The Three Card Trick - Grandfather, Murray and Hockey

Amid the normal doom and gloom media hype that "we are living too long" the government's plan to REDUCE the Age Pension Bill now becomes perfectly clear.

On 1 Jan 2015 Grandfathering struck the First blow, threatening Pensioners all that doom and gloom if they deserted him, saving some $10 billion pa if the pensioners BELIEVED the hype.

Then the Murray Report did the normal "blame it on the Pensioners" as the Second blow, explaining that 84% of Australians don't give a toss about Retirement Planning, and leave it to "financial advisors" and Super Fund trustees (who Murray described as somewhat lacking).

Then in May 2015 Hockey announced the Third blow via a new "retraction regime" for Asset Testing, said to save less than a billion pa but in fact saving about $5 billion pa.

To explain how smoothly this worked we simply need to update my recent post.  In this recent post I examined the example case provided in the Murray Report, and you can read it here.

The bottom line says Justin has been convinced during his working life that he needs $400,000 in Super as a bare minimum at 65, but AT 65 that he not USE it for his own benefit but simply Drawdown the MINIMUM amount.  A new idea of the CIPR is touted but that is purely pie-in-the-sky nonsense to cover-up the above seting-up of Justin to rob him of Age Pension.

Our analysis using a SENSIBLE Drawdown gave him DOUBLE the income over 20 years, including $206,000 increase in Age Pension, plus about $40,000 decrease in Fund Fees

Also our information that Justin would be $72,163 WORSE off if he took notice of Big Super to stay with Grandfather allowed him to avoid that trap.

So 5 months down the line since the Grandfather tricks, Hockey has announced the 2017 changes to Asset Testing, so we have factored all of that into the LOPS and can give you an update on Justin.

Had he stayed with the Govt inducement to NOT use his hard earned super, his Age Pension would go from $163,337 over 20 years, down to $32,187, ie a DECREASE of some $130,000.

But if he followed our advice to enjoy retirement he would go from $369,236 to $322,843, a lesser decrease of some $46,000, so he would be some $290,000 better off than had he meekly listened to his "Financial Adviser".

Here is the comparison shown graphically:

The top image shows the effect of being convinced by BigSuper that "you are SAFE with Grandfathering" but alas "the sting is in the tail" and we see the Green Income Triangles eat into the Age Pension to give just 63.12% of the Maximum over 20 years.

The middle image shows that by ESCAPING Grandfathering Justin gets 79.96% of the Maximum.

But that is short lived and from 2017 the Budget 2015 New Rules say even with escaping Grandpa Justin now has the Age Pension reduced to 69.92%, which is not quite as bad as for Grandfathering at 63.12%.

So finally the Double-Whammy is BOTH Grandfather and 2017 New Rules and here is the image.

The Age Pension is now reduced to just 55.69%, some $122,000 reduction.

Notice how skillfully the Govt has combined the New Rules with Grandfather, ie New Rules hit up front from 65 to 75 while Grandfather comes in from 75 to 85.  So remember you can't avoid the New Rules but Grandfather is optional.

Well in fact you CAN avoid the New Rules to some extent if you go easy on accumulating Super during your working life (maybe just take the employer contribution?) and so the Govt is covering that in conjunction with BigSuper, especially SunSuper with extensive advertising and the Pronking of "The R Word".