Call for $1.6 million super pension cap to be doubled

Federal Budget 2016/17, $1.6 million Transfer Balance CapThe $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.

Dr Bewley says that the cap should be around $3.2 million to provide a retirement income of around four times the Age Pension, in a report released by the SMSF Owners’ Alliance.

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.

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3 Replies to “Call for $1.6 million super pension cap to be doubled”

  1. Finally someone who has done modelling based on true volatile market returns. I used Firecalc to run Monte Carlo analysis on the governments $1.6M cap and although I did not get the same failure rate (running out of money), it still was not pretty.

    Sadly, I have found many of the Current Treasurer’s statements and figures to be highly suspect. You expect suspect statements from both sides of politics but the current treasurer is totally unbelievable.

    This article states “It should be noted that the Transfer Balance Cap restricts the amount in pension phase, with amounts over the cap remaining in accumulation phase”, this is something that needs to be thought about. As far as I can determine there will never be a time when the money still in accumulation can be moved to pension, so not only do you have to pay tax on it but it can only be withdrawn as a series of lumpsum payments – typical half baked policy.

    1. I can see why this modelling was confined to the cap on pension phase balance. But amounts in accumulation phase, provided lump sums remain an option, are still relevant in funding retirement.

      1. Funds left in accumulation are relevant in funding retirement. Equally, funds outside of super and can be used to fund retirement, indeed moving funds outside of superannuation will most likely be more tax advantaged for small accumulation balances, BUT, all of this juggling of money across different tax areas is rather painful (as income will vary year to year) and in my view defeats the wonderful simplicity of the current super system.

        Adding to this is the lack of flexibility imposed by the proposed retrospective (in effect if nothing else) non-concessional contributions cap limit to recover from possible future financial shocks. A future GST like event could easily reduce the $1.6m to $1m or less with no capacity to recover by rolling in assets outside of the pension account.

        In any case, the statements by the treasurer were based on the pension phase of super alone so the rebuttal of these statements should be based on the pension phase alone.

        Bob N

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