I only heard about this on the radio, (it was written up in the Age) the idea is that the Gov't will pay an annuity of approx $2k for every $60k held

in your super fund, in order "to top up the age pension".

Seems to be an idea that is being floated, and this won't be the only one, I'm sure.

I found an article in the Age at

http://business.theage.com.au/business/ ... -bqbx.html

but I could not find any mention of the $2k for every $60k

does anyone have any idea where the figures came from

personally I think that the govt giving guaranteed lifetime indexed pensions in this way is a very good idea, but the rate seems a bit low.

One idea I read (I think on Business Spectator) is for all retirees to be required to invest one third of their super in a life annuity on retirement. If this was done as a govt guaranteed annuity, eg administered in the future fund, then a retiree's govt age pension could be worked out at the current age pension rate less the govt annuity so everyone then received the equivalent of the age pension with no other means testing.

The other two thirds of your super would be yours in the normal way to deal with as you liked. This would not discourage people contributing to super as you would still have two thirds of what you save plus a guaranteed pension at the normal age pension rate.

If the one third of you super gave you an annuity greater than the age pension then you would not get any govt top up.

I feel that anything that can be done to eliminate the assets test on the age pension has to be a huge increase in efficiency, both in the administration of pensions, making housing more efficient (retirees would no longer keep houses that were too large for them just to keep their pension) and eliminating artificial investment schemes for pensioners.


Cheers

LJ

Hello LJ, I got the impression that the figures came from the Govt side, (treasury or Henry) and that it was a "throw out figure" to gauge the reaction
of the punters.
As you say, it could be an OK idea, depending on the figures. The annuity does seem low, doesn't it?

What long term return could be expected if the cash was invested- 5%-7%, so a return of $3k to $4k, or about double the Govt offer.

One point I neglected to mention was that the idea was to apply this to "low account" super funds, to stop them from being frittered away.

As with annuities, what is left if the holder dies?

I imagine it would be a no-residual-type annuity that they would pay out until the retiree died, possibly with a lower payment to a surviving spouse. This would be the best scenario.

With the current average life span being late eighties, they would pay out for an average of around 23 years. I imagine they would link the pensions to a govt inflation adjusted bond. I still think the 3.33% a bit low as they are technically paying back some of your own money as well.

I do have a formula somewhere for the actual rate of return if it was non-inflation linked, however the inflation adjustment would probably take a couple of percent off the return they could offer.

I don't know how many people would want to take this up at this level. I know I would not. If you put $60k into 1300 CBA shares (as a benchmark) you would have about $3040 plus another $1300 in franking credit. The dividend would have a certain amount of inflation adjustment built in. You could also leave the residual (in this case the CBA shares) to your children.

If you had $600k in your super this would be the difference between living on $20k with nothing to leave to your kids, or $43k with your kids inheriting enough that they could retire on it too.

This probably illustrates a point that we know already - lifetime annuities are not popular because the rates are generally very low compared to other investments and annuities generally die with you so your heirs do not benefit.


Anyway it is certainly an interesting possiblilty.


Cheers

LJ

With the Gov't response to the Henry review due in early March ( so it is said) the "leaks"

are flowing: http://www.businessspectator.com.au/bs. ... nt&src=hp3

If it comes to pass, it gives the Gov't access to those trillions of $ in super at a low cost,

The worry would be that they make everyone with super contribute a portion of it to buy a govt pension when they retire, then a few years down the track they decide to means test the pensions.


Cheers

LJ