Yes, ‘millionaires’ can qualify for the age pension

Universal pension for all. Tax it and if you have super tax it but only if you take a pension. Tax will sort out who applies and who doesn't. If you are SFR with earnings of say $60K plus pension you pay tax on the lot. And CGT the family home for all.

Everyone who has paid tax in this country deserves a pension at the very least a health care card. Other civilised countries can do it why not us??

I 100% agree with above. We both paid thousands of dollars in tax for 25 years. But didn’t qualify for pension

Does anyone (readers) know actual, annual cost pensions to nearly 4 million pensioners (number in article) in one year & so actual cost can be compared to annual cost of man-hours & Super Guarantee per man-hour to administer age pension at Centrelink? Are mere mortals denied this information? Maybe they don't know actual manhours due to intermingled groups' needs. Googled C/link staff, 30,000 odd, if that is true and ABS unemployment figure Dec 2022 was 494,200, plus figures unable to work re health all administered by C/link, it seems on those numbers that more of Centrelink's time used re age pension as such clients is highest. Actual comparative cost could settle if full age pension is paid to all or not. I'd accept adding part cost of redundancies if no Age pension work to have a full, fair picture. As others said, some countries pay without means test & those in a taxable range repay it in tax.

Readers advocate Residence included asset. Many pension - age let a room,some small business/tradie home workshop & area %age counted as 'financial' asset re asset test if still used to earn a dollar of income in retirement. Area %age of gain at death subject to Capital Gains Tax. If used to earn income for work or let room after pension age, it double-dips from some in retirement -----proportion is in asset test & CGT at death. Single homeowner probably have to live to 100 for pension to outrun such CGT if retire at 67. CGT more as value increases & few live to 100 to collect pension.
No level playing field suiting all scenarios. If retirees cease letting room, pressure on Affordable rentals for whom need (catering, retail, first jobbers), as won't be attractive if full home included in assets when rent income tested on top of an increased deemed income of home value & still CGT at death. The minute residence included, on principle, cease room let if CGT liability in retirement re room let not removed at same time, soonest lessens CGT rent span, lowering what goes to Govt at death. Winced when as executor $90,000 + to ATO on estate CGT similar reason, decedent had $38,000 over 6 yr part pension, for info for young readers re figure of $1m-1.5mill bandied about, estate 1.6mill incl home still rendered tax, so it all gets repaid in end. If die today, my CGT covers someone's partpension for 20yrs, should be classed as Self Funded whilst alive. Time the 'fors' know retirees still pay tax & more when death arrives but don't hear them groaning of horrendous CGT re estate.
Don't mind pay tax if all fair as no defence, hospitals, etc without. Don't mind Govt help fund youngsters' start on property ( co-ownership like UK). When retired they'll then have chance to have no gripe if home is asset-included. If it is, have feeling it may serve them right & live to regret.

In any discussion there must be consideration for those who sacrificed to save for their retirement vs those who spent and didn't bother to save. It's much harder to save than to spend. It seems these days the savers somehow have cheated the spenders and there's an expectation that they must pay to support them. I liken the feeling to someone breaking into your house and stealing property, but unfortunately in this case it is the government, which really infuriates me.

So very well said. My husband and l put both of our inheritances money into our super and also put some of our own money into super when we were working. Some of my other family member went on overseas holidays again and again and renovated their homes so they are now the ones getting the full pension, and also getting carers allownce. Where is the correctness in that. So, so angry.

Couldn't agree more... I've paid tax all my life, yet entitled to nothing, yet a family member has taken it easy on unemployment and other benefits gets the red carpet treatment upon death of our parents and entitles them to the pension as well... I feel chested. I don't want to be a burden on the state, but do feel that I've out in and should be able to get something back..e.g. health care card. I don't have a lot, but what I have is the result of working long hours and going without...being frugal. It infuriates me too!!!!

"don't have a lot":

Makes it easier to capital efficiently stuff into home improvement while receiving government guaranteed 7.8% / y return for life on the money spent.

$40k and $400k are nowhere near equivalent.

Having mobility issues or health issues preventing travel and forcing one to stay home and watch Youtube or Discovery Channel Documentaries is one thing and a person on a pension could do these things and be happy and a person with the $400k annual budget to to investments doing the same for the same reasons could be unhappy.

This will never compare to actually going to different countries and seeing things in person, meeting people of different cultures and experiencing these cultures first hand.

"This will never compare to actually going to different countries and seeing things in person, meeting people of different cultures and experiencing these cultures first hand.":

Indeed. Having done plenty of both, the YouTube experience is superior. Partially due to aerial drones providing fresh otherwise unattainable perspectives. Partially that many places and cultures are dismal and not worth time or money to visit in person, which can be quickly discovered virtually.

"$40k and $400k are nowhere near equivalent.":

Partially $40,000 / y + imagination & knowledge = $400,000 / y. Partially $400,000 / y comes with much greater risk to capital. For some, $40,000 / y not only comes with no risk but is indemnified against inflation risk for life - Age Pension + returns on $419,500 indexed + better home + ~6% capital gains, all tax free - nil desperandum.

Simple - Pay an Age Pension to every single person that attains age 67. It's an amount of money that provides every person rich or poor with a basic amount of money to meet food and accommodation costs.
Then those who never worked a day in their life are looked after via "welfare", and those who have scrimped and saved to be well off in retirement are "rewarded" for their sacrifice.
It's insane to think there are people out there who have worked all their life and paid taxes can be denied Centrelink Age Pension and yet because of their assets be effectively living off an income equivalent in monetary terms to the actual Age Pension. Absurd.... This would get rid of all the creative planning, movement of money/assets just to get a single dollar of Age Pension.

