The Federal Government could remove the disincentives for people to remain in the workforce and help tackle the challenge of longevity by
scrapping the income test and increasing the Age Pension age, according to the

Institute of
Actuaries.
With
longevity posing challenges
for
superannuation fund members,
Trevor
Thompson, the Institute’s new
president,
said such moves could help
address
retirement income adequacy
over
a potentially longer life span.

“The
obvious implication [for
superannuation
funds] is that if people
retire
at normal retirement age, then
there’s
a question of sufficiency of

income
through the balance of their
life,”
he said.
“That’s
very hard to plan at the best
of
times – the costs of living over 30 or
40
years, all those issues are unknown
and
that’s assuming that somebody
remains
well in retirement and clearly
it’s
not going to be the case that everyone
remains
well until they die in their
sleep.

“With
lower birth rates we’re going
to
end up with a smaller proportion
of
the community in employment
compared
to people who are not

employed
and the financial capacity of
the
community to meet those costs in
a
shared way is going to be seriously
questionable.

“That
begs the question: how to
do
you help people manage their affairs
in
retirement; what is a sensible
retirement
age, given there’s no magic
around
65, and how do you get a community
to
accept that it would make a
lot
more sense for people to work on
while
they’re well, and if you accept
that,
can you create a structure which
doesn’t
create disincentives for people
to
work on if they want to?”

In
its submission to the government’s
Harmer
review of pensions,
the
Institute suggested phasing in an
increase
in the Age Pension age and

introducing
the option of a deferred
Age
Pension.

It
also proposed removing the
income
test, and extending the home
equity
exemption for the asset test to
include
home equity releases schemes
which
meet retirement and health
costs.

“By
asking people to self-fund for
the
first stage of retirement – for example,
to
the age of 75 – and then go onto
a
more substantial pension, we can give
people
greater clarity and understanding
of
their savings and investment
decisions,”
said John Maroney, chief
executive
of the Institute.

Today,
80 per cent of Australians
over
the age of 65 rely on all or part of
the
Age Pension for financial support.
Thompson
said the cost of aged
care
and health care should be incorporated
in
any changes to the Age
Pension.

“Simplistically,
if the government
could
see the logic of not having an
assets
test and having an income test…
it
makes it easier to say to somebody,
you’ll
have accumulated four times
your
retirement salary, and when you
take
into account the Age Pension
entitlement
you would be due under
those
rules, that would translate into
reproducing
70 per cent of your preretirement
income,”
he said.

“It
starts to make it more tangible
for
people.”
The
Government’s existing pension
bonus
scheme, where a lump sum of
up
to $30,000 is payable to those who
keep
working until they are 70, has
come
up for criticism in submissions to
the
Harmer review as poorly understood
and
ineffective as an incentive to
defer retirement.

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