Changes to the Age Pension assets test that is set to take effect from 1 January, 2017 will have a significant negative impact on projected retirement income of many Australians, particularly couples.
That was the finding from joint research by global advisory firm, Willis Towers Watson, and The University of Melbourne, which examined how retirement income adequacy had progressed between 2010 and 2014, and what the impact of the Age Pension asset test changes would be from 2017.
Titled ‘Retirement income adequacy — are we still making progress?', the paper which examined a sample size of 11,815 people aged 25 to 64 said the proportion of couples expected to achieve a comfortable level of retirement income would reduce from 62 per cent to 51 per cent after the changes came into effect.
A homeowner couple with $814,250 in assets or more would cease to receive the partial Age Pension altogether, whereas it was $1.175 million before. However, there were some increases legislated to lower thresholds, with a homeowner couple now eligible to accumulate $375,000 in assets before the full Age Pension starts reducing, compared to $296,500 before.
Authors of the study and Willis Towers Watson consultants, John Burnett and Nick Wilkinson, said any change to a single policy in the system could have repercussions for current and future retirees.
"If Australians are to be encouraged to plan for retirement in advance, they need greater certainty on the level and availability of the Age Pension that will be payable to them once they retire," they wrote.
The distribution of results from 2010 to 2014 showed that changes in projected retirement income were more uniform for couples than singles, while they were higher for couples with more superannuation and other savings.
Singles at the lower end of the distribution where Age Pension was predicted to be the main source of income made limited gains during this period.
Singles would be less affected with the asset test changes, with a reduction from 38 per cent to 37 per cent in the proportion of singles expected to achieve a comfortable retirement income level.
Taper rates would double from $1.50 a fortnight to $3 for each $1,000 of assessable assets above a minimum threshold under the changes.