Excellent comment unfortunately politicians initiate superannuation rule changes on us and don’t seem to care about the impact as their pensions remain free of any asset testing.

I sometimes wonder if these politicians have parents and grandparent of their own, and what discussions go on around their table at family get together's. I am sorry I forgot we are talking about politicians hey! 

Unfortunately the whole system is geared towards supporting/rewarding those who have gone through life p!55!n9 their money up against the wall and arriving at retirement with their hand out while at the same time penalizing those who have been more astute money managers. I wholeheartedly agree with a universal basic pension, then some people may put in more thought regarding their financial future in retirement. And don't get me started on the recklessness and financial irresponsibility of the former coalition government allowing people to raid their superannuation balances, especially those who have a long way to go before retirement. What a short sighted, negligent move by a party more interested in re-election than in helping secure the long term financial future those Australians.

Penalizing people who have been frugal/good managers with money while saving for their retirement serves to discourage others from being good managers while encouraging those “who have gone through life p!55!n9 their money up against the wall and arriving at retirement with their hand out” thus effectively "stealing" the money saved by the frugal/good managers.
A basic pension for all is the only way to address this less than fair system of managing our economy.

Excellent comment

I cannot agree more, when we have been frugal with our money & stored a little away that we are penalised.
Those who have not gone with out, put their hand out for Government assitance, where is that fair?
Bring in the basic pension for all at 67. Members of parliment go with out your fat pensions you receive & see how the rest of the world lives.

When it comes to the assets test, the only thing not counted is the family home. Everything else is assessed. House contents, the car and caravan and bank balances are all counted.

To receive the full pension a couple can have $419,000 in assets, but if it is fully invested, there is no spare cash for the next car or holiday. So let’s be generous and say they can earn 6% on $400,000 or $24,000 on top of their pension of $40,000 or about $64,000 together.

To be eligible for a part pension their assets need to be below $935,000. Using the same investment return, their income is then 6% of say $900,000 or $54,000. They have more capital at their disposal but a lower income. In fact, if they spent $100,000 on themselves or the family home, they forfeit $6000 in investment income but gain $7,800 in additional pension income. That how the system works.

Compare that to a couple who maximise their tax-free super pension accounts of $1.7 million dollars each, or $3.4 million together. That gives them a tax-free income (@6%) of over $200,000

The fact that the family home is exempt from the assets test for the age pension would suggest there is a huge incentive to over capitalise the family home by renovating or upsizing, but it’s hard to see any rational couple removing $3 million from their super fund to upsize the family home just to qualify for the full pension because their income would fall from $200,000 to $64,000 and they would then need to deal with Centrelink on a fortnightly basis.

Of course that calculus is different for couples who only just miss out on the pension but for couples with more than about $1.2 million in assets, additional investment in the family home becomes a straight jacket. The age pension limits the assets available for investment and that limits investment income.

In retirement, your lifestyle is defined by your income, not the size of your family home.

There are lots of single people around, not just couple, particularly in this age group. Be nice if in future posts you might include them too please.

I have to strongly agree with; We also need to get away from the mindset that you are entitled to get government assistance whilst leaving million-dollar inheritances.

Nothing wrong with leaving your children something.

Generational wealth is typically gone by the 3rd generation though.

Myself, I'm reasonably well off for a single person but have 3 adult children, so 1/3 of my wealth brings them down to the doing ok level. Take it to the next level and their children see the last of it.

I'm not going to tie my money up in tax free PPoR just to get a pension and leave them all my money.

I've worked hard and invested well and intend to benefit myself for that effort.

Tying those monies up just to get a pension is quite frankly, stupid. If I was borderline getting a pension, I'd set finances up to get it. I'm not borderline so I won't.

As the saying goes, you may be king or just a street sweeper but sooner or later you dance with the reaper.

No point ending up in a box without enjoying the fruits of your labour. Have been around the world twice already, more trips in me left still. Then the grey nomad thing here in Aus to do as well.

Australia's retirement system is complex. Compare Canada where With very few exceptions, every person over the age of 18 who works in Canada outside of Quebec and earns more than a minimum amount ($3,500 per year) must contribute to the Canada Pension Plan (CPP). If you have an employer, you pay half the required contributions and your employer pays the other half. If you are self-employed, you make the whole contribution.
You can still work if you are receiving a CPP retirement pension, without reducing the pension amount. In fact, you could increase it by means of the CPP post-retirement benefit.
If you work while receiving your CPP retirement pension and are under age 70, you can still make CPP contributions. Each year you contribute to the CPP will result in a post-retirement benefit and increase your retirement income. We [the govt] will automatically pay you this benefit the following year. You’ll receive it for the rest of your life.
f you’re under 70 and you die before applying for your CPP retirement pension, it can’t be paid to anyone else. If you’re over 70, your estate can submit an application no later than one year after your death. Your estate will receive up to 11 months of retirement pension. Your family may also qualify for other CPP benefits."
Even if you are no longer a resident of Canada, if you ever worked there, you are eligible for the Canadian Pension Plan. In addition, the Old Age Pension, which supplements the CPP is also paid to those former residents depending on their income.
As far as I know, there are no SMSFs, but the Canadian govt does have a national pension fund which invests in assets globally, inc, Australia.

"If you’re under 70 and you die before applying for your CPP retirement pension, it can’t be paid to anyone else."

And I thought The Australian government was bad!
Thievery, considering you've possibly made all the contributions if self employed.
Every system has wrinkles and creases.

"Canadian Pension Plan":

Australia - pooled account. Canada - individual accounts.

