Pensioners will live to 90 - the sky is falling in

The SPIN by the govt that Pensioners are living longer and that will cause an "explosion" in Age Pension is as old as the Pyramids.  But in recent times it was done by Costello in 2005 and Hockey in 2015.

Here is Costello TRUTH

Here is Hockey TRUTH

If you look closely at age 65 you will see there IS a minute difference, but NO the sky is NOT falling in - that is simply lies and spin, spin and lies BUT most Australians believe it.

These figures are not something plucked from a Google search but the ACTUAL figures used in the Social Security Legislation.  For obvious reasons that use was REPEALED on 1 Jan 2015 but is still used by 97.47% of Pensioners.

So these graphs show we ARE orderly in the way we die, but if you want to see TOTAL MISmanagement please feast your eyes on the CPI graph since 1970.

Now THAT is incompetence, and by both Tweedle Dee and Tweedle Dum - makes no difference folks who you back.

Grandfathering Explained

There have been quite a few people who have tuned in to THIS thread at Whirlpool Forums and in a way THAT starts to prove Murray wrong, ie even though 84% of people are not confident in Retirement matters, at least they are TRYING.

So while I created a "fishing trip" to prove to myself that the Abbott govt would jump in with the same damage control methods as Abbott's mentor Howard, there are obviously some people out there that genuinely want to follow the issues here but are not able to interpret the graphs I supplied at my blog.

Of course as soon as it looked like some people were understanding what the govt DID with Grandfathering the thread was LOCKED, so for those that simply want to understand the numbers, please read on.

So I (we) will explain in words and numbers via a typical example, and I welcome any constructive input from those that "were sent" to ridicule me.  However let me explain that when I say I have done an analysis over 20 years, it is actually 21 as it goes from 65 to 85 inclusive, and by coincidence that is the exact same female life expectancy figure used by the Govt in the scenario we call "Grandfathered".

We use a single female (we call Agnes) with $400,000 in Super at 65 to align with the Murray Report example.  We add another $25,000 for car and contents and use a conservative 8% growth rate as well as a 3% "CPI Increase" as normally recommended "to keep up with inflation".

We then do two scenarios

Scenario 1.  Agnes applies for an Age Pension in Dec 2014

Scenario 2.  Agnes applies for an Age Pension in Jan 2015

Then we assume she gets advice from a financial planner (George) who is totally competent and can work with complex mathematics, AND is NON aligned to the Super Fund Agnes uses.

I will then start from the end result and work back to explain the result.

The result is Agnes loses $127,026 if she comes under Scenario 1.

The maths starts by explaining that the formula used in Scenario 1 takes the $400,000 Super, converted to an Account Based Pension and divides it by the Life Expectancy of Agnes which is 21.62, giving her an Income Test Free Amount (ITFA) of $18,501 pa.  In my submission this equation can have no other purpose by the govt than to spread the Super evenly over Agnes's expected life.

So Agnes asks George (in Dec 2014) to tell her just how much she needs to Drawdown in order to do that exact same thing, ie use up her Super in 20 years.  George tells her it is $31,624, escalating at 3% pa for her nominated CPI Increase.

He then explains that because her Drawdown is some $13,000 above the ITFA the Maximum Age Pension of $21,988 pa is reduced to $17,514, but he further explains that her Assets eclipse that and reduce the Age Pension to $13,263 which gives Agnes 60.3% of the Maximum Age Pension for Year #1.

George then explains that if she waits till Jan 2015 for her application the Asset Test will be the same $13,988.  He then explains that the Income Test will be totally different as the life expectancy formula will be replaced by Deeming, and that in any case the result of $17,435 is still well short of the Asset Test, "so no difference Agnes, apply when you like".

But as good as George is in his job he still only looks at one year at a time, so is unaware of how the maths works out as the years go by.  But we have the LOPS, a Cloud App that looks at the WHOLE picture and identifies the $127,026 loss to Agnes if she applies before 1 Jan 2015 (which she did).

Let's look at just one example to show why this happens ie at age 80.  The capital amount has reduced now to $217,219 so the Asset Test says $20,412 pa, ie about 93% of the Maximum Age Pension.  However the Drawdown is $49,269 pa so is more than double the ITFA, and the result is the Age Pension amount is just $8,691, ie less than 40% of the Maximum Age Pension.

The overall result over the 20 years is 49.63% of the Maximum.

If we then look at age 80 for Scenario 2, the Asset Test is of course the same at $20,412 BUT the Income Test is now at $20,633, almost the same, so Agnes is getting 93% at age 80 instead of 39%.

The 20 year result is now 77.15% of the Maximum Age Pension, ie $127,026 MORE over the 20 years.

This post does not attempt to determine if this is a deception or merely a mistake by those that drafted the Scenario 1 legislation.  The facts are that that legislation was REPEALED and there can surely be little argument about that, even though the Explanatory Memorandum did not EXPLAIN why as it is meant to do.

But the decision to allow the repealed legislation to "linger" via what is termed "Grandfathering" raises the most extreme questioning of the government's motives, and the fiddling with the Acts Interpretation Act (1901), the "Sister Act" to The Constitution, at the same time simply makes matters worse in my submission.

