Spending in Retirement and the Taper Rate
A Dialogue Paper exploring spending in retirement and the taper rate.
Written by leading superannuation actuary and PPCC member, Andrew Boal, this Dialogue Paper argues that the asset test "taper trap" encourages some retirees to spend their savings quickly, and risk living on the Age Pension alone. To avoid the "trap", Andrew concludes that all Australians, but especially a "middle group" of Australians with between $300,000 and $800,000 in retirement savings, need:
- encouragement to acquire longevity protection to give them confidence to spend more in retirement, to live a better life;
- a more equitable taper rate that does not unduly encourage retirees to spend their savings too quickly; and
- low-cost access to financial information and advice to help them make better decisions because the retirement landscape is highly complex.
Andrew Boal joined John McLenaghan on the Actuaries Institute podcast to discuss the key points and recommendations of the Paper.
"The taper rate is essentially a means of reducing access to the age pension for those that don't need it as much," Andrew explained.
"We get a full age pension for people who have a low amount of assets and low income in retirement, and they're in greater need for income support from the government. But for those that are more well off and need less assistance, they gradually become less entitled to the age pension, to the point where wealthier individuals receive no age pension at all."
Andrew emphasises that the system is complex, and many people would benefit from low-cost access to information, guidance and advice. In addition, any changes to the system need to consider the inter-connectedness of its various policy levers.
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