16 May 2015
AFR Weekend, Australia
Author: John Wasiliev • Section: Smart Money • Article type : News Item • Audience : 0
Page: 26 • Printed Size: 534.00cm² • Market: National • Country: Australia • ASR: N/A
Words: 827 • Item ID: 408388544
Copyright Agency licensed copy (www.copyright.com.au)
Page 1 of 2
Added complexity
subtracts benefits
Retirees affected by the government's
proposed 2017 overhaul of the age
pension assets limits are beginning to
realise with dismay what it could mean
for them.
One such group is retirees who
established superannuation pensions
under the pre-2007 benefits-limit super
rules, many with self-managed funds. It
is fast dawning on them that, should the
Abbott government's 2015 budget
proposals be passed into law, the effects
go far deeper than being denied the part
age pensions they now receive.
Not only do they face the prospect of
losing all or a significant part of any
government age pension, they face
added complications and effort in
calculating pension entitlements, and
new restrictions such as the inability to
make lump sum payments.
Being locked into these pensions
without the compensation of the part
age pensions they were promised when
they set up their super arrangements is
a prospect many don't relish.
The particular pensions in question
were part of a passing parade of income
streams available before 2007 that
could be set up where super account
balances were either 100 per cent or
50 per cent exempt from the Centrelink
assets test.
These exemptions were offered by
the government to encourage more
retirees to take their super benefits as
incomeratherthanlumpsums-a
popular theme at the time.
Just as Treasurer Joe Hockey has
been encouraging people this past week
to borrow low-interest money to start
businesses, back in the 2000s then
treasurer Peter Costello promoted the
idea of more retirees taking their super
as pensions rather than lump sums by
highlighting an entitlement to extra age
pension benefits.
While the 2017 age pension changes
won't take away the concession of
excluding a significant proportion of
their super under the Centrelink assets
test, a fact confirmed by government
officials to this writer in Canberra on
budget day on Tuesday, proposed lower
age pension entitlement cut-off levels
make such concessions less appealing.
Under the budget proposals, the age
pension cut-off level for couples who
own a home will fall from $1.15 million
currently to $823,000 in 2017. For single
home owners, the level will drop from
$775,500 to $547,000.
For retirees who don't own a home,
the cut-off level will shrink from just
under $1.3 million to $1.02 million for
couples and from $922,000 to $747,000
for singles.
These changes will cost many
retirees, including those who qualified
for the part age pension because of the
special assets test treatment of certain
pre-2007 super pensions, either all or a
significant proportion of the part age
pension they receive.
A reader who can see this coming along with the extra sting of being left
with a complex pension that offers no
age pension income compensation asks if there is any scope to convert a
term-allocated pension he established
in 2007 to a more flexible accountbased pension, the standard super
product now used.
Term-allocated pensions, or TAPs as
they are colloquially known, were
available relatively briefly between
September 2004 and June 2007.
That they were complicated is
without doubt
Retirees were offered five different
ways of calculating the amount of
pension that they could withdraw. The
incentive for many was a 50 per cent
exemption from the Centrelink assets
test, which gave them some age
pension entitlements.
Under the 2017 changes, this benefit
will be lost So what potential exists to
convert to an account-based pension, or
turn off the TAP, our reader asks. He
will not welcome the answer.
At present, there is no way to convert
a TAP to an account-based pension,
says financial planner Peter Crump of
Adelaide-based Portfolio Planning
Solutions. The super is locked up in the
pension and having a TAP is an
impediment because there are
restrictions on how much income can
be withdrawn.
To implement any change would
require the government to amend the
superannuation legislation to allow a
TAP to be converted to an accountbased pension.
Such a change would also require the
agreement of Centrelink, which could
be an issue if the view is taken that
many retirees with TAPs have enjoyed
(and currently still do) age pension
entitlements because of the special
assets test treatment, which will
continue beyond 2017.
In the reader's case, he believes that
being able to convert the TAP is justified
given the pension was started in good
faith with an expectation, approved by
the government, that it did offer a part
age pension. Like many retirees, he
considered the part government
pension to be insurance against major
disruption in financial markets, such as
that which occurred during the global
financial crisis.
But it may not be as simple getting
Centrelink to agree, Crump says.
It might demand a refund for age
pension payments retirees have
received for the last five years, say,
before any change is agreed.
Finally, any change will require
submissions and lobbying as well as a
general desire for this to happen.
At present, there is
no way to convert a
term-allocated
16 May 2015
AFR Weekend, Australia
Author: John Wasiliev • Section: Smart Money • Article type : News Item • Audience : 0
Page: 26 • Printed Size: 534.00cm² • Market: National • Country: Australia • ASR: N/A
Words: 827 • Item ID: 408388544
Copyright Agency licensed copy (www.copyright.com.au)
Page 2 of 2
pension (TAP) to
an account-based
pension.
y
s
Former treasurer Peter Costello
introduced TAPs to encourage people to
take pensions rather than lump sums.