Carrying on from my commentary on our Budget Wrap Up post (which you can view here), the silent budget message is that super remains favourable for now, and retirees need to be self-reliant into the future.
The Association of Superannuation Funds of Australia estimated that a couple who own their home with $800,000 of assets will see their annual income fall from $39,400 a year to $25,800 after losing access to the part pension, assuming a 3 per cent rate of return. The lower level is less than half the $58,000 that ASFA argued was necessary for a couple to support a comfortable retirement. Even the annual budget of $58,000 is considered modest by many financial advisers, who point out that it did not make allowances for large one-off expenses and only included limited travel.
A couple with $1 million of assets will see their annual income fall to $30,000 from $37,600 from January 2017 assuming a 3 per cent return, according to ASFA.
A single retired homeowner with savings of $700,000 will suffer a cut in their annual income to $21,000 from $25,100, assuming a 3 per cent investment return.
The loss of income is due to a change in means testing for the age pension, so that retired couples with more than $830,000 of assets will no longer be eligible for the handout. Retired couples with between $500,000 and $830,000 of savings will see their part pension cut, although couples who have $400,000 or less of savings will receive a boost in pension payments.
ASFA estimated that the tightening of the assets test would mean a couple who retire with $700,000 of assets will have a total income of $30,600 a year, marginally more than a couple who retire with $1 million of assets.
If the government decided to impose a levy on deposits to fund a compensation scheme, retirees can be expected to be hit again because lenders were expected to pass on any such cost to their customers.
Finance Minister Mathias Cormann said the government would announce its position on the deposit levy – which was originally proposed by the previous Labor government – when it responds formally to the Financial System Inquiry chaired by former Commonwealth Bank of Australia boss David Murray.
"[The bank levy] was never going to happen in the budget. We have not made any decisions for or against it," Senator Cormann told The Australian Financial Review.
However, the minister conceded that levy had been factored into the budget.
"It is still in the revenue base as a result of the decision by the previous government," said Senator Cormann.
A decision is expected in the second half of 2015.
The contents of this article is for general information purposes only. It does not take into account your personal financial circumstances and should not be viewed in any way as personal financial advice.