"In addition, the Old Age Pension, which supplements the CPP is also paid to those former residents depending on their income.":

65 to 74 $687.56 / m $8,251 / y
75 and over $756.32 / m $9,076 / y
https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/payments.html

Australia: Age Pension is also welfare for non-workers. Canada - what welfare for non-workers?

Dudley, The Canada Pension Plan payment is based on the number of years worked in Canada. The longer you worked in Canada, the higher your monthly/annual pension. If you delay starting your pension until 70, your overall payments are higher than if you start at 65. The Canada Old Age pension is based on annual income and is paid in addition to the CPP. I think it perfectly reasonable that the pensions stop on recipient's death. The pension is not considered an inheritable asset. This stops the kind of rorting we see in our own pension/super system where many people use it as a tax minimisation scheme and pass it on to children. This should not be the purpose of super which is to provide a decent quality of life in retirement. Australia has all its priorities wrong, IMO.

If little ol’ New Zealand can have a universal pension, why can’t we in Australia?

Maybe because big ol’ Australia’s over 65 population is seven times what NZ is, and it’s “working” population is barely triple.

Someone has to care for the taxpayer.

Nearly exception, I see people’s idealistic tune about this topic change the closer they get to retirement.
The most hated factor in the current complex system is that you can work your butt off to save and invest for retirement and be no better off than those whose assets sit at the optimum level for a full pension. This glaring inconsistency breeds discontent and opportunistic responses in most.
All the theories and moralising in the world are pointless until this is addressed.

"save and invest for retirement and be no better off than those whose assets sit at the optimum level for a full pension":

Age Pension for all Age Eligible removes that kink and provides tax to pay for it.

Has the recently expanded Commonwealth Seniors Health Card passed through parliament?
I cant find anywhere that this is so. The last time I asked my local federal member (November), it hadn't.
Anybody know for definite.

It’s official see here
https://www.servicesaustralia.gov.au/income-test-for-commonwealth-seniors-health-card?context=21966#a1

Yes, organised it for my 87 yo Mum a few weeks ago. Higher income thresholds are in. Simple online process and attached latest ATO annual taxable income statement.

It has as noted by Services Australia.

Commonwealth Seniors Health Card income limits increase from 4 November 2022
https://www.servicesaustralia.gov.au/commonwealth-seniors-health-card-income-limits-increase-from-4-november-2022

Yes, my husband and I just applied for and received the end of January.

Thanks so much to all who responded.

I think almost everyone agrees that we need an age pension. The contentious issues are the assessment of the PPoR, and the ridiculously generous assets test. A couple with a 1.5 million dollar home and 900k in other assets getting a few thousand dollars a year from the taxpayer is just a terrible look. Cut the lower and upper limit dramatically and see how that plays out.

The performance of Centrelink is just absolutely abysmal, it is hard to imagine a most dysfunctional organisation.

"Cut the lower and upper limit dramatically and see how that plays out."

Halve is drastic enough?

$935,000 / 2 = $467,500
$419,500 / 2 = $209,750

(467500 - 209750) = $257,750

$40,237.60 / $257,750 = 15.6% / y

Create a tsunami of Age Pensioners desperate to rid themselves of excess Assessable Assets.

Alternatively, a tsunami of retirees using their own money to support themselves rather than the taxpayers money, whilst still retaining the CSHC.

"using their own money to support themselves rather than the taxpayers money":

$250,000 is the amount that can be quickly and beneficially spent on home improvement. Being paid an indexed 15% / y for investing in home improvement, especially where that results in additional non-taxed capital gains of ~6 / y, is extremely attractive. The alternative is a negative real return.

Which is more attractive?:
. Earn negative real return and spend capital on consumables.
. Receive free income of $40,000 indexed for life plus earnings on $209,750 plus better home plus additional capital gains of ~6% on $250,000 all tax free.

Retirees would would be much better off financially by becoming pensioners using the taxpayer's money.

Do the math people. We are talking of a couple with $900,000 between them. If newly retirement age they will have perhaps 20-30 yrs to support themselves . With most super funds loosing money the past two years. At the most they will earn 3% interest so $900,000 x 3% is $27000 for the couple, which is LESS than aged pension couple rate.. They still must maintain their home, maybe upgrade, still have to maintain 2 vehicles, replace 2 vehicles , maybe even move house which even downsizing into a newer suburb costs more than existing home believe it or not , do the math..

I think that almost without exception, we all agree with your last paragraph !

"A couple with a 1.5 million dollar home and 900k in other assets" - that's a huge field of very ordinary Aussies who've worked for 40 years and raised a family to go into society to contribute and pay their taxes. Comments like this are far too glib in a debate as important as this one.

The family home is no different to any other asset used to calculate age pension entitlements and should be counted as such.

And the vast amount of private savings in homes unlocked by an efficient n fair govt pensioners loan scheme …to boost retirement incomes …lift living standards …. Create jobs for younger Australians

At some stage the Australian community needs to decide whether the age pension is a welfare payment or a partial refund of taxes paid over a working life.

As a welfare payment there is a problem in that the family home is an asset, especially for beneficiaries of the estate, but it is not assessed for the age pension. Even when used as a Refundable Accomodation Deposit for entry to a nursing home it is still only an interest-free loan that is refunded to the estate and available to beneficiaries.

The age pension is not an entitlement for paying tax either. We all pay tax, indeed some people pay a great deal of tax, but not every taxpayer is entitled to the age pension.

My suggestion is that the age pension should be seem as a HECS debt, refunded to the taxpayer from the estate. There would be no need for a means test or an army of public servants to police it. It would be available to anyone who agreed to repay their pension debt out of their estate. No one would need to downsize or move house but the beneficiaries would get less and that would change the incentives dramatically.

