Many people will be going back to their drawing boards when it comes to planning retirement.
That is because the age pension may not be part of the retirement plans of a larger slice of people younger than their mid-50s.
In his budget speech, Joe Hockey said: “Currently, an individual with a home and almost $800,000 in assets still qualifies for the age pension; a couple with a home and almost $1.1 million in assets also qualify for the age pension.”
The government believes access to the age pension is too generous. Mr Hockey said the age pension needs to be better placed to meet the “challenge of a significant increase in demand”.
The family home is safe, and remains outside of the age pension assets test.
While the government has moved decisively to bring the growth of age pension outlays under control, it is leaving reform of superannuation tax concessions, which are growing more quickly than outlays to the age pension, to another time.
Not only will most of us have to wait beyond our 65th birthdays to qualify for the age pension and pensioner discounts, but access to the pension will be tightened and the rate at which pension payment is indexed will be slowed.
As already signalled, the pension age will rise to 70 from July 1, 2053, from 65 now. That means a pension age of 70 for everyone born after 1965.
But the change will be phased in. Those born between July 1, 1952, and December 31, 1953, will have an age pension age of 65.5. The wait rises progressively until hitting age 70 in 2053.
Rather than tighten the ”taper” rate that the pension falls with each additional dollar of income, from September 2017, the thresholds for deemed income will be lowered. This is where income from investments is deemed to earn a certain amount of interest, regardless of the actual income.
A home-owning pensioner couple, for example, is deemed to have earned 2 per cent on the first $77,400 of assets and 3.5 per cent on the rest. From September 2017, the 2 per cent will apply only on the first $50,000 and 3.5 per cent on the rest.
The government estimates that more than 500,000 age pensioners will be affected by the change, with most losing only a few dollars of the age pension each fortnight.
The government is planning to allow bracket creep to eat away at the numbers of people who can qualify for the age pension.
From July 1, 2017, all pension assets test and income test thresholds will be frozen for three years, instead of adjusted for inflation.
Finally, the way that the age pension is indexed will change. At present, the age pension rises in line with average male earnings, which grow about 1.5 percentage points a year faster than inflation. From September 1, 2017, the age pension will be in indexed to inflation.
The change will also affect the disability support pension (DSP). In several years’ time, after the change starts, the amount of the age pension and the DSP could be expected to be more than $100 a fortnight less than it would have otherwise been under current indexing.
In last year’s budget, the Gillard government doubled the 15 per cent tax on salary sacrificed into super to 30 per cent for those earning more than $300,000 a year.
This story Administrator ready to work first appeared on Nanjing Night Net.