger promises to pay under the relevant policy documents. Neither the Challenger group of companies nor any company within the Challenger group guarantees the performance of Challenger’s obligations or assumes any obligations in respect of products issued, or guarantees given, by Challenger. 37544/0619


Published by: Indigo Arch Pty Ltd Publisher: Kaye Fallick Editor: Janelle Ward Copy Editor: Dairne John Writers: Michael Rice, Xavier O’Halloran, Emma Dawson, Myfan Jordan, Matt Grudnoff, Sean Corbett, Janelle Ward Cover Design: Leon Della Bosca Designer: Word-of-Mouth Creative Email: Web: Phone: 61 3 9885 4935 All rights reserved, no parts of this book may be printed, reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, recording or otherwise, without the permission in writing from the publisher, with the exception of short extractions for review purposes. IMPORTANT DISCLAIMER No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publication is distributed on the terms and understanding that (1) the publisher, authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, financial, professional or other advice or services. The publisher and the authors, consultants and editors expressly disclaim all and any liability and responsibility to any person, whether a subscriber or reader of this publication or not, in respect of anything, and of the consequences of anything done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no publisher, author, consultant or editor shall have any responsibility for any act of omission of any author, consultant or editor. Copyright Indigo Arch Pty Ltd 2019

Speaking up for retirees Why this edition of the Retirement Affordability Index is different


How the cost-of-living rises affected you Tribes’ expenses explained and updates


Budget your way to confidence Use our budget planner to keep track of your finances


What’s wrong with the system? Let me count the ways, says Michael Rice, chief executive of actuarial firm Rice Warner


Converting super into income 10 Challenger’s Jeremy Cooper explains how to spend your retirement savings to maximum effect Super’s design flaws The flaws, gaps and inefficiencies in the super system according to Xavier O’Halloran, acting director of Super Consumers Australia


The key plank that’s crumbling Per Capita’s Emma Dawson and Myfan Jordan put the focus on home owners and renters


Hands off the family home? What you told us


Giving poverty the boot Government funds are going to the wrong people, writes Matt Grudnoff, senior economist with The Australia Institute


Too many tests Economist Sean Corbett identifies the key areas of the pension that must be changed


Listen up What you said must be reviewed


Government update Your complete wrap of the September changes affecting the Age Pension


PensionChecker™ tool explained Are you eligible for an Age Pension? Do you know your rights? The PensionChecker™ tool has all the information you need.


8 10 14 20 24

YourLifeChoices Retirement Affordability Index™ September 2019


Experts, members add their YourLifeChoices is on a mission to ensure your concerns are heard in the Government’s retirement income review.


ourLifeChoices has 230,000 very engaged members aged 50-plus. We have our finger on the pulse of retiree concerns. We know what is on your wishlist. We know what you find frustrating, confusing and just plain wrong. Your voice must be heard in the Government’s retirement income review.

How much in total savings do you believe you need for a comfortable retirement?


Single $150,000–$200,000 12% $200,000–$300,000 17% $300,000 plus 71%

In this very different edition of the Retirement Affordability Index, we have broken from tradition to present your views and those of the experts. We invited key spokespeople to tell us what they believe must be covered in the review.

Couple $400,00–$500,000 21% $500,000–$600,000 21% $600,000 plus 58%

What’s wrong with our retirement income system? Plenty, says Michael Rice, chief executive of actuarial firm Rice Warner, who pinpoints the essential changes. “While we have a great system for building people’s superannuation, we let them down in the retirement years,” he says. Turning up the heat on the superannuation front, Xavier O’Halloran, acting director of Super Consumers Australia, claims the flaws and inefficiencies in the system have been allowed to proliferate for too long and explains how to “tidy up the system”. Most Australians will receive at least a part Age Pension, but too many find the system confronting and confusing. Economist Sean Corbett identifies the key areas that must change.

Do you have the amount you believe you need? Yes 41%

No 59%


Do you …

Matt Grudnoff, senior economist with The Australia Institute, believes there is ample government support for retirees, but says the funds are going to the wrong people. Per Capita’s Emma Dawson and Myfan Jordan acknowledge that home ownership is a fundamental plank in Australia’s retirement income system, but say that pillar is crumbling. Challenger’s chairman of retirement income Jeremy Cooper explains decumulation and how a lifetime income stream can deliver a confident retirement. But first, here’s a snapshot of retirement in Australia. And what we know about retirees based on your responses in the 2019 Retirement Matters Survey (5100 responses) and the 2018 Retirement Income and Financial Literacy Survey (5064 responses). 4

Own your home outright 71% Own your home with a mortgage 13% Rent 10% Own a granny flat 1% Other 5%

Do you believe it is time the family home became part of the assets test for an Age Pension?

YourLifeChoices Retirement Affordability Index™ September 2019

Yes 21%

No 70% Unsure 9%

r voice to retirement review FUNDING YOUR RETIREMENT

Do you believe your savings will provide an income for life?

How do your fund your retirement?

Yes 21%

Full Age Pension 31% Part Age Pension 32% Self-funded 37%

No 45% Unsure 34%

Would you consider taking out a CIPR (Comprehensive Income Product for Retirement) such as an annuity?

*Do you support the concept of a Universal Age Pension

No 28%

Oppose 39% Neutral 19%

Retirement in Australia

Yes 20%

Older Australians 5.7 million (23 per cent of the population) are aged 55 or over

*Your views …

Retirees 3.6 million Australians describe themselves as retired

I think that the following are too complicated to understand properly Age Pension entitlements Agree 46% Disagree 27% Neutral 27%

Age of respondents

*2018 Retirement Income and Financial Literacy Survey. All other numbers from the 2019 Retirement Matters Survey.

Age Pension 2.3 million Australians are on a full or part Age Pension Cost to budget $48 billion – cost of Age Pension in 2018-19 $43 billion – tax foregone due to superannuation concessions Median super savings when retiring $154,453 for males aged 60–64 $122,848 for females aged 60–64

Superannuation Agree 41% Disagree 33% Neutral 26%

YourLifeChoices disclaimer

Yes 72%

Support 42%

No 80%

Financial investments Agree 43% Disagree 27% Neutral 30%

Do you consider yourself to be a confident retiree?

