Grandfather Outpaces the Murray Report

The fact that this particular "Grandfathering" [for Account Based Pensions] has been rushed through Parliament on the very eve of publication of the Murray Report should have the alarm bells sounding at 140 db.

The Murray Report has several Grandfathering Recommendations for such as Negative Gearing, and all will be considered by the Govt in the fullness of time, so why was this singular provision not just put into the mix of the Report?

The simple answer is the Govt did not WANT any official comment on the REASON for the REPEAL, and let's be totally clear that the Amendment was not to "add" any new provisions but to repeal [over 20 years or so] the existing statutes that treat Income Testing of Account Based Pensions differently to all other Assets.

So repeal of those statutes simply removes the "special treatment" and the Testing reverts to the same as for any other "non-Centrelink" [eg car etc] assets.  Nothing has been added.

So while the Report must therefore consider that matter "done and dusted", it does still refer to certain "symptoms" OF the issue, but without pointing too straight a finger.

"Information from stakeholders suggests that many retirees find it challenging to navigate the transition to the retirement phase of superannuation. When DC members notify their superannuation fund of their retirement, many funds recommend they speak to an affiliated financial adviser. Research has demonstrated that the quality of this advice can vary significantly.  Anecdotal evidence suggests that some advisers have limited knowledge of longevity risk and how it can be managed.  Although the Inquiry makes recommendations to improve the quality of advice, it will take time for such improvements to occur."

The Report goes on to say:

In any case, many people do not seek professional advice, and funds and advisers overwhelmingly recommend account-based pensions. Stakeholders advise that, for less financially literate individuals, the simplest option is to take the entire benefit as a lump sum because other options can be difficult to understand and may require completing complicated forms. A recent survey commissioned by AustralianSuper found that “… 85% of pre-retirees are not confident in having an informed conversation around retirement income”^.  Managing income and risks can be particularly difficult for people later in retirement if they suffer from cognitive impairment.

And finally:

Despite the heterogeneous nature of retirees, at least 94 per cent of pension assets are in account-based pensions, which provide flexibility but lack risk management features and may not deliver high levels of income from a given accumulated balance^.  The lack of a significant market for products with longevity risk protection sets Australia apart from most other developed economies.  Evidence suggests that the major worry among retirees and pre-retirees is exhausting their assets in retirement.  An individual with an account-based pension can reduce the risk of outliving their wealth by living more frugally in retirement and drawing down benefits at the minimum allowable rates.  This is what the majority of retirees with account-based pensions do, which reduces their standard of living.  The difficulty in managing this risk is also exacerbated by the uncertainty as to how long a retiree will live.

So all the issues that caused the Govt to panic to make the Grandfather Amendments are there, but the wording is of course "coded" so as to not lay blame on BigSuper or the Govt itself, ie it is a TYPICAL Report in "times of need" (ie to cover up) but is really "much ado about nothing".

The most poignant issue as seen is "cognitive impairment later in retirement" and irony is that such is the reason the Govt has got away with the (soon to be) Grandfather Rules for so long.  That is to say that Age Pensioners get taken in by the shonky "advisers" at age 65 to simply drawdown the minimum amount and if they were not bright enough to SEE they were being taken in (for the benefit OF the adviser) at 65, then by 75 they have no hope at all to do anything as each year they see their Age Pension drop by 5% or more.

Complaint to their adviser will be met with a shrug of the shoulders and "that's the Govt, not us".

Complaint to Centrelink will be same shrug of shoulders and "sorry, that's how the Legislation works, your problem is you took bad advice to keep increasing your capital and that means we drop your Age Pension".

Yes, the Murray Report has "done its job", so back to "Situation Normal" for BigSuper and the Govt.

That is AS LONG AS the forgotten "Stakeholder" (the Pensioner) him/her self REMAINS in a state of ignorance (aka Stockholm Syndrome) about this little $10 billion pa fiddle by the Govt.

Hitler of course has the final say with:

"It is most fortunate for governments that the people do not think"

And until recent times a Govt could get by on that basis, as people simply HATE to think.

But with Twitter etc now on the scene it is more a matter of FLIPPING (ie without actually thinking) from Grandfather to Freedom, and THAT is the $10 billion pa problem facing this Govt.