Age pension asset test taper change discouraging saving for retirement

Changes to the age pension asset test rules, in place for over a year now, are actively discouraging middle-income wage earnings from saving for retirement, according to the SMSF Association.

SMSF Association CEO John Maroney said the changes to the age pension means test taper rate and threshold – which started on 1 January 2017 – have had “significantly adverse and presumably unintended consequences”.

“The Association supports appropriately targeted means testing to ensure the sustainability of the age pension, but our deep concern is that this measure is not appropriately integrated with the broader retirement income system,” he said.

“We believe having the superannuation and social security systems properly integrated is a key facet to achieve an efficient and sustainable retirement income system, and that the current siloed approach to policy making in these areas is creating perverse outcomes for individuals and couples.”

Maroney said for people with superannuation balances of between $500,000 and $800,000 the taper rate creates a “black hole” where assets above the asset test free amount result in them being worse off in terms of income.

“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. This is especially so in a low interest rate and investment return environment.”

“Consequently, it actively discourages middle-income earners from saving for retirement and has other detrimental behaviour effects,” he said, including a incentive to shift investments from superannuation to assets excluded from the test, such as the family home.

The SMSF Association believes that it would be better to remove the assets test and shift to a single means test that applies a deeming rate to financial and non-financial-assets.

“The Australia Future Tax System Review recommended that a single comprehensive means test should be pursued to ensure that assets are fairly accounted for, to remove distortions based on the form of savings and to ensure that appropriate incentives to save and use savings effectively remain, and the Association concurs,” Maroney said.

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