78% aged 55-74

Home ownership 76% of over-65s own their home 57% expected to own their home in 2056 Retiree mortgage debt 23% of retirees aged 60–64 had a mortgage in 2006 36% of retirees aged 60–64 had a mortgage in 2016 Renting 60–70% of those who rent live in poverty

YourLifeChoices Retirement Affordability Index™ September 2019


Fuel again the key culprit in price rises Retirement tribes Affluent and Constrained Couples experienced the biggest cost-of-living rises in the past year (+1.4 per cent) and in the June quarter (+0.8 per cent). Least affected in the past 12 months were Cash-Strapped Couples and Singles (+0.4 per cent), followed by Affluent Singles (+0.7 per cent) and Constrained Singles (+0.6 per cent). The June quarter saw inflation pick up after a flat March quarter. The biggest increases were in automotive fuel (+10.2 per cent), medical and hospital services (+2.6 per cent) and international holiday, travel and accommodation (+2.7 per cent). The biggest falls were in fruit (-4.1 per cent) and electricity (-1.7 per cent). Petrol prices were pushed up by rising world oil prices and a weakening Australian dollar. Fuel prices have been volatile in recent quarters and were responsible for the biggest fall in the March quarter. The key factors affecting June quarter living costs for Affluent Couples (+0.8 per cent) and Singles

Weekly expenditure for retirees aged 54+ Expenditure items Housing As a percentage of expenditure Domestic fuel & power As a percentage of expenditure Food & non-alcoholic beverages As a percentage of expenditure Alcoholic beverages & tobacco products As a percentage of expenditure Clothing and footwear As a percentage of expenditure Household furnishings & equipment As a percentage of expenditure Household services & operation As a percentage of expenditure Medical & health care As a percentage of expenditure Transport As a percentage of expenditure Communication As a percentage of expenditure Recreation As a percentage of expenditure Education As a percentage of expenditure Personal care As a percentage of expenditure Miscellaneous goods & services As a percentage of expenditure Total weekly expenditure Total monthly expenditure Total annual expenditure 6

Affluent Couples

(+0.7 per cent) were the increase in medical and hospital services, driven by the annual increase in private health insurance premiums, and increased international travel and transport costs. Cost-of-living rises in the June quarter for Constrained Couples and Singles were 0.8 per cent and 0.6 per cent respectively, while Cash-Strapped Couples and Singles were least affected (0.4 per cent). Constrained Couples were affected more than Constrained Singles, primarily in the health and transport sectors. Constrained Couples spend the largest proportion of their income on health and transport – even larger than Affluent tribes and much more than Constrained Singles. Cash-Strapped tribes were least affected because a big proportion of their spending goes on utilities, where there were falls in electricity prices and food..

Constrained Couples

Couple Couple homeowners homeowners with private on Age income Pension $181.82 $107.46 12% (-1%) 13% $44.99 33.79 3% 4% $239.16 $168.45 16% (-1%) 20% $53.88 $27.31 4% 3% $30.68 $17.42 2% 2% $73.21 $31.76 5% 4% $41.24 $29.17 3% 3% $147.65 $105.24 10% 13% (+1%) $196.16 $127.34 13% 15% $35.85 $25.41 2% (-1%) 3% $294.56 $100.03 20% 12% $0.6 $0.22 0% 0% $29.28 $17.77 2% 2% $88.92 $47.96 6% 6% $1,458.01 $839.32 +$11.03* +$6.52* $6,318.05 $3,637.05 +$47.8* +$28.27* $75,816.56 $43,644.56 +$573.59* +$339.21*

The Australia Institute chief economist, Matt Grudnoff CashStrapped Couples Couple who rent on Age Pension $203.53 29% $35.67 5% $152.31 22% $44.25 6% $9.21 1% $19.33 3% $15.76 2% $36.44 5% $60.54 9% (+1%) $27.5 4% $65.04 9% $0 0% $12.35 2% $23.98 3% $705.9 +$2.67* $3,058.88 +$11.53* $36,706.59 +$138.41*

YourLifeChoices Retirement Affordability Index™ September 2019

Affluent Singles

Constrained Singles

CashStrapped Singles

Single Single Single who homeowner homeowner rents on Age with private on Age Pension income Pension $122.17 $90.17 $160.34 15% 19% (-1%) 36% $32.54 $29.12 $24.72 4% 6% 6% $120.15 $84.45 $75.69 14% (-1%) 18% 17% $26.99 $15.47 $21.22 3% 3% 5% $20.41 $8.85 $7.3 2% 2% 2% $40.06 $18.6 $14.84 5% 4% 3% $37.2 $21.02 $11.17 4% 5% 3% $84.78 $37.54 $22.21 10% 8% 5% $103.91 $52.99 $35.74 12% 11% 8% $34.7 $17.91 $13.98 4% 4% 3% $137.19 $51.61 $31.15 16% (-1%) 11% 7% $0.13 $0.12 $0.01 0% 0% 0% $18.24 $9.62 $8.53 2% 2% 2% $53.97 $26.27 $16.36 6% (-1%) 6% 4% $832.45 $463.76 $443.26 +$5.91* +$2.59* +1.73* $3,607.26 $2,009.64 $1,920.78 +$25.58* +$11.25* +$7.47* $43,287.17 $24,115.63 $23,049.37 +$307.04* +$134.96* +$89.65*

*Percentage abd dollar changes compared with June quarter figures

Retirement tribes explained Affluent Couples and Singles Homeowners with private income.

How does your spending compare?

Constrained Couples and Singles Home-owners on full or part Age Pension.

Expenditure items

Affluent Couples

Constrained Couples

CashStrapped Couples

Cash-Strapped Couples and Singles Renters on Age Pension. Affluent Singles

Constrained Singles

CashStrapped Singles

Housing Rent, interest, home repairs and maintenance & body corporate fees As percentage of expenditure Domestic fuel & power Electricity, gas & oil As percentage of expenditure Food & non-alcoholic beverages Includes meals in restaurants As percentage of expenditure Alcoholic beverages & tobacco products Alcohol consumed at licensed premises As percentage of expenditure Clothing and footwear Dry cleaning, repairs & alterations As percentage of expenditure Household furnishings & equipment Outdoor furniture, floor and window coverings, linen and bedding, appliances, glassware, tableware and cutlery, tools & mobile phones As percentage of expenditure Household services & operation Cleaning and garden products, phone charges (including mobile), pest control & home cleaning services As percentage of expenditure Medical & health care Health insurance, doctor and dental fees, medicines and pharmaceutical products, prescriptions & hospital and nursing home charges As percentage of expenditure Transport Purchase, maintenance and insurance of vehicles, fuel & public transport fares As percentage of expenditure Communication Spending on telephone (including fixed line and mobile) Spending in internet services As percentage of expenditure Recreation AV equipment including TVs and pay TV, books, newspapers and magazines, camping and fishing equipment, sports equipment, internet charges, holidays & animal expenses As percentage of expenditure Education Primary and Secondary school fees (including school sport fees) TAFE and University fees (including HELP) Fees to all other private education institutions As percentage of expenditure Personal care Toiletries, cosmetics & hairdressing As percentage of expenditure Miscellaneous goods & services Stationery, watches and jewellery, interest payments on credit cards and all loans (excluding home loans), education, rates and charges on investment properties, accountant and tax fees & cash gifts As percentage of expenditure Total weekly expenditure Total monthly expenditure Total annual expenditure

YourLifeChoices Retirement Affordability Index™ September 2019


Stability and integrity the keys to improving retirement system What’s wrong with our retirement income system? Plenty, says Michael Rice, chief executive of actuarial firm Rice Warner. He has pinpointed the changes that must be made.


ustralia has a unique Age Pension system, which compares very well against the structures used in other countries. However, superannuation has developed in an ad-hoc way over the past 30 years, and there have been many changes around product structures and tax concessions/thresholds. This has made it difficult for people to plan their retirement. Yet, there is no sign of stability as we await the Government’s response to recommendations made in a Productivity Commission review and a royal commission into misconduct in the financial services industry. Following this year’s Budget, Treasurer Josh Frydenberg announced a full review of the retirement income system, so there will be more changes on the way. The Actuaries Institute has written a Green Paper that looks at ways to improve the system, including integrating superannuation, taxation, the Age Pension, equity in family homes and aged care. At present, all these structures operate independently and there is no umbrella national strategy for integration. Our system of mandatory contributions on wages has provided stronger savings for all Australians (apart from the self-employed). The Superannuation Guarantee, now at 9.5 per cent of wages, has already led to good balances for many people retiring today. However, it has meant that more people are subject to the means test for the Age Pension, and these rules have many anomalies.

