I was really happy to read your July 31 comment on "MS's" question to you and "unfairness" reference therein as "angry but illogical". These people are determined to squeeze the last cent out of everything and then go and complain about it. Good on you. They feel they can manage the country's entire financial system to give them not only what they want but what they reckon they deserve. A.N.
It was interesting to note that in his recent farewell speech, Reserve Bank governor Glenn Stevens thought the subject important enough to mention. "At present general public debate starts with commitment to the need for reform and for putting public finances on a sustainable medium-term track," Stevens said. "But when specific ideas are proposed that will actually make a difference over the medium to long term, the conversation quickly shifts to rather narrow notions of ''fairness'', people look to their own positions. If we think this rather other-worldly discussion will not have to give way to a more hard-nosed conversation, we are kidding ourselves. That will occur should there be a moment of crisis, but it would be better if it occurred before then."
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I was interested to read on July 31 you rounding on someone who might have been more angry than justified about the changes to defined benefit pensions. On June 23, 2014, the Senate passed a bill that dealt with the income test treatment of defined benefit pensions. Minister Morrison had found that some beneficiaries of such a scheme, a couple earning $120,000 between them, were drawing a part age pension of $7500 a year. This earned them the title of "fat cat public servants", who had been fortunate enough to "fly under the radar" of the income tests by virtue of an anomaly created in the 2007 Costello budget.
I retired in 2008, age 67 and on the eve of the global financial crisis. A lymphoma sufferer, diagnosed in 2000, I had increased my contributions to the maximum allowable in the Public Service Scheme (PSS). But in 2008, I was ignorant of the possibility of drawing a part age pension. It had never been mentioned in any PSS retirement seminars. Eventually a financial adviser pointed out that this was permissible since the 2007 budget. Because of this part pension I was able to take advantage of one special provision of my defined benefits scheme, viz. the reversionary super that goes to a remaining spouse. If one takes only 93 per cent of the available super pension, it increases from 67 per cent to 87 per cent. Here was a chance of doing some proper financial planning for my retirement, to weather the GFC and anticipate my possible early demise. My spouse is nine years younger, retired and with super of a mere $30,000. I have a daughter struggling with post-traumatic stress disorder. My wife will still get the reversionary super pension, but since January 16 this year neither she nor I are drawing the helpful part age pension that made such careful planning possible. Do you think my anger is justified, and is there any chance of the Senate repealing the unfair 2014 bill passed in such haste at the end of that financial year and brought into effect within a mere six months? A.M.
The option you mention, of taking 93 per cent of your retirement pension benefit and thus increasing the PSS reversionary benefit to your wife from 67 per cent to 87 per cent of your pension, is a well-known PSS retirement option. I should point out that if your daughter can be defined as a financial dependant, then your reduced pension sees the reversionary benefit rise (for a spouse and one child) from 78 per cent to 97 per cent. You should check this out.
These details were spelt out in the old 98-page PSS Super Book that told you everything you need to know about the fund but has now been discontinued in favour of an eight-page Product Disclosure Statement. The PDS and the website's fact sheets are simplified beyond any usefulness. The PDS doesn't even mention that members must take a minimum 50 per cent of their benefit as a pension. It denies facts to public servants, instead telling them to seek advice from the in-house adviser. As such, it is shockingly devoid of necessary data and best left to hang in outdoor dunnies. If it was a private-sector document, the regulator would be down on it like a ton of bricks. I strongly urge PSS members to complain to the Commonwealth Superannuation Corporation.
I can only sympathise with someone with your health problems, though it would have helped the discussion if you had indicated the size of your PSS pension. The income derived from your after-tax contributions and earnings, usually 15 to 30 per cent of the pension, would form a tax-free component ignored by Centrelink, which would only count the taxable employer component. This must be greater than $79,067 a year to eliminate a part age pension.
If it's any help, should your health diminish to the point that you meet Centrelink's definition of a "couple separated by illness", a part age pension is payable on incomes up to $98,478.
I have no idea whether the bill will be repealed.
Your robust reply to MS (July 31) highlights the problem with super. The total balance can be withdrawn and spent only for the retiree to then rock up at Centrelink for a pension. In Europe only 20 per cent of the super balance can be withdrawn, 80 per cent must buy a pension, thus doing what super was meant to do! This simple rule would stop high net worth individuals using super as an effective tax investment vehicle and the government from the need to make the current proposed changes. That, as you say, will not happen for years – but it should. J.L.
Thank you for that. It is rewarding to note that not all opinions are in favour of milking the system. Time for a hard-nosed discussion.
If you have a question for George Cochrane, send it to Sunday Money, PO Box 3001, Tamarama, NSW, 2026. All questions answered. Helplines: Financial Ombudsman, 1300 780 808; Centrelink pensions, 13 23 00.