Those who could afford it, would contribute to their old age but anyone whose estate was insufficient to pay this debt would be subsidised by the taxpayer - as they are now. That is welfare.

I totally agree with Jack. The choice to receive a pension that is to be repaid from the estate would cause many pension recipients to rethink their demand for a taxpayer funded benefit that is not needed for their retirement comfort.
Marcia.

I think there are many different views of the Age Pension, Jack, and it may be useful to consider the one offered by the Department of Social Services: 'The Age Pension is designed to support the basic living standards of older Australians'. It's not a recognition of taxes paid, although this is a popular perception. It's to stop older Australians living below the poverty line. Although this is arguable, as well, as those who rent and live on a full pension are living in poverty. When it was first introduced, it was evidence of a relatively new Federal administration taking responsibility for services no longer able to be covered by churches. Somewhat ironically, it seems that our not-for-profits are now stepping back into this arena for those whose pension simply doesn't cover their day to day living expenses.

"available to anyone who agreed to repay their pension debt out of their estate":

Changes objective to "Die With Zero".
https://www.google.com/search?q=Die+With+Zero

Simplest is "Age Pension for All Age Eligible". Provides welfare, avoids asset shifting due to Asset Taper sour spot provides taxes to pay for it.

36 Comments WOW. Endless Topic.
Self funded retirement can be regarded as an Achievement, A Satisfaction Goal.
Perhaps some thrive Not to be SFR.?

Currently couple with:
. $935,000 Assessable Assets receive no Age Pension and negative real income,
. $419,500 receive $40,237.60 / y income indexed for life.

By converting (935000 - 419500) = $515,500 Assessable Assets to non-Assessable Assets (home) the couple's income increases from negative to positive $40,237.60 / y indexed.

That is (40237.6 / 515500) = 7.8% return on (re-)investment. Plus the capital gain of about (6% * 515500) = $30,930 / y. All tax free.

"self funded" is actually "self harmed" for many.

A too generous tax concession for the average Australian household - it’s only partially self funded

Well done and like that comment ""self funded" is actually "self harmed" for many""

what about the notional 6% on the original 935,000 ($56100 / y) you not see that as income?
(sorry if I'm being dopey..)

"what about the notional 6% on the original 935,000 ($56100 / y)":

After 7.8% inflation (& tax), 6% is negative real income.

Age pension is Wage / CPI indexed so no loss to income. Taper rate of 7.8% is real increase.

I think that for many, that is the name of the game ! To spend just enough, leaving enough to be comfortable, but to get even just $1.00 of pension. We are SFR, but are quizzed or interrogated by neighbours as to why we don’t get discounts on rates or registrations.

Always wanted to be old beach bum?

Perhaps the elephant in the room is the situation that 70-to-75% of pension age Australians depend on the Age pension in part or full for their income. This is rarely, if ever, highlighted in the media. I guess that most Firstlinks readers are little aware of this. And there are widows in the leafy suburbs who own their home but have little cash income. BUT they can avail themselves of the government's Home Equity Access Scheme. So it is all complicated.

Taking it to the extreme here I'll admit but I'm sure readers will see the point I'm making, yes they can access the equity scheme or even other reverse mortgage offerings but they deliberately choose not to. They'd rather freeze in Winter so their children get the full inheritance rather than pay back the lenders first.

You are right BeenthereB4 - the complexity is perhaps the major issue - understanding and managing our retirement income options defeats most people and advice is not affordable for many. The proportion of over 67 y os on a full or part pension is around 67% and this will decline as super starts to become more meaningful due to 20+ years of the system in operation.

One of the most sensible comments and should be messaged more broadly in media vs. attacks on super, SCGs etc. by ignoring demographic change and super contributions into the future will preclude the need for state pension for increasing numbers of retirees.

The media ignores the decline in working age PAYE taxpayer base, vs. preference to bag 'immigrants', 'Big Australia' and 'population growth' of 'net financial budget contributors' though good for retired audiences, super is becoming more important and needs to be protected to sustain retirement incomes.

@Andrew. I haven't ignored the the issues facing the Super industry with decline in PAYE workers and rising aged population. For sometime I have been commentating on the very issue and 2 likely changes that will come to Superannuation in the near future because of it.

Preservation age will rise in the not too distant future, over the next 10 to 15 years we have a large number of Baby Boomers and GenX coming I to retirement and preservation ages so expect large exodus of capital leaving the Super Funds. They'll be paying off mortgages, helping kids, home renovations, getting set up to be grey nomads with 4x4 and Caravan etc then a few years later going in aged pension. Nothing wrong with that except liquidity issues with funds that have invested in infrastructure etc and have low cash relative to up coming obligations when people cash out.

Secondly, due to above issues expect limits on withdrawals to come in and the forcing of people to set up Super Pensions or Annuities to make their Super last longer and reduce the liquidity drain on Superannuation funds.

I'm concerned about this as I am5 years from preservation age.i have already seen changes to rules over the years preventing me accessing my Superannuation. If I chose to leave the country to retire overseas, I once could have taken my Superannuation with me, now it has to stay until preservation age.

I'm 55 and could have started a Transition to Retirement but they changed the rules there too and I can't do that until I'm 60.

I'm hoping this balance cap they are talking about comes in and I'm allowed to take any money over said cap prior to preservation age, however I feel it will stay locked up and just subjected to a higher tax rate for amounts over $X amount.