Age Pension First, the Age Pension is a great safety net for retirees. It is set at about 28 per cent of average earnings, giving $24,268 (including supplements) a year to a single pensioner and $36,582 (including supplements) to a couple. As retirees now live much longer than in past generations, the cost of providing the pension has grown. The present value for a single person retiring at 67 is now about $500,000 (slightly more for females who live longer on average). The value for a married couple is more than $800,000. 8

Clearly, the Age Pension is a valuable benefit, but (unlike most other countries) the Government uses means testing to keep its costs under control. Unfortunately, these tests are contentious and invasive, with many anomalies. For example, a couple owning their own home (let’s say worth $750,000) and with other assets of $1 million would not receive any Age Pension. People in this position have most of their money in a super account. As they draw it down, they will become eligible for a part-pension later in retirement. Contrast this to a couple with a large home (say worth $3 million) but with little superannuation. If their assets are less than about $400,000, they will get a full Age Pension – even though, overall, they are worth twice as much as the aforementioned couple. The situation is worse for renters. A couple with assets above $1,074,000 receive no pension, even though their wealth is much less than the homeowners cited.

YourLifeChoices Retirement Affordability Index™ September 2019

The obvious solution is to include the family home in the assets test, but this would need to be explained very carefully. It could be done by increasing the thresholds in a way that most people are little affected, but those with very valuable homes would receive less. At the same time, the increased thresholds would provide more pension to renters.

(SAPTO) up to $2230. Retirees also receive other benefits such as discounted rates, utility bills, public transport, motor registration and a Pensioner Concession Health Card. These are all designed to assist people on low incomes, but they are inequitable relative to those younger workers who also struggle to pay bills.

Now, some homeowners might be asset-rich and income-poor. In their case, they could make use of the Government’s Pension Loan Scheme or private sector equity release products. In that way, they can use their illiquid wealth without needing to sell up and move.

It would make more sense to provide a slightly higher Age Pension to needy pensioners, and to eliminate these benefits – many of which go to people with reasonable wealth.

While we have a great system for building people’s superannuation, we let them down in the retirement years. While the aforementioned system would be more equitable, it would not address the situation of those renters on the Age Pension who have little other income. These retirees currently get rental assistance, but the amount of $69 a week (paid fortnightly) for a single does not contribute much towards private rentals in Australian capital cities. This is an area where government support could be targeted much better.

Taxation Australia has a unique taxation system, where earnings on retirement incomes are tax free as are any withdrawals from these accounts. While it is common elsewhere not to tax the earnings of super funds, it is unusual not to treat pension withdrawals as personal taxable income. The Government realised that this structure provided a windfall for those with very large superannuation accounts and it changed the rules from 2017 to cap the amount that could be transferred into a tax-free account ($1.6 million). That improved equity in the system, but the balance of large accounts is still taxed at only 15 per cent (or 10 per cent on capital gains), so there is scope to increase the rate above (say) $5 million to a higher tax rate in the range of 30−45 per cent. Retirees with low incomes are eligible to receive a Senior Australians and Pensioners Tax Offset YourLifeChoices disclaimer

Aged care The aged care system needs reform. It has its own royal commission, which is finding poor levels of service despite the high fees that the elderly are charged for these facilities. Ideally, we should remove the Refundable Accommodation Deposits (RADs) and replace them with a weekly rent for accommodation. As baby boomers age, we will need a lot more facilities, both for residential aged care and home care. It makes sense for the Government to subsidise the poor, but wealthier retirees should bear some of these costs.

Conclusion While we have a great system for building people’s superannuation, we let them down in the retirement years. A better-structured social security system around retirement income, accommodation and aged care needs to be developed. And it must be easy to understand and fair. That should be one of the objectives of the retirement income review. The Actuaries Institute has prepared a Green Paper on improving Australia’s retirement system1. The paper was written by actuaries Anthony Asher, David Knox and Michael Rice. It outlines some design options for an integrated system of retirement provision, which the Actuaries Institute encourages Australians to debate boldly.

More The Actuaries Institute is committed to promoting and maintaining a high standard of actuarial practice and represents and supports its members through education, establishing and maintaining strict professional and ethical standards and contributing to public policy through submissions, leadership and expert analysis. 1

YourLifeChoices Retirement Affordability Index™ September 2019


Sponsored message from Challenger

How super converts into retirement income

What happens when it’s time to start drawing down on your super? YourLifeChoices spoke with Challenger’s Chairman of Retirement Income Jeremy Cooper about how decumulation can work for you.


he Superannuation Guarantee that came into effect in 1992 means that most Australians have a sum of money to finance at least part of their retirement. When it comes to spending your retirement savings, it’s about working out how to use that money to deliver the best possible retirement based on your circumstances. For an increasing number of older Australians, that will involve a lifetime income stream, which will provide a guaranteed and regular payment for life. The importance we attach to encouraging people to save money throughout their working life can mean that when they actually get to retirement, they’re not that keen on spending it. That is, they’re not that comfortable consuming their capital when the time comes to drawing down.

In other words, the light is turning on and we’re reaching the right sort of conclusions about what we’re supposed to do with our super.

So what is the smartest way to spend your retirement savings? The Fitzgerald report in 1993, shortly after super started, suggested the retirement phase Only 60 per cent of an would be typified by retirees investment in a lifetime drawing down regular pension payments from their savings. This income stream that meets is not happening as frequently as was projected. new capital access rules

now counts as an asset up to age 84.

A lifetime income stream can help smooth spending of retirement income and boost retirees’ confidence.

Some nations have made annuitising their defined contribution savings compulsory. In contrast, Australians have the freedom (in theory) to pull everything out once they reach retirement. That’s what retirees can do in theory, but very few actually do that because once they have built up a decent nest egg, few people aspire to live just on the Age Pension. When balances were relatively modest – say you had $40,000 in super – you might have said, ‘Well,

What is decumulation? When we enter retirement, we shift from the stage of accumulation of wealth to decumulation, dipping into our savings to fund the cost of living and our lifestyle in retirement. 10

I’ll buy a caravan and go around Australia.’ But we estimate the average household now retires with about $400,000. People now tend to think, ‘Well that’s quite a decent amount of money. If I use it wisely, it will give me a better retirement.’

