Tens of thousands of public sector pensioners are learning the scale of changes to their defined benefit schemes that sees cuts to exemptions for the Centrelink pension income test.
In June last year the federal parliament introduced a 10% cap on defined benefit income that can be excluded from the pension income test, effective 1 January 2016. The cap was previously 50%.
The new cap is expected to generate more than $465 million in budget savings over forward estimates. Before the new cap was passed in the Senate, Queensland Senator Claire Moore said about 46,000 pensioners will see their allowance reduced by an average of $2,150 a year or $82.70 a fortnight.
Western Australian Senator Rachel Siewert also said in June that 65% of those on a defined benefit income will not be affected. Both Senators supported the cap but expressed concerns over a lack of consultation with potentially affected parties.
The cap's introduction has angered public sector retiree groups, claiming pensioners were formally notified mid-December about changes to their pension.
Superannuated Commonwealth Officers' Association (SCOA) federal president Annette Barbetti said the association had received more than 100 phone calls and emails from concerned pensioners.
The peak body representing Commonwealth, State, Territory and other public sector retirees, the Australian Council of Public Sector Retiree Organisations (ACPSRO), said in a statement this week there was an anomaly whereby public sector retirees who had been members of defined benefit funds paid about 5% of their after tax income back to the government. After they had retired or resigned, that money was returned to them.
"In some schemes they were required to use 50% of it to purchase an additional pension at a cost to them that had been set by government actuaries, as laid down in the relevant legislation, and some were able to use the balance to purchase further pension, again with their after-tax contributions," Griffiths said.
He added modern defined contributions super schemes rely on pre-tax contributions from employers, plus any largely pre-tax salary sacrifice contributions from the employee, with all contributions being taxed at 15% upon contribution, plus a further 15% annually of investment earnings within the fund.
He said as a result "account-based pensions" are tax-free in the hands of the retiree, and for several years were not assessed under the Centrelink income test for access to a part Age Pension.
That government changed this last year but Griffiths said "that deeming measure has been grandfathered, and does not apply to account-based superannuants who were already receiving a part Age Pension."
Both groups are calling for grandfathering arrangements to be applied to the new cap.
A spokesman for the Minister of Social Services, Christian Porter, said the change is about ensuring fairness in how income is treated when deciding how much taxpayer income support a person should receive.
"Defined benefits are a generous form of income for the income test. As a result of the changes made in 2007, there were people receiving over $100,000 a year from a defined benefit income stream and still receiving the age pension. We are fixing the unintended consequences of this previous change to enable fairer assessment of a person's need for income support," the spokesman said.
"At a time when expenditure on the age pension was projected to rise from $39.5 billion in 2013-2014 to $72.3 billion in 2023-2024 without any changes, the government considered this to be a fair and reasonable measure to support the sustainability of Australia's welfare system.''
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