I have complained about the media in this blog previously, particularly in relation to their inability (on occasion) to publish articles that are factual, balanced and informative so as to help people weigh up the pros and cons of any situation, and then make an informed decision.
So what has got me on my soap box again?
On 28 May 2015, the Australian Financial Review published an article on their front page regarding an age pensioner named Noelene who, as a result of the “proposed” changes announced in the budget regarding the assets test and age pension entitlement, has decided to withdraw $25,000 from her superannuation to go on an Alaskan Cruise.
“An Alaskan vacation will save Noelene’s pension. To save $4,000 a year in pension payments, Sydney housewife Noelene this week withdrew $25,000 from her superannuation savings and bought a holiday cruise to Alaska.”
– Australian Financial Review 28 May 2015
Firstly, let me say good on you Noelene! You deserve your Alaskan holiday and no one should feel guilty about withdrawing money in retirement to enjoy your life and tick items off your bucket list.
What I find infuriating is that the figures used in the article to justify Noelene’s decision make absolutely no sense.
Noelene draws an income of $24,000 per annum from what I assume is an account based pension with a balance of $400,000. In addition to this, she receives a government pension which again, I assume is the age pension of $490 per month (or $5,880 per annum) giving her a total annual income of $30,000.
If Noelene was currently paid under the assets test using an asset total of $410,000 (account based pension plus $10,000 in personal assets), she would be entitled to $548 per fortnight or $14,248 per annum.
So assuming again the information provided in the article is correct, Noelene’s age pension must be assessed under the income test. Even if all of the $24,000 that she is drawing from her account based pension was assessed as income under the income test, she would still be entitled to an age pension of $9,556 per annum.
Again, I can only assume that there is quite a bit of missing information regarding Noelene’s circumstances!
Now, the article states that by drawing a lump sum of $25,000 from her account based pension and spending it on her Alaskan cruise she will “save” $4,000 pa in pension payment. I have no idea how she would save this amount of money in pension entitlements.
Based on the “proposed” changes to the assets test the most she would “save” is $1,950 per annum.
Let me be clear: if Noelene is assessed under the asset test, her age pension will reduce under the proposed changes by approximately $160 per fortnight or $4,160 per annum. Surprise, surprise, this equates to the 13.5 % drop in annual income mentioned in the article. This of course is based on the assumption that her annual income totals $30,000.
Going on a holiday to Alaska will ensure her age pension only falls by $85 per fortnight or $2,210 per annum.
I am not going to get all political and argue that the new changes are right or wrong, but I firmly believe that if people are going to make informed decisions about the justification of any changes, they should certainly have correct information and not be swayed either way by incomplete data or a shallow emotional argument.
Sadly, many clients read “shock” articles like the one published in the Australian Financial Review and then rely on them to make irrational decisions about their own financial future, often based on incomplete, at best, or incorrect, at worse, information.9