The idea was that you have the saving phase with relatively simple accumulation and you would get to a more annuitised retirement, that is, a guaranteed income for life. But that hasn't come to fruition yet. Basically, you can have an account-based pension, which is what 95 per cent of today’s retirees do. The Government requires you to start off by drawing out five per cent, then it goes up to six, seven, eight, nine and even all the way up to 14 per cent when you’re in your 90s. But the account-based pension can run out if you overspend, or you could underspend and end up with a lower standard of living in retirement than is really necessary. Your adult children might benefit through an inheritance, but you don’t get the opportunity to enjoy the retirement you deserve. The other option is to invest part of your retirement savings in a lifetime income stream product such as an annuity, and ensure you have income for life. So how can you achieve a balance?

YourLifeChoices Retirement Affordability Index™ September 2019

The main difficulty is that nobody knows how long they’re going to live. Even average life expectancies, when you examine them, can be quite confusing, which makes knowing how long your money needs to last even more tricky. Health, family history and a multitude of other factors make it even more difficult for you to predict your own longevity. Again, that’s where annuities come into play. Like the Age Pension, a lifetime annuity provides regular and guaranteed payments for life. An annuity that is indexed for inflation will help you to continue to afford tomorrow what you can afford today. You can buy a term deposit at a fixed rate, but unlike bank term deposits that have a time horizon of one, three or five years, when you purchase a lifetime annuity, it comes with a guarantee that you’ll be paid for the rest of your life. It’s important that older Australians understand lifetime income streams such as annuities in order to invest in them with confidence. That begins with knowing the detail of how they fit in to your retirement portfolio – the advantages, that they’re not really that complex and the way recent government changes have made them more attractive. On 1 July, Centrelink’s means test rules changed. Only 60 per cent of an investment in a lifetime income stream that meets new capital access rules now counts as an asset up to age 84. And just

30 per cent of the amount invested will count as an asset after the age of 84. This means that if you invest $100,000 into a lifetime annuity, for the Centrelink assets test it will be treated as an asset worth $60,000 and your Age Pension will be adjusted accordingly. As a result, if you are on a part Age Pension, you may be eligible for an increase to your pension entitlement. A significant reason the Government changed the means test rule was to encourage the development of lifetime income streams to improve long-term financial security for Australian retirees. The Government is continuing to progress further reforms that will encourage the take-up of these lifetime income streams. As with most aspects of life stage planning, knowledge is power, so the provision of clear explanations on the way lifetime income streams can reduce money concerns is vital. As a first step, download your free copy of Challenger’s A guide to a confident retirement DISCLAIMER: All content in the Retirement Affordability Index™ is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances. Before making a decision about whether to acquire or continue to hold a financial product, you should obtain and consider the Product Disclosure Statement (PDS) for the relevant product. A copy of the relevant PDS for a Challenger product can be obtained from your financial adviser, by calling 13 35 66, or at

YourLifeChoices Retirement Affordability Index™ September 2019


Fix the design flaws in super that hurt the vulnerable The flaws, gaps and inefficiencies in the superannuation system have been allowed to proliferate for too long, writes Xavier O’Halloran, acting director of Super Consumers Australia.


review into retirement incomes was the first major announcement made after the May election by re-elected Treasurer Josh Frydenberg. He was referring specifically to recommendation 30 of the Productivity Commission’s (PC) wide-ranging and three-year-long investigation into the efficiency of the superannuation system. The PC recommendation is plain and simple: that the role of superannuation in retirement should be evaluated alongside the Age Pension and private savings – the traditional ‘three pillars’ of the retirement savings system – as well as housing and aged care. The PC notes that these public policy issues have not been subject to a review in 26 years, since they were (partially) considered by the FitzGerald Report on National Savings back in 1993. It goes on to urge future governments not to wait so long between check-ups and to conduct reviews every 10 years.

We would like to see a Terms of Reference for a retirement income inquiry that specifically acknowledges the gaps and quirks in our super system that affect people on low and middle incomes; terms that explore options to protect savings, such as preventing them being defaulted into (multiple) poor-performing funds, suffering from (wildly) disproportionate balance erosion or being forced to pay for insurance products that either have low value or cannot be claimed on. The PC has already identified many of these problems and successive governments have tried to take positive steps on some matters through a mix of self-regulation and legislation, but progress is continually slowed, stalled or watered down by vested interests.

What is Super Consumers Australia? Super Consumers Australia at CHOICE is focused on advocacy to improve the super system, particularly for people on low and middle incomes during their working years. There are plenty of other groups that contact members of parliament to advocate on behalf of higher income earners and, frankly, far too many lobbying on behalf of super fund trustees. Overall, we believe that the superannuation system is strong, but it has some design flaws that needlessly and disproportionately harm people who are already economically vulnerable. Before the retirement income review considers the big questions, such as the adequacy of contribution rates, the impact of taxation and the balancing act of the so-called ‘three pillars’ of the retirement income system, we should take steps to make our current superannuation system more efficient for everyone. Fixing the ‘holes in the bucket’ will add hundreds of thousands of dollars in cumulative earnings to people’s incomes in retirement. 12

Two elephants in the room The PC identified the two most costly problems in our superannuation system: unintended multiple accounts and entrenched underperforming funds. You can think of them as a pair of elephants – one small and one significantly larger, but both towering over all the other issues that are reducing retirement savings. The smaller of these two elephants is unintended multiple accounts, where the system is defaulting people into new accounts with different funds when they change employers. This results in additional sets of administration fees and insurance premiums. The PC modelled that a “typical full-time worker” would be $51,000 worse off in retirement due to multiple accounts. These collectively cost the people who hold them $1.9 billion a year in excess

YourLifeChoices Retirement Affordability Index™ September 2019

insurance premiums and $690 million in excess administration fees. About a third of all accounts (around 10 million) in the super system are unintended multiple accounts. Australian Tax Office (ATO) data shows that 25 per cent of people have two accounts, nine per cent have three and one per cent have six or more. The PC slammed a generation of policy failure for allowing this, stating: “Government and the regulators could and should have acted earlier to identify this costly systemic problem and taken decisive policy action.” The parliament has recently taken decisive action to reduce the number of unintended multiples, despite some squealing from fund trustees enjoying the passive income. But there’s more to do. The second elephant is much larger. More than 10 times larger. Serial underperforming funds are the scourge of our superannuation system, and the PC conservatively estimates that “typical full-time workers” would be $560,000 worse off in retirement if they were stuck in one of these duds for their working lives.

It is mind-boggling that we allow laggard funds to continue to receive compulsory superannuation contributions. Both the PC and the financial services royal commission urged parliament to stop allowing people to be defaulted into terrible funds, or multiple funds. These recommendations were the headline imperatives of both in much of the media coverage. The PC recommends a ‘best in show’ model to only allow people to be defaulted into one of the very best performing funds; Commissioner Kenneth Hayne recommends that people ‘default once’ and keep their super fund as they change employers. Super Consumers Australia is adamant that we do not need to wait for a retirement income review before taking action. One of the top priorities of the Treasury ministers should be helping people to move out of poor-performing funds and calmly merging or closing them down.

