The $1.6 million Transfer Balance Cap proposed in the 2016 Budget should be at least doubled, says Dr Ron Bewley, former Head of the School of Economics at the University of New South Wales.
In his Budget speech Treasurer Scott Morrison said: “A balance of $1.6 million can support an income stream in retirement around four times the level of the single Age Pension.”
However Dr Bewley disputes this estimate. According to his calculations, based on a $1.6 million starting balance at age 60 there is a 50% chance that the retirement savings will be exhausted in 19 years time – or age 79. According to ABS statistics the life expectancy for people currently at age 60 is 84 for men and 87 for women.
Dr Bewley calculates that a $3.2 million cap would have a 50% chance of being exhausted in 46 years – or age 106.
He also warns that a $1.6 million cap may force people to “to invest in riskier investment options which do increase the chance of not outliving their pensions but they also increase the risk of running out at an earlier age”.
“Obviously the government should have a much higher cap than $1.6m – even more than double that is not quite enough,” said Dr Bewley.
It should be noted that the Transfer Balance Cap restricts the amount in pension phase, with amounts over the cap remaining in accumulation phase – if implemented as announced.