They can avail themselves of Equity Access, either government or private (reverse mortgage type arrangments) They choose not to as they would rather leave it as full inheritance for children/grand children and go without things themselves just because of it. This in time will change, it is only a matter of time that people will be forced to use equity in their homes to part fund their retirement. The creation of a Government (optional) based system for this is just a precursor to it becoming mandatory in the future, realistically it would be based on property value/area metrics. Someone in a $500k house in Wodonga won't have too. Someone in a $3.5M house in Kew will. (These are just example figures, not literal)

I recall reading the original article and was wondering whether the advice was really sound. I might have suggested they upsize or upgrade their principal residence and set themselves up to qualify for the full age pension as well. ie Reallocate around $600k of financial assets into the principal residence and collect a $40k pa indexed pension. Keep the assets and get the pension. What could be better ??? Whilst the Government might want people to downsize the system actually encourages the opposite.

Agree 100%

Plus the Home is CGT free to nthe estate if sold with two years of death!

And the Government will have full control of the super,donc forget also many retirés are withdrowing their super because of fees

One of the main problems is how Australians regard the pension.

It was originally introduced to save people who could no longer work from penury. You got it only if it was needed not given just because you turned 65.
It is not an absolute entitlement, you should only get it if needed. People with $1 million homes are not living in penury.
We also need to get away from the mindset that you are entitled to can get government assistance whilst leaving million dollar inheritances.

I am not sure I agree that you can live in a $1 million home and have adequate cash flow. Median house prices in major cities average is $770k as of January 2023 - Sydney is more than $1 million. It is entirely possible to live in such a property and be stuck on median super balance, say for a female at retirement age, of $181,000 (ASFA 2019). This is well below the so-called 'comfortable' nest egg needed for a reasonable standard of living. And then there is the thorny issue of debt - who says there is no mortgage to be serviced on this property?

Get a reverse mortgage from the govt …and pay off your private mortgage and spend some of your private savings … and improve your financial cashflow …. And hopefully enjoy life

There appears to be constant reference to "people living in $1million homes". I believe the average home in Sydney is now above this figure so the emotive picture of a $1million home with water frontage is redundant. The value of the home only becomes relevant when the beneficiaries of an inheritance choose not to sell it.

The family home can be worth millions and you can get a pension. It should be included in the assets.

Simplistic view however if it can be demonstrated that you can earn an income from the family home then by all means.

That's different, assesment for the aged pension is in two parts, assets and income.

Your PPoR may not pay an income but it is very much an asset.

A person with a $2.5M home and $300k in Superannuation gets a pension

A person without a home but $2.8M in investments doesn't.

They are worth the same amount but yet one is discriminated against.

"A person without a home but $2.8M in investments doesn't. "

Presumably because the $2.8M in investments produces income, whereas a person's PPOR usually does not, unless rooms are let out to tenants for instance. I doubt any government has the courage or stupidity to attack the scared cow of a persons PPOR in Australia. Electoral suicide!

@James the home owner with an asset base of $2.8M is not poor. There is available equity to supplement their retirement.

It was political suicide to include the PPoR in assessing Pension elegibility, it is however being discussed at a political level now.

We are living longer and aged pension costs are a growing burden on the government budget.

It's only a matter of time that the family home will be included in the Asset test.

Thin edge of the wedge has started with equity schemes and reverse mortgage offerings being pushed. Expect a compulsory arrangement down the track.

The elephant in the room is the current crop of taxpayers and those just entering the workforce who are supposed to fund the pensions of retired Boomers, see homeownership as a pipe dream. So someone sitting on a million dollar asset putting their hand out for tax dollars from a generation who can barely scrape together rent for a place owned by the people demanding a pension, is pretty rich.

"The elephant in the room is the current crop of taxpayers and those just entering the workforce who are supposed to fund the pensions of retired Boomers":

68.4% of income tax is paid by the largest 20.1% incomers.
https://au.finance.yahoo.com/news/ato-reveals-how-much-tax-the-rich-pay-003025028.html

"see homeownership as a pipe dream.":

'Boomers' paid large rates of interest on homes with relatively small prices:
Mortgage rate 15%, for 25 y, 3.3 home : 1.0 disposable income, final principal $0:
= PMT(15%, 25, 3.3, 0)
= -51% of income.

'Millennials' paid small rates of interest on homes with relatively large prices:
Mortgage rate 3.5%, for 25 y, 8.4 home : 1.0 disposable income, final principal $0:
= PMT(3.5%, 25, 8.6, 0)
= -52% of income

Both paid about the same portion of income.

"someone sitting on a million dollar asset putting their hand out for tax dollars from a generation who can barely scrape together rent for a place owned by the people demanding a pension, is pretty rich.":

A million dollar home is the median price. A million dollar equity in a rental property would make both single and couples in-eligible for the Age Pension due to the Asset Test even if age eligible.

Interest rates larger than inflation + largest income tax rate would result in increased profitability of saving and smaller home prices. That would be beneficial for homeownership aspirants.

As a fully self-funded retiree, I support the family home being sacrosanct. As a retired couple we have worked hard for our house/home and daily work the investments in our SMSF to generate a return to live off for hopefully a decade or two into the future while monitoring the press and electronic media for creative ways the government is considering getting their hands on the fruit our life's work.

If you really are "fully self funded" it wouldn't make any difference if the family home was included or not, you by definition get 0 pension "fully self funded".

Maybe we are ready to look at including the family home in the assets test, but above a certain market value - $3 million? $2 million? $5 million?

Don't Means Test. Be like Britain, so everybody of a certain age receives a Govt Pension irrespective of personal Means. Or, be like Germany where a pension is decided upon by the money one has earned and basically contributed oneself to the tax system during one's working life. Why don't we, or why can't we, keep things simple, for heaven's sake!

Gill our superannuation system is not unlike " Germany where a pension is decided upon by the money one has earned and basically contributed oneself .. during one's working life". The problems arise when after following the rules for 10, 20 or 30 plus years, successive governments do their best to frustrate those efforts.