Other matters Our current superannuation policy framework is punctuated with other quirks, idiosyncrasies, disincentives, inefficiencies and actual legislative loopholes that are costing people money now. These include: 1. The public can’t identify dud funds. This might seem odd, but our regulators don’t collect the right data to allow an apples-to-apples YourLifeChoices disclaimer

comparison of poor-performing funds. The PC described these information gaps as “yawning” and made a raft of recommendations to improve data collection across the super system. 2. There is no ‘purpose’ to superannuation. This also might seem odd, but previous parliaments have failed to agree on the objective of superannuation (which is one of the reasons for a retirement income review). Do we allow people to reduce tax paid now to take the pressure off future pension outlays? Where should limits kick in, and why? Should the system be designed to ‘smooth the transition’ from income earned while working, to income in retirement? Or should the system be designed to provide a certain level of comfort in retirement? Are we talking chardonnay comfort or the occasional champagne? 3. Payment rules are archaic. Employers have up to four months to pay super, which means people are forgoing months of extra earnings on their contributions. Super should be paid on a normal pay cycle so employees can reap these earnings. 4. There are no accounting standards. There are no clear requirements or accounting standards for how funds report their assets, options or what growth or defensive assets mean, making it nigh on impossible to compare hundreds of funds and thousands of products.

In conclusion Most of these suggestions have been identified repeatedly in various parliamentary inquiries, departmental and regulatory reviews and, over the past five years, in the Murray Financial Systems inquiry, the PC inquiry into superannuation and the financial services royal commission. Legislation and amendments have been introduced, sometimes repeatedly, but have been rejected or have lapsed. These ideas have been shoved around, mainly by disagreements between superannuation funds, insurers, employer groups (large and small), accountants and tax advisers. Never mind the losses to consumers. Addressing the two big elephants in the room – unintended multiples and entrenched underperformance – and tidying up our existing super system would put more money into people’s super balances immediately, particularly people on low and middle incomes. More Super Consumers Australia is the people’s advocate in the superannuation sector, protecting the interests of low- and middle-income people in Australia’s superannuation system. It was founded in 2013 and received government funding for the first time in 2018.

YourLifeChoices Retirement Affordability Index™ September 2019


Government must step up for homeowners and renters Home ownership is a fundamental plank in Australia’s retirement income system, but it is crumbling and older renters are being largely ignored, write Per Capita’s Emma Dawson and Myfan Jordan.


utright ownership of one’s home has long been the de facto fourth pillar of Australia’s retirement income system, allowing the Government to keep the Age Pension at a relatively low fixed rate.

Challenging this view, however, is recent research that shows that Australia is now divided into assetbased classes of wealth and income, and that “what we’re seeing is not generational inequality, but class inequality across generations”.

Indeed, when announcing the terms of reference for Owning a home is the key determining factor of the first comprehensive review of retirement incomes financial security and wellbeing in Australia, but it is in 30 years, Treasurer Josh Frydenberg and Assistant a position increasingly out of reach and not just for young people. Minister for Superannuation Jane Hume explicitly acknowledged the critical role of the family home in The fact is, the soaring cost of providing a good retirement, by land and housing in Australia including it in the third pillar of the over the past three decades has Having a place to call system, voluntary savings. effectively destroyed the asset home, one that cannot be base on which our retirement It’s clear, then, that careful income system relies. The consideration of the future role of the taken from us, is perhaps proportion of homeowners aged home in providing Australians with a the greatest source of 55 to 64 who still owe money comfortable and dignified retirement on their mortgage has more is essential. security there is. than tripled since the design of The assumption underpinning our compulsory superannuation both the setting of the pension and the structure system – from 14 per cent in 1990 to 47 per cent of our superannuation system is that the majority in 2015. Among those aged 45 to 54, the rate has of retired people will have very low housing costs, doubled, as has the ratio of mortgage-debt-toeither because they have paid off mortgage debt income (from 82 per cent to 169 per cent), while during their working lives or, for non-homeowners, that same ratio has blown out from 72 per cent to because they will be accommodated in low-rent 132 per cent for those in their last decade before social housing. retirement age. Yet over the past three decades, as house and land values in Australia have increased at a rate far outstripping income growth and investment in social housing has declined to record lows, there is growing evidence that this key plank in the foundations of our asset-based retirement income system is crumbling. Of course, the popular narrative is that older Australians are sitting on piles of property wealth, driving up asset prices through the use of generous tax concessions and locking younger generations out of the housing market. This, some claim, is leading to significant generational inequality. 14

This will have a significant impact on retirement incomes, one that will only grow as successive generations find it harder to enter the property market and live with higher levels of housing debt much later in life than experienced by previous generations. The two obvious implications are that some future retirees will need to spend a significant lump sum of their superannuation savings to pay off outstanding mortgage debt at retirement. More of them will then be reliant on the Age Pension for income. Others will have no hope of ever owning a home and will, therefore, have to meet the rising costs of rent in the private market.

YourLifeChoices Retirement Affordability Index™ September 2019

Older Australians have also traditionally relied on the equity in their homes to fund their care in later old age. Many Australians expect to draw on the equity in the family home to fund entry to residential aged care, and still hold the hope of passing something down to their children. These expectations are under significant threat from the declining rates of home ownership in Australia. It is imperative, then, that the retirement income review engages deeply with the economic implications of changes to home ownership among retirees, both for individuals and for the Federal Budget, even in the context of relatively low housing costs. Currently, 2.5 million Australians receive the Age Pension and the Federal Government spends more on payments to older Australians than on any other benefits, with $70.2 billion forecast for the next financial year. If a majority of age pensioners are not to be living in poverty by the middle of this century, the Government must implement policies to provide secure, affordable housing for the growing number of retirees who will not own their homes. While the economic imperative is obvious, policies to deal with the changing role of the home in retirement must grapple with more than mathematical equations.

Increased housing costs affect more than just the economic wellbeing of retirees. Housing is a key social determinant of health at any age, and recent research shows that housing insecurity and debt already negatively affect the health of older people. It is important for policy makers to understand the home as much more than a financial asset. The ‘home’ is not made of bricks and mortar, it is a place that can enshrine memory, a place from which, especially as we age, we can access support networks and family relationships. Beyond its value as a financial asset, the home has a unique capacity to help us face other vulnerabilities we experience in older age, particularly social isolation and loneliness. Per Capita’s own research suggests that older people experience home as a social relationship: a place to connect with others, somewhere they can sustain or build meaningful social roles, a community. This finding challenges the assumptions underpinning our policy settings that people will always make economically rational decisions in relation to housing. So, what policy changes should the retirement income review consider in tackling the challenge of the changing role of the home in retirement? Some argue that, given the disproportionate increase in the value of housing over recent years,

