Middle Australia to be worst hit by pension changes
A new analysis has indicated that after the federal government’s proposed changes to the pension, people with average incomes or below could lose more than $100,000 over the course of their entire retirement period. This means that middle Australia could be worst hit by the changes.
Modelling by actuaries Rice Warner, commissioned by Industry Super Australia, revealed that for some people, the impact would result in a 10% overall cut in their retirement income. On the other hand, this is not going to have much of a consequence on the wealthy to very wealthy.
“The impacts of these changes are very significant for most of the working population. Executed in isolation they will reduce retirement incomes of middle income earners, not the well-heeled,” said David Whiteley, CEO of Industry Super Australia.
The analysis further suggested that the number of new retirees affected by the asset test change will more than double from 1 in 3 retirees today to around 7 in 10 by 2055. Over the long run, there are more people affected on below average incomes than above (3 rungs below average earnings compared with just one rung above, in the first 10 years of this change).
According to Mr Whiteley, since most middle income earners don’t have discretionary income to make extra savings, this change on its own means they will have to downgrade their retirement plans or work longer.
“The data makes a strong case for examining the interaction of the age pension with the super system, with consideration of a more efficient, equitable structure to increase self-reliance in retirement for as many people as possible,” he added.