The SMSF Association is voicing its concerns over changes to the assets test rules for the Age Pension, that is discouraging retirement savings and has other "detrimental" behavioural effects one year on.
SMSF Association chief executive John Maroney said changes to the means test taper rate and thresholds, which came into effect on 1 January 2017, reduce the entitlement to the Age Pension as a person or couple's assets increase, leading to "significantly adverse and presumably unintended consequences."
The changes have a significant impact on middle-income earners who have accumulated an average-sized superannuation balance and benefit from a part Age Pension payment that supplements their superannuation income, he said.
"For home-owning couples who have a superannuation balance between $500,000 and $800,000, the increased taper rate creates a 'black hole' where their assets above the asset test free amount cause them to be worse off in terms of income," Maroney said.
"This is caused by the taper rate of the equivalent of 7.8% a year, reducing their pension entitlement at a rate exceeding the income they earn from their superannuation balance above the asset free area. This is especially so in a low interest rate and investment return environment."
Consequently, middle-income earners are discouraged to save for retirement and leads to "detrimental behaviour effects" such as providing an incentive to shift investments from assets that are included in the means test (e.g. superannuation) to those that are excluded (e.g. the family home), he added.
While the association supports appropriately targeted means testing to ensure the sustainability of the Age Pension, its biggest concern is this measure isn't appropriately integrated with the broader retirement income system.
"We believe having the superannuation and social security systems properly integrated is a key facet to achieve an efficient and sustainable retirement income system, and that the current siloed approach to policy making in these areas is creating perverse outcomes for individuals and couples," Maroney said.
The association agrees with the proposals of the Australia's Future Tax System Review, recommending that a single comprehensive means test is used to ensure that assets are fairly accounted for, he said.