YourLifeChoices Retirement Affordability Index™ September 2019


In the short term, however, the most immediate solution is to increase Commonwealth Rent Assistance (CRA) for those in receipt of social security payments. The rate of CRA has not kept pace with the cost of private rental properties, largely because increases are linked to the Consumer Price Index (CPI), which is lagging far behind the rise in the cost of housing. With forecasts of a 60 per cent rise in eligibility for CRA by 2031, increasing the rate to align it with housing costs is critical to addressing short-term housing stress for older people, but any increase should come with legislated protections against rental price gouging by landlords. Finally, the Government must grapple with the reluctance of older Australians to tap into home equity to provide income in retirement. Reverse mortgages, offered by private financial institutions, and the government-backed Pensions Loan Scheme (PLS), which enables homeowners to increase their pension payments by 150 per cent, have low take-up rates. YourLifeChoices’ 2019 Retirement Matters Survey shows that fewer than one in five retirees would consider accessing their home equity to increase their income. it is past time to include the family home, or a portion of its value over the median, in the Age Pension assets test. This is politically difficult, to say the least; indeed, Mr Frydenberg has already ruled it out, saying it “will never be part of [government] policy”. Beyond political concerns, though, including the home in the assets test arguably would result only in more retirees being cut off from pension access, thus reducing their standard of living without meaningfully improving the living standards of nonhome owning pensioners. Far more pressing is the massive increase in the number of older people entering the private rental market in recent years. Renters in the 55–64 age cohort have risen from 14.7 per cent to 21 per cent in the past 20 years alone. Worryingly, this includes former homeowners, forced out by mortgage foreclosure and life events such as family breakdown, ill health and unemployment. The rates of older women experiencing homelessness, with those over 55 now making up the fastest growing cohort of homeless Australians, can no longer be ignored. Anglicare’s 2019 Rental Affordability Snapshot shows that only 0.8 per cent of rental accommodation is accessible for a single age pensioner. This points to the urgent need for significantly more age-appropriate social housing to be built by state and federal governments. 16

Policy makers can no longer ignore the behavioural factors – the desire to ‘age in place’, the fear of needing assets to draw on during late old age due to infirmity or illness and the hope to leave an inheritance for the next generation – that make people resistant to drawing on their home equity. A different mix of social policies, such as the universal provision of in-home care as a replacement for residential aged care, is needed to resolve this issue. The retirement income review provides us with an opportunity to think more broadly about what makes it possible for Australians to live a good life in retirement. If that is our collective goal, we must shift how we think of the home, away from its role as merely a financial pillar of retirement income. Having a place to call home, one that cannot be taken from us, is perhaps the greatest source of security there is. Providing that to all Australians should be the fundamental aim of retirement income policy. *Emma Dawson is executive director of public policy think tank Per Capita and Myfan Jordan is Per Capita’s director of social innovation. Per Capita is an independent, progressive think tank dedicated to fighting inequality in Australia. DISCLAIMER: All content in the Retirement Affordability Index™ is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.

YourLifeChoices Retirement Affordability Index™ September 2019

Should it be hands off the family home? The Government has ruled out including the family home in an assets test for the Age Pension. Some say that was a poor decision. Here’s what you told us.


eloitte Access Economics’ Chris Richardson says that including the family home in the Age Pension assets test is “the right thing to do”. Economist Sean Corbett concurs, but says the value of the family home should be assessed only above a certain threshold and only after better products become available to enable people to access the equity. What do you say? We present a cross-section of members’ views on whether the home should be included in the assets test. Not amused: Such an abhorrent disincentive for people to make sacrifices and pay significant rates, taxes and maintenance costs on their family home would have to be pre-election party policy. A party that canvassed this idea would never be elected! It's a ridiculous notion. Katie: [This] can only happen if soft voters let it. Demand to be heard! The family home in its life cycle has paid taxes in one shape or another over and over again. And so have the occupants. Stand up and be heard. And write to your politicians and tell them you will not stand for a means test on the family home. Older & wiser: I would only give a slight consideration to the home being in the assets test if the home was valued at some huge amount – say around $10 million. Also, who is going to run, organise, control and oversee this disaster? How would homes be valued? With the amount valuers charge at the moment, god forbid! Just like real estate agents, one valuer might value it at $X, another at $Y. Would be rife for fraud.

Charlie: As home ownership decreases, the more political pressure will come to bear to include it in the assets test. Most of us made many sacrifices in life’s journey to own our own home in retirement. The frivolous, along with a supportive government that wants more and more, will win this one. Unfortunately. YourLifeChoices disclaimer

Farside: It is inevitable the family home will be included in the assets test so long as there is a means-tested pension. The improved value on the property rates certificate can be used for setting a value of a home in an assessment. Liveitup: I live in a whole street full of $1 million-plus homes mostly owned by [age pensioners]. Just give everyone who wants it the Age Pension, which is to be paid back from their estate when they die. VinceD: Don't do it. It would devalue properties at the higher end as retirees downsize/ down cost and it would increase competition for lower value properties, making it more difficult for younger people to buy a home. It would also create stress for older people who suddenly have to move from their family home of many years and away from their friends and neighbours.

Richard: By what economic criteria does that make sense, other than putting the political objective of balancing the budget ahead of the welfare of citizens? The family home is not an income generator. Only income should be taken into account when determining pensions. Suggestions like that reveal a very shortsighted and narrow view of what an economy is for. Priscilla: No! My home is where I live (rent free) because I went without to ensure my home was paid for by the time I retired. Why should I sell it and pay rent to some investor? Does not make sense. People who still have to pay rent in their retirement are the people who are below the poverty line and struggling to exist. Leave us alone.

YourLifeChoices Retirement Affordability Index™ September 2019


Here’s why older Australians need not be living in poverty There is ample government support for retirees, but the funds are going to the wrong people, writes Matt Grudnoff, senior economist with The Australia Institute.


ith the economy slowing and incomes in many cases not even keeping up with inflation, people are doing it tough. And when things are tough, it’s always those at the bottom who are hardest hit.

Proportion of people living in poverty in developed countries

Despite Australia recently being declared the country with the highest median wealth, we have a patchy record when it comes to rates of poverty. According to the OECD (Organisation for Economic Co-operation and Development), among developed countries, Australia ranks 23rd out of 36 for the proportion of people living in poverty – placing us squarely in the bottom half. And while that record for a country such as Australia isn’t great, it gets worse when we drill down to poverty in retirement. If we look at the same developed countries, but now just look at that part of the population over the age of 65 who are living in poverty, we slip from 23rd to 33rd out of the 36 countries. That puts us fourth from the bottom.

Source: OECD data

Proportion of people aged 65 and older living in poverty in developed countries

So why is Australia failing to provide an adequate income for those in retirement? Is it because the Government isn’t spending enough? The two main ways the Government helps fund retirement incomes is through the Age Pension and superannuation tax concessions. There are other ways, such as excess franking credits, but the Age Pension and super tax concessions are the biggest contributors.

