The pension is something we went our entire lives knowing we would receive. We planned our entire finances around it with the peace of mind that although we weren’t so well off as a generation, we would have enough security to get by on once we retired. However younger generations may never know that luxury and in fact, what little we actually receive from the government we may have to pay back a portion of.
Recommendations made by economics and research firm Rice Warner suggest that the government need to dramatically re-asses and re-structure the aged pension in Australia. So much so, that they actually recommend that it is phased out over time. This was outlined in their response to the government paper, Re: Think Tax.
According to SMSF Adviser Online, the firm suggested that the “age pension should be phased out”.
“Retirees should first spend their own assets and be eligible for a full Age Pension when they fall below a threshold,” Rice Warner said.
While the firm argued it would be appropriate for a couple to keep a family home up to the value of $1.5 million and all other assets, including superannuation of no more than $500,000, and to continue to receive the age pension, individuals with assets above this should not be able receive it.
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The submission said that under the proposal, if people have a valuable home they have the choice of downsizing or requesting a government pension that is paid as a loan with the home as security.
“At present, people won’t downsize as the cash generated impacts on their age pension,” the submission said.
In addition to this, Rice Warner recommended a reduction in the taxation of accumulated superannuation earnings from 15% to 12% and they also recommended that pension accounts be taxed at 12%.
“We consider it sensible to have a single rate of tax across accumulation benefits and superannuation pensions,” Rice Warner said.
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Currently, the pension is tax free and already puts Australian pensioners below the breadline as recommended by the OECD. If the pension was to be taxed at a rate of 12%, the highest annual income from the pension would be reduced to just $20,201. That’s inclusive of medical bills, food, accommodation, entertainment, transport and everything else one needs simply to survive.
The reality is that our generation should be safeguarded from this. We have no other choice but to live off the government due to the way our lives have been planned. But for our children, it’s a very different story. It’s now when they should be investing, saving and squirrelling away every dollar they can to make sure they aren’t hit by what the government could decide to do in the future.
Tell us, do you think it’s wrong to tax the pension? Do you think the pension will always be necessary or will our generation be the last to rely on it? Share your thoughts in the comments below…