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Self-funding disincentives should be high on retirement probe’s list


A retirement policy advocacy group has highlighted the disincentives that exist in the government’s current system to self-fund a comfortable retirement, suggesting this should be a key area of focus in the coming review of retirement incomes.

By Sarah Kendell2 minute read

The Alliance for a Fairer Retirement, comprised of representatives from consumer groups and financial services industry bodies including the AFA and Australian Investors Association, moved to welcome the government’s announcement of the review last week, while pointing out that the retirement system should “ensure incentives are in place to encourage those who can save for an independent retirement to do so and avoid disincentives”.


New Alliance spokesperson John Maroney, who had replaced Deborah Ralston after her appointment as a panellist to the review, said just 30 per cent of retirees were currently completely self-sufficient in retirement, while around 40 per cent of those over 65 had no super at all.

The group pointed to current disincentives in the pension taper rate in particular that were distorting the relative spending power of self-funded versus publicly funded retirees.

“The net present value of the age pension can be over $800,000 for a couple in their 60s — this is supplied by the taxpayer with no effort required or additional savings on the part of the claimant,” the Alliance said.

“If a couple who own their own home accumulated $870,000 at retirement, they would find they are not eligible for the age pension. They may derive great pride from their independence from government welfare; however, with the present taper rate, their income could be no higher than a pensioner couple with half their assets.”

The group added that the current taper rate, combined with the lack of automatic adjustment in deeming rates for the pension income test, created incentives for retirees to reduce their assets or take dangerous risks with their super investments to make up for the lost income.

“At present, the age pension taper rate (the rate at which the pension is withdrawn) equates to a ‘tax’ of 7.8 per cent on assets over the age pension asset limit, well in excess of market rates of return available to part-pensioners on these assets,” the Alliance said.

“This creates an incentive to reduce assets in order to maximise the pension.”

As a result of these distortions in the system, the group said, the inquiry should also examine “where [there] are gaps or issues that indicate a lack of fairness in terms of either horizontal (between people with similar circumstances) or vertical (between different generations) equity in the existing three-pillar retirement system”.

Self-funding disincentives should be high on retirement probe’s list
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