Source: OECD data

Spending and projections for the Age Pension and superannuation tax concessions

Combined, they are worth almost $90 billion a year. But what is interesting is the way in which each is growing. Super tax concessions are growing more rapidly than spending on the Age Pension. The graph right shows spending on the Age Pension 18

YourLifeChoices Retirement Affordability Index™ September 2019

Source: OECD data

and super tax concessions as well as projections out to 2021-22. While spending on the Age Pension is larger than super tax concessions, the gap is closing. It won’t be much longer before super tax concessions are bigger than spending on the Age Pension. The $90 billion per annum expenditure on the Age Pension and super tax concessions is enormous, yet it doesn’t include excess franking credits, the seniors and pensioners tax offset (SAPTO) and other perks. So why do we have such high rates of poverty in retirement? The answer is how we’re spending the money. While the Age Pension is reasonably targeted, many other parts of the retirement income system are not. Super tax concessions, one of the fastest growing areas of retirement incomes, overwhelmingly go to those who are unlikely to need help in retirement. Because of the way super tax concessions are structured, the more you earn the bigger your proportion of concessions. This leads to a situation where 60 per cent of super tax concessions go to the top 20 per cent of income earners with only 11 per cent going to the bottom half. Excess franking credits are much worse. Looking at households according to wealth, a staggering 90 per cent of excess franking credits go to the wealthiest 10 per cent of households and almost nothing goes to the bottom 70 per cent. The reason that poverty can exist at the same time as substantial retirement income support is that so much of it is going to those who are never likely to be in poverty. The solution is to shake up how we hand out government support for retirement incomes with a focus on reducing poverty in retirement and simplifying the whole system. We can do that with a Universal Age Pension. Super tax concessions are large. They’re expected to be more than $50 billion a year by 2022. If we get rid of all super tax concessions, money is freed up to increase the rate of the Age Pension and make it universal. A universal pension means it is paid to anyone of retirement age, regardless of income or assets. This will make the whole system much simpler. No more income and asset tests. No more worrying about the impact that working a few hours a week will have on your pension payments. In turn, this reduces administration costs for both retirees and the Government. YourLifeChoices disclaimer

Research by The Australia Institute shows the pension amount can also be increased – from 30 per cent to 37.5 per cent of male total average weekly earnings. The base rate for the single pension would be increased from $850 to $1107 per fortnight. The partnered rate would see an equivalent increase. The Superannuation Guarantee, which is the 9.5 per cent compulsory super contributions, would continue. But super would be an extra on top of the Universal Age Pension. If you didn’t accumulate enough super through your lifetime, you would still be supported by an Age Pension that allowed you to live with dignity. All of this would be funded through the removal of superannuation tax concessions. But due to the size of these concessions, there would still be around $15 billion to $20 billion per year left over. This money could be put into a fund to help with another looming crisis – the increasing number of retirees renting with little to no savings. Retirees who rent are at great risk of poverty. With falling rates of housing affordability, the number of people renting in retirement is expected to increase – to 50 per cent of retirees by 2050. The $15 billion to $20 billion per year could fund a substantial increase in public housing for retirees. This would make a big difference to rates of poverty in retirement. Australia spends enough today to dramatically decrease the number of retired people living in poverty. But at the moment we spend it in entirely the wrong way. A Universal Age Pension at a higher rate could allow many more Australians to live in retirement with dignity.

YourLifeChoices Retirement Affordability Index™ September 2019


Age Pension assets and income tests must be reconsidered Most older Australians will receive at least a part Age Pension at some stage during their retirement. Economist Sean Corbett identifies the key areas of the pension that he believes should be changed. A single means test Eligibility for the Age Pension, and payment rates, should be based on a single means test, rather than on both income and assets tests, as is currently the case. I believe that a simplification of the multiple means tests into a single assets test is the most appropriate way to assess people’s true ‘means’ for the purpose of calculating Age Pension entitlements.

a reserve when times are good, then drawing down on those reserves in leaner times. However, the income test discourages people from adopting this approach by reducing their Age Pension entitlements when returns are higher. This means that excess returns earned in good times cannot be saved for leaner times because they need to be used immediately to replace lost Age Pension entitlements.

The deeming system overcomes the problem that Any source of income can be converted into an asset is inherent in the normal income test by replacing the assessment of actual income value. Conversely, any asset value ‘deemed’ income, so that a can be converted to an income The greatest instance of by constant amount is assessed value. All that is required is to use an rather than higher or lower the way the rules have appropriate earning rate. amounts of income whenever been changed … has In fact, the deeming system that is returns are higher or lower. currently in use essentially does this. come about as a result of However, as previously pointed It takes the asset value and applies the tremendous growth in out, under the deeming system an assumed earning rate to it to asset value is the only really calculate the income that the asset is the amount of money in the relevant amount, so why not deemed to provide. Essentially, only superannuation. simply use a single assets test? the asset value is relevant, while the actual income earned is not relevant. If a single assets test were applied, it would be easier to build a case to include The deeming system was introduced to overcome the family home, perhaps over a certain threshold the problem of people intentionally investing in low or nil returning investments (assuming that it was the value, in the test. The benefit of doing this would be that the distinction between homeowners and income test that determined their entitlements) in non-homeowners within the current means tests order to qualify for higher Age Pension entitlements, would potentially be able to be eliminated, further while unreasonably preserving their assets by simplifying the operation of the Age Pension system. investing in low-risk/low-return investments. Having a separate income test also discourages investment in higher returning but more volatile asset classes. The Government should be encouraging older people to consider investing in higher returning but more volatile assets – instead of discouraging them – because such investments are most likely to maximise the income of retirees and decrease reliance on the Age Pension. Of course, there are risks involved in such a strategy, but there are also ways in which these risks can be minimised. One such approach involves putting ‘excess’ returns in 20

Homeowners v non-homeowners The assets test thresholds for homeowners versus non-homeowners are perhaps no longer appropriate to allow for the fact that non-homeowners have to pay rent in the current low interest rate environment. The thresholds are shown below.



Nonhomeowner $473,750

Couple, combined




YourLifeChoices Retirement Affordability Index™ September 2019

Even if you assumed that the difference in the thresholds of $210,500 earned three per cent per annum (which would be almost impossible to earn from a secure investment at the current time), then that would give a return of $6315 per annum or $121.44 per week. People in our capital cities, where the vast majority of Australians live, would find it difficult to rent something reasonable for that amount.

Change the taper rate for the assets test back to the pre-2017 rate The taper rate for the assets test changed in 2017, but I believe this change should be reversed. Until 2017, fortnightly Age Pension entitlements were reduced by $1.50 per $1000 of assets above the threshold. From 2017, the rate of reduction was doubled to $3. While adjustments were made to the asset thresholds to try to compensate for the change, the effect was that people would get back a much lower amount as extra income in retirement than the additional amount of super they had saved. For example, a person would have received 84 per cent of his or her extra super savings back as extra income in retirement before the change, but only 60 per cent back after the change. A further effect of this change is that those who save more super will receive a lower amount of total income (Age Pension plus income from super) in the earlier years of retirement in contrast to the

situation if they had not bothered to save more super. That’s because of the high rate at which the Age Pension reduces under the new taper rate for the assets test. The range of super savings that is affected extends between about $400,000 and $1 million, depending on the circumstances of the person, and this range captures most people. You really have to wonder why the Government introduced a change that discourages people from providing their own retirement income and instead relying more heavily on the Age Pension.

A final word It seems to me that we have a situation where some rules, particularly newer rules, punish those who attempt to provide for their own retirement. This article covers only part of that story. The greatest instance of the way the rules have been changed recently, to the detriment of everyone who seeks to make their retirement a comfortable one, has come about as a result of the tremendous growth in the amount of money in superannuation (though that was entirely predictable) and the inability of the Government to resist increasing taxes on superannuation. It is a tale of greed, lies and treachery. DISCLAIMER: All content in the Retirement Affordability Index™ is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.

