THINK about it! Most couples reach pension age on different dates and in different years. Hardly any couples would share their birthday and birth year.
Here’s a (made-up) example to illustrate what this can mean for the pension.
John and Janet retire
John (66) and Janet (62) are both working and want to retire when John turns 67 on 2 July 2023 and becomes eligible for the Age Pension. Picture their disappointment when they find out John will be receiving half a couple’s pension, or just under $21,000 a year.
They can’t live on that!
Fortunately, both Janet and John have super. John has a balance of $300,000 and Janet a balance of $250,000.
Problem solved: they will draw a superannuation pension each to top up John’s Age Pension payment until Janet turns 67.
Any financial adviser could tell John and Janet that they are robbing themselves with this arrangement.
With a combined super balance of $550,000, John’s Age Pension would be reduced by $295 a fortnight, because they as a couple will be $98,500 over the lower assets test limit.
There is a simple (and legal) way to avoid this, but how are Janet and John to know what that is?
Financial advice? Forget it!
Unfortunately, financial advice would set back John and Janet thousands of dollars. Maybe it would be worth their while, but they wouldn’t know until they had obtained and paid for financial advice. So, they don’t get financial advice but muddle on by themselves.
Superannuation funds currently can’t give their members financial advice. As a result, once they reach retirement (and also before), members make decisions in the dark.
The wrongs of the financial advice industry have gotten a lot of public attention over recent and not so recent years.
A lot of regulation was introduced for the protection of consumers. Unfortunately, this has been done to the point where compliance has made financial advice so expensive that ordinary Australians can’t afford it.
Any industry will describe regulation as ‘red tape’, or more often as ‘unnecessary red tape’, and usually industry is wrong.
But in this instance the financial advice industry has a point. With the incompetent and the shonks gone and educational standards raised, regulation can be relaxed.
Will umpteenth review do any good?
The current federal Government has responded to the most recent review of financial advice. It will reduce red tape and it will most likely result in financial advice becoming more affordable.
One thing that the Government has said it will do is to allow superannuation funds to give personal financial advice to their members. As mentioned, currently superannuation funds are prohibited from doing this.
This would include advice about how to get the most out of the social security system (including the Age Pension) and the superannuation system.
How would this help Janet and John?
Obviously, this could really help John and Janet. Because any qualified financial adviser can tell John and Janet that the solution to their problem is not to move all their super from accumulation phase to pension phase, just some.
If they do that, they can stay under the lower assets test limit. They will pay $740 in income tax on (5%) investment returns on what is left in accumulation phase, but the tax would be a lot less than the $7,638 a year they would lose in John’s Age Pension. Over the four years it takes for Janet to turn 67, that’s $27,777 John and Janet save. Not bad.
Any financial adviser working for or on behalf of a super fund could help John and Janet get the most out of the interaction of the Age Pension and superannuation systems over the rest of their lives. And it wouldn’t cost them a bomb.
The regulatory changes enabling super funds to give members financial advice will not come soon enough to benefit our imaginary John and Janet, but the changes will come.