POWERED BY MOMENTUM MEDIA
Advice key to means-testing and DLA strategies
A way needs to be found to deliver appropriate cost-effective advice to retirees to help them understand the complexity around means-tests, according to actuarial consultancy Rice Warner.
In a new analysis published this week, Rice Warner has pointed to the continuing issue of retirees living in virtual poverty because of their reluctance to draw down on their retirement savings because of their fear of running out of money.
The analysis said that one of the keys to addressing the issue was giving retirees the confidence to spend and that recent changes to the rules around Deferred Lifetime Annuities (DLAs) might help the situation.
“One of the problems facing retirees is the complexity around means-tests,” the analysis said. “It is impossible for the lay person to know how much to withdraw and when DLA might be a suitable product given their circumstances.”
“We need to find a way to deliver appropriate advice cost-effectively to help the growing number of people entering retirement and facing these problems.”
Discussing the use of DLAs, the Rice Warner analysis cited a person who is a homeowner and retires at age 67 with a superannuation account balance of $500,000 and uses $50,000 to purchase a DLA.
“At the date of purchase, the life expectancy of a 67-year-old male is 18 years (i.e. age 85). However, in our scenario, the DLA does not start making payments until age 87,” it said.
“Under the income test, only 60% of the payments from the DLA are assessed as income. However, no income is assessed at all until payments commence at age 87. Under the assets test, 60% of the purchase amount (i.e. $30,000) is assessed as an asset from the date of purchase for 18 years (.ie. to age 85), after which point only 30% of the purchase amount (i.e. $15,000) is assessed as an asset.”
“With $20,000 less counting for the assets test, this person will be entitled to $1,560 per annum more in Age Pension payments until their assessable assets falls below the lower threshold of $263,250 (or until age 85 if earlier).
With a small amount of other assessable assets (say $30,000), if this person invested the remaining $450,000 in an account-based pension and withdrew the minimum amount each year, they would be eligible to receive the additional Age Pension payments for about 10 years (.ie. to age 77) and they will accumulate to approximately $15,600 extra payments.”
Recommended for you
Governor Michele Bullock took a more hawkish stance on Tuesday, raising concerns over Donald Trump’s escalating tariffs, which sent economists in different directions with their predictions.
Equity Trustees has announced the appointment of Jocelyn Furlan to the Superannuation Limited (ETSL) and HTFS Nominees Pty Ltd (HTFS) boards, which have oversight of one of the companies’ fastest growing trustee services.
Following growing criticism of the superannuation industry’s influence on capital markets and its increasing exposure to private assets, as well as regulators’ concerns about potential risks to financial stability, ASFA has released new research pushing back on these narratives.
A US-based infrastructure specialist has welcomed the $93 billion fund as a cornerstone investor.
TOP PERFORMING FUNDS
ACS FIXED INT - AUSTRALIA/GLOBAL BOND
Fund name
3y(%)pa
1
Global X GlobalX FANG+ ETF
33.51 3 y p.a(%)
2
Spire Oaktree Opportunities XI Second Close
32.68 3 y p.a(%)
3
DomaCom Lot 21 Chellaston Road Munno Para West SA 5115 Australia
31.62 3 y p.a(%)
4
Spire Oaktree Opportunities XI First Close USD
31.36 3 y p.a(%)
5
Fidante Credit Suisse Global Private Equity
29.60 3 y p.a(%)