To avoid confusion, I think the name of "Aged Pension" should be changed to "hardship pension". Otherwise, I believe anymore who reach the "AGE", should be entitled to the aged pension. "Aged Pension" should never have regards to one's wealth.

The assets test must cost the govt a fortune. Better to have everyone receive aged pension and when over the threshold then pay the standard tax rate on the amount above. Govt doesnt miss out either. That system already exists in the tax office and would get rid of a lot of bureaucracy in centrelink - Simpleness !! Like done in other countries !!

The first comment which make sense.
Like in NZ.
Centre link pension bureaucracy costs tens of billions a year.

Sounds great, but why the government doesn't do it?

The government has run out of money due to supply and demand - expensive inefficient pork paralleling and misallocation of resources, and; endless entitlement claims from those who hold the view that some people have more than me, I don't like it, and I want the government to do something about it.

The pension should only kick in when an individual has run most of their asset base (reverse mortgage). The current payment level is probably about right as government handouts should never encourage "lifestyle outcomes" or the budget will implode under the weight of the "spend it all and bludge off the Gov't bridge".

Great article and some excellent comments - just by following the money issues. This once again highlights how the whole management of increasing community longevity is alarmingly behind the times. This is compounded by our becoming increasingly different from each other as we age - for a host of reasons - and by having a greater variety of personal responses available. We need a national longevity strategy which reviews and sets a pathway for managing longevity at the community and personal level most effectively, and improves community and personal longevity awareness. This strategy would involve better co-ordination of excellent areas in Treasury, Social Services, Employment. Health and Aged Care to provide better solutions and incentives for making the best of increasing longevity - not just by tinkering with the parts separately (like reforming the pensions, retirement income, etc etc).

You are right David - likely longevity is the key piece of information most pre-retirees need to consider when doing their sums. Two things - with increasingly sophisticated calculations now available to help us understand our own probably lifespan, it would be good it this exercise became a 'must-do' on an annual basis for those above preservation age (say via super funds annual member statements?) The next difficult step is for individuals to then run the maths using this expected longevity, combined with super, private savings and likely pension entitlements. They would then have a useful number which shows possible income, likely spending for their later years. But the rules attached to the different pillars of retirement income are difficult to understand singly, let alone combined.

Where a retiree owns their own home it is normally valued around $700k to $1m. Drawing down on this for 20 plus years with deferred interest would leave very litte residual equity in the home. So where does the person raise $500k plus to move in to aged care. The government does not support enough age care places now, having retirees draw down on the family home would only make the aged care situation worse.

"So where does the person raise $500k plus to move in to aged care.": By not drawing down on home equity. They receive $40,000 / y + returns on $419,500 + capital gains of ~6% / y; all tax free.

The pension rules are yet another disincentive to live and work hard in Australia - add a 30% company tax rate, the top 5% of earners pay 50% of income tax, the LAW tax cuts about to be dropped by the ALP.

"30% company tax rate, the top 5% of earners pay 50% of income tax":

Incorporate. Pay ~$14,000 dividends. Receive ~$6,000 tax refund. Net tax $0. Company accumulates franking credits. ALP will honour all future refunds.

Your comment about the disincentive is partly true, but not because of the tax rates.

A couple who puts most of their money into the primary residence and keeps just under the full pension limit (just over $400k), can have a reasonable lifestyle if they are prepared to supplement their pension, about $40k per annum with say $30-40k drawdown from their savings, and then, when the savings run out, in about 15 years, downsize their house and do it all again. In the meantime they can also get home based aged care packages (at no cost to them and typically level 2 or 3, so around $50k per annum) to do all the hard yakka around the house eg housework, gardening, etc as well as pay for their ‘social’ activities eg gym fees, art classes, etc.

Makes me wonder why I bothered to make the effort, saving hard whilst working, so I could be an independent retiree.

And on another point, why is the government paying child care rebates (cut off over $500k) and parenting payment (cutoff over $300k) to families earning well over median household income levels. Surely families in the top 50% of income earners should not be getting any Government assistance.

Old and Sane is sooooo right. The half a million cut off for child care is ridiculous. Everything should be benchmarked at the average wage. If your income/ assets exceed 'average' then you don't need government help whether that he child care or the pension.

My family income was about 200k & with 3 children we never got child care assistance nor 1st home owners grants and our youngestis still a dependent. These new cut off levels are way over the top, perhaps people need to review their priorities for spending their family budget

How about the couple with a $10mill home getting the pension, how do we feel about that?

Agree with the point you are making, but in reality how many retirees are receiving Age Pension and own a $10m home? A miniscule number, I'd suggest.

80% of retired own their home worth about $1.5m…most private savings are locked up in owner occupied homes…so most older Australians over save underspent and leave big tax free bequests to younger family …and this reduced spending means more younger Australians are unemployed etc etc… this is not inclusive nor fair nor efficient etc etc

council rates and state land tax on a $10M home would eat up any pension benefit.

"council rates and state land tax on a $10M home would eat up any pension benefit.":

and there is the problem:

Where to find a home valuable enough to sink all Age Pension Assessable Assets in excess of $419,500 to receive the full Age Pension but where the maintenance cost and property tax is low enough to leave some money for other living costs, a bit of entertainment and some saving also?

Simon, you raise a very good point. So many opinions (including from politicians) get air-time, and shouldn't as they are waste-time, when they are based on 1%rs (or less) rather than what applies to the majority of cases. Pareto principle (80/20 rule) should apply in rebuttal.

@Dudley If you had $5M or even $10M why would you even bother trying to structure finances just to get the pension?

