Public servants’ pensions could be hurt by tax reform

Retired public servants could be in for a shock as half a million may have their age pension stripped off them in the government’s planned shake-up of the super tax system.

Changes could be made within months to stop generous tax breaks on retirement savings, and those of us who have worked for the state or government will not go unscathed.

Lifetime-indexed pensions, also known as the Public Sector Superannuation Scheme is a fortnightly CPI indexed pension for the member’s or a surviving partner’s lifetime. The benefits were so good that the federal government closed it to new members from 1 July 2005.

The pensions are not included in the asset tests for the aged pension despite the furore earlier this year around the asset tests for retirees – ending in 300,000 people losing their part pension.

News Limited economics writer Robert Gottliebsen said it was just a matter of fairness. “No one is suggesting public servants should be picked out for persecution, merely that they be treated the same as all other citizens of Australia”. He believes no one, even if they served the country, should be exempt from tax reform. Do you agree?

Annette Barbetti, federal president of the Australian Council of Public Sector Retiree Organisations, disagrees. She told Fairfax that the public sector indexed pension was nothing like a privately purchased annuity.

“Unlike most private sector superannuation pensioners, retired public servants cannot neither access the notional assets underlying their pensions nor leave them to their children,” Ms Barbetti said.

“The defined benefit pensions of retired Commonwealth public servants are taxed, with a 10 per cent tax offset, not a rebate, and consequently any other income is taxed at their marginal tax rate.

“There is now a 10 per cent cap on the proportion of a defined benefit pension that can be excluded from the age pension income test”.

Mr Gottliebsen said that it’s simply not fair that retired public servants have lifetime-indexed pensions but also get the aged pension, “because a lifetime-indexed pension is an incredibly valuable asset”.

“If someone who is not a public servant wants to buy a $50,000 lifetime indexed pension it will cost between around $750,000 and $1 million depending on their age and the supplier they choose. That investment of between $750,000 and $1m would then be treated as an asset for the pension assets test – as it should be”.

He said that public servants were not the only people who needed to have their benefits in line with the rest of the country. “Public servants, politicians, academics and judges should not be specifically targeted but rather, if the community is to be hit, then they should not be excluded”.

A decision about tax reform and everything regarding pensions and superannuation is expected before Christmas.

Tell us, do you think retired public servants should be included in the asset test? Or should they be able to get both the PSSS and the age pension?