The Case of Margaret

The Margaret case [not her real name of course for "Privacy Reasons"] was the first we had where the Putative Pensioner was asking the question of WOULD she be worse off under the New Rules as opposed to the Grandfather Rules?

Here is the Summary Report we sent to her.

Calculated Details and Recommendations                   

"Page 4 gives the results for your situation based on the so called Grandfathering Rules [herein GR].  The total Age Pension over 20 years would be $358,379 which is 77.61% of the Maximum amount.

Page 5 shows the situation under the New Rules [herein NR] where the Age Pension would be $361,670 which is 78.33% of the Maximum amount.  So there is little difference in the two regimes over 20 years, and no difference in Year #1 payments at about $651 per fn in Age Pension.

You will note that your elected Drawdown results in 80% of the original amount still being available after 20  years.  If we ask the LOPS to Solve for only 1% left after 20 years, the amount is $19,940 pa Drawdown and Page 6 shows that result for GR at $345,116 total Age Pension ie 74.74% of Maximum.

However the NR on Page 7 shows the total Age Pension as $413,394 ie 89.53%, which is $68,278 MORE than for the GR situation.

It will be clear that this big difference is because the NR operates on Capital remaining in the Allocated Pension Fund, whereas GR is based on the Drawdown amount.

Therefore removing the CPI provision should improve the result more and Page 8 shows for NR that a Drawdown of $26,074 gives $425,834 ie 92.22%, an extra $12,440 over the CPI result. The GR result is still down at 80.93% so is not printed out.

All of this indicates that you will be better off under the New Rules for all situations."

So to explain this step by step

Margaret has listed [in filling in the Form on our website, which gets transferred to the LOPS] very modest Assets as you can see, and not a boat or Sterling in sight.

This is the effect of her chosen Drawdown and she has chosen the Minimum [as normally advocated by One Year Wonder Advisors/Advisers] and we will soon see why that "A Ship in the Harbour is Safe" advice would have lost her $60,000 had she not also used the LOPS.

As you can see the RED portion for Year #1 [ie 65] is in fact very small as the One Year Wonders are all telling us, but just look at how "with Grandfather the Sting is in the Tail" kicks in as she gets to 75 or so.

The above is for Grandfather Rule Testing and it is totally plain to anyone but a One Year Wonder Advisor that the Elephant in the Room IS the CAPITAL of the Allocated Pension, which has dropped Year #1 Age Pension from the Max of $21,988 to $16,980, with Income Test not even getting a look-in.  In fact Income Test only takes over at age 83 as you can see [where the GREEN Triangles cross below the YELLOW Triangles].

This is for the New Rule and the One Year Wonder Advisors are correct in saying IF Income Testing gets the nod then Margaret's deemed Allocated Pension Capital has gone from a mouse to a horse.  The trouble is that the ELEPHANT still remains as the ASSET Test [for all 20 years].   

In fact even if we asked Margaret to give away her car and the rest of her $30,000 Assets, we see above that the Capital of the Allocated Pension ALONE still gets the nod over Income Testing, so there is no excuse for the One Year Wonders to be scaring the Bejesus out of nice old folk.  Ironically the only time that would not be so is if [as a result of the bad advice] the poor old Pensioner has to get a part time job to make ends meet.

So even a 6 year old with limited maths understanding would be able to see that the solution [except for Grandfather, quarantined in povety] is simply to get RID of the elephant as quickly as possible.  To us, the thinking goes like this - the Govt expects you to die at about 85 and no longer pay you a cent in Age Pension so why not call its bluff and plan to use all your Allocated Pension AT 85, then if you live longer you should be getting 100% Aged Pension.

To that end we have turbo-charged the LOPS to do a macro driven Solver task that can tell us within about 30 seconds just how much to Drawdown to accomplish that.

As seen, the YELLOW Capital runs out at 85 using the LOPS solution of Drawdown of $19,940 for Year #1.  But those RED Grandfather columns are not looking good.

Here [above] is Grandfather Rule and alas, although we had nullified the elephant [the YELLOW Triangles] by 78 or so, the GREEN Triangles took over at 72 and just got bigger and bigger, but we were prepared for that were we not?

And we were also prepared for the GOOD news of the New Rules where the more we shaved off the elephant the more BOTH GREEN and YELLOW Triangles contracted upwards, giving 100% Age Pension by about 78 [and 89.53% for the whole 20 years].  As we reported to Margaret "$68,278 MORE than for the Grandfather Rule situation".

Conclusions

Margaret now has the benefit of proper professional advice based on full 20 year modelling of her situation and options.  Her initial comments to us were "I have read heaps of articles from financial advisors most of them say the new deeming rules will mainly effect folk who have lower nest eggs."

So her research confirms ours that "Big Super" is conducting a Terror Campaign to scare Pensioners to REMAIN on the so called Grandfather Rules, when that advice flies totally in the face of all the modelling we have done [which SURELY the Govt has also done and is AWARE of the deception] where indications to date show the average Pensioner stands to LOSE $50,000 or so over 20 years by taking that advice to remain on the Grandfather Rules.

We assume Margaret will take our advice and put the $68,278 in HER pocket and we hope that she will Twitter, Twotter, Tweet and Facebook this good news to Pensioners all around Australia, and that they too will act to DEFEAT this Govt ploy, to show Abbott that just as for his mentor Howard 10 years ago that Australians do not take kindly to being lied to and taken for a ride by their Executive Government.