A mix of fully franked dividend paying companies and you're bringing in $400k to $800k Split between 2 as a couple, you'd never need draw down on capital and be free to do as you pleased without having the rules of getting a pension imposed.

There reaches a point wealth wise that trying to get a pension just because it is there and one feels entitled to it but in reality, it's just not worth it.

"If you had $5M or even $10M":

I have given up trying to find a $5M or $10M home that does not cost more than $40,000 / y - I assume they don't exist.

"fully franked dividend paying companies and you're bringing in $400k to $800k Split between 2 as a couple, you'd never need draw down on capital":

Whereas the unspent excess stuffed in a home returns much the same due to no tax on capital gain. And no flak from Centrelink. The downside being managing the ongoing guiding of the home.

Why would you want to sink so much capital into a home just to get a pension. The retirement lifestyle you could lead having that money invested in income producing assets is worth far more to quality of life than that foregone just to get a pension that puts limitations on your lifestyle. There is also the very real risk of PPoR becoming assessable for qualifying for the pension. The fact it gains mention at a political level means it is under consideration. Much like the discussions on Superannuation Accounts with high balances. These will be hit before PPoR's no doubt, but don't think PPoR's will be exempt forever.

"retirement lifestyle you could lead having that money invested in income producing assets is worth far more to quality of life than that foregone":

$400,000 / y or $40,000 / y. Little difference in quality of life. Spending is work with little reward.

I dont think you need to pay land tax on PPOR

@Dudley: "$400,000 / y or $40,000 / y. Little difference in quality of life. Spending is work with little reward."

Subjective but dealers choice I guess. Life to many is not a just a home and existing simply (although there is nothing wrong with that either) but a rich tapestry of adventures and experiences and extensive travel to far flung interesting places to sample different cultures, cuisines and ways of life. Why not experience the wonders of all the world has to offer if you could afford to? Would you really pick $40k p.a. or $400,00k p.a. if you had the choice?

"Would you really pick $40k p.a. or $400,00k p.a. if you had the choice?":

Either. Both equivalent 'quality of life'.
$40,000 / y with only inflation risk to capital growth.
$400,000 / y requires inflation + net 7% / y for 25 years or inflation + net 9% indefinitely - very few financial managers have achieved that, falling afoul of one risk or another.

"Why not experience the wonders of all the world has to offer if you could afford to?":

I have and can. YouTube etc on big screen.
Don't like the cuisine, no need to jet off, pick a recipe and hunt ingredients in local grocery shop.
Don't like the scenery, change channel; no need to send one's mortal molecules.

Example Revisit:
Utah 7 Day Road Trip: 5 National Parks, Monument Valley, Horseshoe Bend & More
https://www.youtube.com/watch?v=U7kq8y2BZT0
with all the internet at finger tips to seek more information.

I like where you're heading with some of this, however I think the general statement "People with nearly one million dollars can qualify for an Age Pension because that’s how our system works" is part of the problem with younger people not understanding how the system works.
For example, someone with $934k in assets "qualifies" for a pension of $67 pa, so they don't really qualify for an (implied full) aged pension, but rather a miniscule aged pension (with other stuff attached I know).
A nuance I know, but as you say, let the facts speak too.

A couple, or a single approaching pension age knowing they are just over the asset test to get a pension can and should be making financial decisions to set themselves up to get the pension.

You read so many comments in forums from people about to retire along the lines of, I'm 65 and my wife is 62 blah blah blah ..

Why do people leave it so late to think about retiring and trying to get pension. Start planning at least 5 years prior if you're going to be in that close range of getting or not getting a pension.


.

Very astute. I agree and I should have thought about that 10 years ago. Considering the capital needed to generate an income equal to the aged pension rate.

I think the nuance you have shared is really important. There are pensions and pensions. A full couples pension is $774 each per fortnight - but in this example the payment would be about very low, but concessions cards would help save on essentials. that said, the Commonwealth Seniors Health Card is now available to couples earning up to $140,000 per annum so these savings are available for nearly all older Australians. So as you quite rightly point out, to any discussion of pension entitlements will benefit from specifics. The strength (and weakness) of our Age Pension system is how very targeted it is.

My view of the pension has always been, if you're poor, your going to get it. If you're wealthy you don't need it. It's those on the edge of qualifying or not qualifying for the pension should be looking at sorting out finances to get it..

Getting the pension though comes with limitations such as how long you can be out of the country, buying expensive things that flag when you withdraw the money.

Due to divorce I currently rent but have a decent amount of Superannuation, enough to buy a property outright when I retire but I don't intend to purchase such an expensive home just to get the pension. If rather have the income that Superannuation will provide me by keeping more of it and have more freedom to do the things I want to do rather than use the money just to get a part or full pension for the free money.

By the time I'm 60, the Balance Transfer Cap will be around $2M, maybe a little more, so if I have $3M in Superannuation after buying a property and drawing 5% giving me $150k to live on with nearly 2/3 tax free and the pension is around $25k for a single person, for me, I'd rather have the Superannuation higher.

As regards to the $5M proposed Superannuation Cap I think if the government do decide to cap Superannuation it will be lower than a $5M level.

There are around 11000 accounts over $5M in Super costing the government over $1B a year. Bring that down to $2.5M a year and it is more than triple that. There are around 80000 Superannuation Accounts with between $2.5M and $5M. So around 100k accounts by the time the introduce any legislation on it. Not enough to cost an election and likely to appease the tax the rich more crowd.

There is a chance I will be in the group affected by such a limit, even at $5M with 5 years until I hit preservation age.

The workings of such a Cap will be interesting. If you have over the Cap do you have to take it out and invest it outside Super?