So, as I have already asked the government, please (anyone) show me that there are faults (of significance) in my maths above or show me an example where Grandfathering is beneficial to the Pensioner.  So far there has just been deadly silence.

That silence also extends to my estimate of the overall damage to the government of $10 Billion pa which I calculated on the conservative side.

But deception or mistake aside, the Sword of Damocles hanging over the government is that the $10 Billion pa can be restored to the Pensioners simply by knowing the facts and voting with their feet to "Throw Grandfather Overboard" to use the popular expression.  That is to say there is no need to mount an expensive Mabo type High Court challenge, as the solution is "built in" to the legislation simply by the Pensioner electing to "sweep" their existing Account Based Pension and starting a new one, free from Grandfathering.

Maybe it is the Georges of the system that need to explain this to their clients, now that they know the problem.

EDIT  It would be recalcitrant of me not to also do the maths for Robin as a Male, by changing Gender to M, we see that a Male would get an extra $106,550 over 20 years by switching to Non-Grandfathered, ie Grandfathering deprives a Female of $20,526 MORE than a Male, simply because the Sisterhood lives longer than the Brotherhood.

So once again it is easy to see WHY the govt was forced to REPEAL that formula, ie based on gender equity alone, and I don't think anyone could have any qualms about that 45 years after we were required to embrace Gender Equality.  The only issue is why allow repealed legislation to "linger"?

Smart Retirement - Take 3

Well this option is hardly what you would call smart but I am just informed at a Forum that it is a favourite of "certain" Financial Planners, who have done a Cloud Atlas type deal with the kids to do a "dash for the cash".

The option is for the Pensioner to DrawDown ZERO and just let Super accumulate (ie not take out an ABP that insists on a Min DrawDown).

So after 20 years there is well over $1 million in Super to be divided up between Financial Planner and kids, but the trouble is that the Age Pension is reduced to just 26.43% of the Full amount over 20 years, AND it is all up front ie reducing to half at age 70 and cutting out totally at 75 (ie no income and no health care).

The Pensioner would have an average of about $6,000 pa on which to "live" so would need to do without things like heating and food, so really this "eugenics" or culling is right up the alley of Tony Abbott's Final Solution as Health Minister to this Age Pension problem in 2005 (see below).  So he would probably die off at about 72 with about $400,000 loot to divide up.

It's NOT a plan we would suggest to a Pensioner but those are the maths involved.

TONY ABBOTT: "If you are to see on the front page of the newspaper headlines such as: "50,000 dead", or "50,000 to die", obviously people are going to start thinking the worst. On the other hand, if you work out that that translates to something like a one in 500 risk of succumbing to a flu pandemic, I think you are able to put it into a different kind of perspective."

Smart Retirement - Take 2

OK the post above is a lot to take in so I will start a new post here because I am about to once again explain the Big Grandfather Deception by the govt.

So far we have used the LOPS to show how a Retirement Income of DOUBLE the Age Pension is easily obtainable simply by having accumulated the Employer Contribution since 1990, and we mentioned that this Age Pension Application got snuck in just before Grandfathering came to be on 1 Jan 2015.

So given that the entirety of BigSuper called DOOM & GLOOM on those that came AFTER Grandfather, or those who were Grandfathered but had the temerity to do an Oliver and "ask for more", I am sure you will be saying I am not at retirement age so will I miss all this - boo-hoo?

Well the news is good as we pulled a little trick there and based the above result on NON Grandfather, so here is the sad news for those that bought the hype that "Grandfather is GOOD, STAY with Grandfather".

So for Robin as a bloke, under Grandfathered Rules he would get $57,518 LESS in Age Pension over 20 years.

As if that is not bad enough, for Robin as a gal she would get $75,671 less, so you will be saying OMG OMG how is it possible Germain Greer missed this INEQUITY for 45 years after the small f feminist takeover of 1970?  Simple answer is Germaine and the sisterhood don't use spreadsheets so did not KNOW.

And then none of the "One Year Wonder" Financial Planners do either, or at least if they do, they don't look at 20 years.  So that leaves just the govt and myself that understand the horrible truth.  So one can understand it HAD to be repealed, but NOT accept that it be allowed to linger for another 20 years.

The reason the Grandfathered Test regime (now REPEALED but allowed to linger) has a real Sting in the Tail that jumps in at 75 years or so, works this way.

When you took out an Allocated Pension (changed to Account Based Pension) you were given an Income Test Free Amount which was your total account amount (minus any Lump Sums) divided by your longevity as determined by ABS.  On the surface that looked fair as you were essentially getting about 5% FREE, SO if you DrewDown the Minimum of 5% ALL of your income was Test Free.

BUT as you get older the Minimum Percentage goes up, ie to 9% at age 85, but the Test Free amount stays the same. So by 85 4% is NOT Income Test Free but is FULL INCOME under Income Test, so DOWN comes the Age Pension.

The bottom line is this is costing the Pensioners that can be INDUCED by SPIN to stay "Grandfathered" about $10 billion pa, or to put it the other way if ALL those existing Pensioners "swept" their ABPs and took out a new deal, then the govt would LOSE $10 billion pa for about 20 more years.  That is 25% of the present total Age Pension budget and enough to BREAK the budget if that Sword of Damocles comes SPINNING down (pun intended) on the feast.