YourLifeChoices Retirement Affordability Index™ September 2019


What you say about a retirement income review The people who would know best about what should be covered in a retirement income review are … you.


Green Paper prepared by the Actuaries Institute’s public policy team says our retirement income system is “complex, intrusive, contains anomalies, produces perverse incentives and is sometimes unfair.” Here’s what YourLifeChoices members think …

On a Universal Age Pension GeorgeM: The only sensible option is … to scrap the broken Age Pension system and implement a Universal Age Pension – for all, with no tests, based only on age (65 years) and residency (say 15 years) – and join the ranks of all civilised advanced countries. There is NO problem affording it if we consider: a) the massive Centrelink cost savings (with payments directly from ATO following a simple application) b) m  ore taxes from additional income from older people (working longer with no disincentives) c) fewer health issues and costs (with fewer Centrelink dealings), and d) b  y implementing a minimum tax system to ensure the rich and large companies (especially multi-nationals) pay their fair share of tax (not nil or negligible taxes as at present).

On the Age Pension SuziJ: First of all, increase all pensions – no matter which payment, be it a carer payment, DSP (Disability Support Pension) or the Age Pension. It’s been suggested a minimum [increase] of $75 per week for a single person and $100 per week for a couple. John: There should be an established amount that retirees can live comfortably on with no need to jump through hoops – if they have followed the process and done the right thing. At times – and I know – with super and a part pension and a spouse in a minimal employment set-up, it is a struggle to make ends meet. That is not what Australians should have to put up with.


Mogo51: The current attitude towards age pensioners earning income and the ridiculously small amount that is currently allowed [is a problem]. Also, where one member of a couple has retired on the pension and the other is still working. There needs to be a fairer assessment of people who are in such a position to ensure that the combined income is at least above the minimum wage level. Loloften: Single pensioners especially [need a boost] as apart from food and clothes, most costs, like council rates/electricity/gas/insurances, are the same… The single Age Pension is $463 per week [Ed: now $466). The minimum single basic wage is $761 per week.

On superannuation Old Man: My most important component would be that the rules around superannuation be set in an acceptable manner to the majority, but most importantly, that the rules can only be changed by a two-thirds majority of the parliament… The problem as I see it is that both [political] parties see the trillions in super and want to steal it from the members. This has to be stopped.

And the final word goes to … Fairplay: Governments of all persuasions should remember that those who have already retired have done so knowing the prevailing rules at the time and therefore any changes must only affect those not yet retired i.e., they MUST grandfather [changes] for those already retired. Unfortunately, government after government changes the rules and have created this mess and inequality… It seems Labor’s arrogant attitude on franking credits was a major factor in their demise and perhaps a wiser strategy would have been to say that any changes would be based on government providing suitable alternatives, i.e. allowing those affected to start or add to existing allocated pension income streams without penalty etc.

YourLifeChoices Retirement Affordability Index™ September 2019

YourLifeChoices disclaimer

Government update


YourLifeChoices keeps you up to date with retirement income changes. he twice-yearly indexation of Age Pension payment rates and other allowances took effect on 20 September.

Age Pension Maximum fortnightly Age Pension payment rates Previous Current Increase Single Base $843.60 $850.40 $6.80 Supplement $68.50 $68.90 $0.40 Energy Supplement $14.10 $14.10 — Total $926.20 $933.40 $7.20 Couple (each) Base Supplement Energy Supplement Total

$635.90 $51.60 $10.60 $698.10

$641.00 $51.90 $10.60 $703.50

$5.10 $0.30 — $5.40

The Pension Supplement is a fortnightly income support payment to help eligible recipients meet the costs of daily household and living expenses. Pension Supplement* basic amount Previous Current Single $23.80 $23.90 Couple separated $23.80 $23.90 Couple (each) $19.60 $19.70 Pension Supplement# minimum amount Previous Current Single $36.70 $37.00 Couple separated $36.70 $37.00 Couple (each) $27.70 $27.90

Increase $0.10 $0.10 $0.10 Increase $0.30 $0.30 $0.20

* Pension Supplement basic is for those receiving a pension while overseas. # Pension Supplement minimum is for those paid a pension under the transitional rules.

Rent assistance Rent assistance is paid to those who rent privately and receive an income support payment. Those who rent from a housing authority are not eligible. Rent Assistance rates if you do not have dependent children Family Maximum Maximum No situation payment payment payment if per fortnight is paid if your your fortnightly fortnightly rent is more rent is less than than Single $138.00 $307.20 $123.20 Single, sharer $92.00 $245.87 $123.20 Couple $130.00 $372.73 $199.40 One of a couple who are separated due to illness $138.00 $307.20 $123.20 One of a couple, temporarily separated $130.00 $296.53 $123.20

YourLifeChoices disclaimer

Income and asset test changes Centrelink’s income and asset test limits also changed on 20 September. Income test limits for Age Pensions Situation For full pension /allowance (per fortnight) Single up to $172 Couple (combined) up to $304 Illness separated (couple combined) up to $304

For part pension(pf) From 20 September 2019 less than $2040.80 less than $3122.00 less than $4041.60

Asset test limits for full Age Pensions Situation Homeowners Non-homeowners Single $263,250 $473,750 Couple (combined) $394,500 $605,000 Illness separated (couple combined) $394,500 $605,000 Asset test limits for part Age Pensions Situation Homeowners Non-homeowners Single $574,500 $785,000 Couple (combined) $863,500 $1,074,000 Illness separated (couple combined) $1,017,000 $1,227,500

Low Income Health Care Card To qualify for a Low Income Health Care Card your eight-week income must be less than the amount that applies to your circumstance on the day you lodge your claim, i.e. you cannot have earned more than the income limit in the previous eight weeks. Qualifying income limits Status Weekly income Eight-week period Single, no children $564 $4512 Couple, no children $974 $7792

There is no asset test for the card, but it is subject to a six-monthly renewal. Once you have been granted a Low Income Health Care Card, your weekly income must not exceed the limits detailed below. If you exceed the limit, you lose your entitlement to use the card. Retaining income limits Status Weekly income Eight-week period Single, no children $705.00 $5640 Couple, no children $1217.50 $9740

YourLifeChoices Retirement Affordability Index™ September 2019



> How much money do you need in retirement? > How much are you getting? > Are you sure you are receiving your full entitlements? > Are you concerned about running out of money? The Age Pension and superannuation rules are complex, so YourLifeChoices has created an easy, low-cost tool that both informs you of your entitlements and educates you as you do the calculations. Just 30 minutes is all it takes. And along the way you can compare your retirement expenditure and read real life case studies that illustrate how the rules work.

The PensionChecker™ tool is > Completely confidential > Quick and easy to use > Only $29.95 for 12 months’ access What could be easier?

You can re-do all your sums as often as you like and share the summary with a trusted adviser. 24

YourLifeChoices Retirement Affordability Index™ September 2019

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Retirement Affordability Index September 2019  

In this very different edition of the Retirement Affordability Index, we have broken from tradition to present your views and those of the e...

Retirement Affordability Index September 2019  

In this very different edition of the Retirement Affordability Index, we have broken from tradition to present your views and those of the e...