Likely to be a higher tax rate on amounts over any Cap introduced. So do you have the option at least to take the extra out, especially if under preservation age? If under preservation age do you have to cop the extra tax until preservation age? I think that would be unfair, by introducing a Cap the government is basically drawing a line in the sand saying this is enough for a Superannuation account to have to find retirement, so you should be able to take extra out regardless of age.

Also if still working, what about employer contributions, can you take them as wage or salary if still working instead of paying into Super that has reached the limit?

People that have commercial or a lot of residential property in their fund, will they be given time to either sell or transfer property.

All on all introducing a Cap won't be straight forward.

Continually changing Superannuation rules has made me a little disillusioned with Superannuation. I'm 55 now and could have been on a TTR but they changed the rules and now I have to be 60. I could have left the country to retire overseas and taken my Super with me, now it has to stay until I'm 60.

I fear more changes will come as the last of the Baby Boomers and the first of GenX hit preservation age over the next 5 to 10 years and start taking their Super in lump sum to pay mortgages off etc causing funds to ask to introduce limits on withdrawals to preserve liquidity. Forced Super Pensions or Annuities to make our Super last longer are surely coming.

Then of course, raising preservation age down the track too.

Even a Labor government would be hesitant to put a cap on super balances even though hardly any of those people will ever vote Labor. The newspapers would have the heading *tax increases coming" even though it would affect only the ultra wealthy. Just look how scared this Labor govt is to scrap the stage three tax cuts which gives the greatest benefits to those earning over $200k. Only a small number of people hardly any of whom vote Labor. Rease the media mentions tax increases or stopping a tax cut and the headline will make everyone think they are going to miss a tax cut
Quite frankly the more the rich pay the less I have to

Maybe most people on over $200k don't vote Labor, but this cohort includes tens of thousands of the 2+ million public servants who mostly vote Labor. Then there are the Teal electorates which are now proxy Labor electorates and they have a high percentage of people earning over $200k p.a. e.g. If you live in Zali's electorate and have even 1 kid in childcare, our experience of 5 years ago is that it costs $50k p.a. out of after tax income. To afford that you have to earn big bickies as a couple, enough to ensure your childcare rebate is nil to 10%. Labor needs to retain these proxies in Parliament, so they can't risk annoying too many Teal voters.

A cap on Superannuation is coming, just a case of when, how high and the mechanics of such a Cap being implemented.

I haven't seen any mention of the concept of "downsizing" your house. It can have beneficial effects in allowing the superannuation transfer balance cap to be increased above the current limits.

"... "downsizing" ... allowing the superannuation transfer balance cap to be increased above the current limits.":

Does not increase Transfer Balance Cap - the maximum amount transferable to 0% taxed Disbursement ('pension') account.

Downsizing allows non-concessional contributions to Accumulation account regardless of Total Superannuation Balance Cap. If Transfer Balance equals Transfer Balance Cap then transfer from Accumulation to Disbursement is not permissible.

Tax rate in Accumulation is 15% income, 10% capital gains.

Tax on personal taxable income for senior of less than $29,783 is 0%. In which case, downsizing to contribute to superannuation makes no financial sense.

How do you calculate that the 11000 accounts over $5m in Super cost the Government over $1B a year?
If a Cap is introduced the obvious reaction is for those account holders to remove the excess balance which is generating income subject to 15% tax and spend the proceeds on their (or upgrade to a larger) Principal Place of Residence generating no taxable income (see the point of the article). Those that don't do this would most likely migrate offshore and take the entire balance outside the Australian tax system.
Anyone that is sensible enough to accumulate a super balance of more than $5m is not stupid enough to simply transfer it into an environment where they pay tax on the income at their top marginal tax rate.
Only consequence of a Cap is to take capital out of Superannuation invested in productive assets where it is generating GDP to an environment where it no longer contributes to GDP. No further tax will arise

That's a given, just using the figures quoted when introducing a Cap is mentioned.

It is also why I think if a cap is introduced it will be lower than $5M for the perceived extra revenue it will garner (supposedly)

I will likely be affected by any Cap introduced so the when and the how much are less of a concern, I will deal with it when it happens. It is the mechanics of how it will work that concerns me more, once I know the mechanics of how, I can plan accordingly.

I'm under preservation age so if it comes about will I be able to take it out or be subjected to the higher tax rates they will no doubt bring in for earnings on amounts over $X until such time as I reach preservation age?

Yes, it’s always interesting to read that things cost the budget an enormous number and if we just make changes all that lost capital will be captured. As soon as they decide on the new rules the very next day people will be working on ways to improve their own position. They may well capture a proportion of the income but nowhere near the number proposed.

@Harry

A strong possibility is that they increase the tax on Balances over a Cap, indexed hopefully at least, but don't allow you to take funds out to move to an alternative investment choice if you are still under preservation age.

Personally I'd think that a bad deal, by introducing a Cap on High Balances they are effectively saying this is all you need for Superannuation. So if that's all we need any extra should be ours to do as we wish.

Governments make changes like capping superannuation TSBs for the "vibe" not the revenue. Labor knows the tax minimisation industry is smarter than Treasury, so unintended consequences of imposing a cap will ensure next to no incremental tax. But virtue signallers will be able to make the punters believe Labor is stopping a rort by rich folk.

@G41
Agree with you almost entirely. However I would like to point out that those 11000 superannuation accounts over $5M are not really "costing" the government a cent at present, despite all the rhetoric from Slim Jim and Treasury. The government isn't actually "losing" anything at all - it's merely contemplating the additional tax revenue that COULD be raised from further taxing those accounts if they changed the rules.

By applying the same logic, the fact that the family home is not treated as an assessable asset is also "costing" the government in terms of the potential tax that could be raised if it was. And all it would take is a change of the rules in order to make that happen.