The Devil’s in the Budget detail

As Treasurer Joe Hockey now traverses the politics of his first Federal Budget, the superannuation and retirement incomes sector is busy absorbing some of the devil in the Budget detail.

While the headline measures such as increasing the pension age to 70 were flagged in advance of Budget night, and hence a reasonably predictable outcome, other initiatives like pension indexation changes were a surprise.

The pension indexation measure of last week’s Hockey Budget seeks to repeal a legacy of former Labor Treasurer Paul Keating that indexed age pension rises in line with the average earnings of Australian males (and subsequently legislated by the Howard Government from September 1997).

This is a fundamental shift, and delivers an air of uncertainty to those planning for retirement. The Age Pension will almost certainly fall in value should the Coalition get its way and the pension becomes indexed to prices (inflation). At present, it is indexed to pensioner CPI but the total pension is benchmarked to male earnings.

Such a change requires an act of legislation. And, given the tone of the Budget response by the Opposition, a torrid time is expected in the Senate over this and other changes to education, health and the fuel excise duty. 

Other retirement uncertainty also prevails. Should the Commission of Audit recommendation to bring the family home into the assets test get a green light, many homeowners will receive reduced pensions.

The question for superannuation funds in light of these changes is: exactly what do you tell fund members about how much they need to save for retirement?

Aside from the obvious challenge of recalibrating projections (and retirement calculators) based on the new inputs, a bigger challenge might also be in the wings.

And that challenge is the potential risk that some members think it all too hard and simply invest in an investment property instead.

The devil, as they say, will be in the detail.

– Michael Rice, CEO.