Ma and Pa aren’t too keen.
Six months ago Ma and Pa lived in inner city Melbourne (or was it Sydney?). Their children had grown and all had families of their own and were struggling to pay mortgages. Ma and Pa owned their own house which had increased markedly in value over the decades. Listen in to their conversation.
“Ma, I really think we have to do something about the plan I’ve talked to you about. We have no savings to speak of and the old-age pension is hard to live on, what with the household bills and everything. We have no spare money to give the kids a treat now and again. And we wouldn’t be able to help them if they hit hard times.”
“Oh, I don’t know Pa, selling up and buying a small unit further out would be a big wrench. Still if you think it’s the right thing to do, I’ll go along with it.”
“Well Ma, if everything goes to plan we should have about $823,000, which the bank manager told could be invested and earn about $630 a week without too much risk.” [For the info of readers at a generous investment return in today’s climate of 4%. So, the bank manger must be steering them into shares for part of their capital.]
“But that is less than the pension, Pa”.
“Not too worry, Ma, Mr Howard made changes to the pension so that we’ll still get about $240 a week, which means we’ll earn $870 and have a bit of money to treat the kids and maybe save for a holiday one day. Also, we’ll being doing our part to help the country by taking much less pension. Mr Hockey said that we all had to pull our weight.”
Now let’s listen in again. It’s yesterday and Ma and Pa are in turmoil.
“Pa, can we get out of the contracts?”
“I am so sorry, Ma, but we’re stuck with them. I can’t tell you how sorry I am that I’ve messed things up.”
“But Pa, I don’t want to lose our house and be worse off in a small unit so far away. Are you sure that Mr Morrison is going to take our entire pension away?”
“I think so, Ma, he even thanked us for making the sacrifice.”
“Well you know what he can do with his thanks!”
Ma put her head in her hands and started to sob.
“Now now Ma, we’ll mange. We always have. I’ll put the kettle on.”
Ma and Pa’s identity has been suppressed because they feel embarrassed about the mistake they made. The moral of this story, for those with an ounce of compassion and common sense, is that you do not make precipitate and impoverishing changes to the financial position of pensioners. They have little opportunity to change course.
By the way if Ma and Pa are both 68 years of age and took out a joint lifetime annuity using $700,000 of their nest egg, with inflation protection of 3% per year, they could expect to earn about $540 per week in the first year. This is considerably less than the full pension of $649. Mr Morrison and his department have not done their sums. That is the least-worst interpretation.
Whatever the merits of tightening the current assets test it can only reasonably be done gradually and with long lead times. Moreover, it is incongruous, in any event, to penalise those with assets outside their modest family home while leaving multi-million dollar homes out of calculation.
Hopefully, there are enough senators of integrity to kill this measure. Surely I can’t be the only one, outside of those adversely affected, that thinks it stinks.