Aged pension asset test changes hit middle-income Australians
Changes to the asset test rules for the aged pension that were effective from 1 January, 2017 could hurt middle-income Australians, the SMSF Association has warned.
The Association believed that the changes to the means test taper rate and thresholds actively discourage middle-income earners from saving to be self-sufficient in retirement, as they reduce individuals’ entitlement to the age pension as their assets increase.
John Maroney, SMSF Association chief executive said that this could significantly impact middle-income Australians receiving a part age pension payment to supplement their superannuation income.
“For home-owning couples who have a superannuation balance between $500,000 and $800,000, the increased taper rate creates a ‘black hole’ where their assets above the asset test free amount cause them to be worst off in terms of income,” Maroney warned.
“This is caused by the taper rate of the equivalent of 7.8 per cent a year, reducing their pension entitlement at a rate exceeding the income they earn from their superannuation balance above the asset free area.”
A low interest rate and investment return environment would exacerbate this effect.
Maroney cautioned that the asset test changes could have unintended consequences, such as providing incentive to shift investments from assets that are included in the means test (for example, superannuation) to those that are excluded (such as the family home).
The Association said that a single means test that applied a deeming rate to financial and non-financial assets, rather than the current siloed approach to superannuation and social services testing, would create the most efficient and sustainable retirement income system.
The Australia Future Tax System Review also recommended a single comprehensive means test.
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