Federal Budget 2014: Age pension changes mean Australians must take control of their financial futures earlier

OPINION: Forget about help from the government or inheritances from mum and dad. This is why you need to take control of your financial future now.

FORGET about financial help from the government or inheritances from mum and dad. Fresh changes to the age pension and retirement rules mean that now is the time for Australians to seize control of their own financial future.

Treasurer Joe Hockey says the age of entitlement is over, and we are also facing an end to the age of inheritance as older Australians are forced to dig deeper into their savings and their homes to cover their living costs.

Last week’s Budget illustrated the new way of thinking, with a range of measures to tighten the rules around how much pension people can get, and when they can get it.

The key Budget change is the plan to lift the age pension eligibility age to 70 from 2035. This hits anyone born after 1965, but the pension age is already set to gradually rise from 65 to 67 over six years from 2017.

Impact Financial Coaching director Allan Ward said the Budget sent a message that Australians would have to plan to pay for their own retirement in the coming decades.

“For people who are retired or nearing retirement, the pension will be there, but people in their 40s have had compulsory super in place for most of their working life,” he said.

He said these people would be “nuts” to expect to rely on a pension 20 or 30 years from now.

CommSec chief economist Craig James said many Australians felt they were entitled to receive benefit payments, an age pension and free health care no matter what their income or circumstances were.

“The Government is seeking to change that first, in terms of a change in mentality, and second, in financial terms, but phased in over time,” he said.

Mr Ward said the age of entitlement was over and he respected any government that addressed the ageing population.

He said Australians should realise that inheritances were also disappearing.

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“It used to be that you would get your inheritance before you retired, but now that’s not the case. Many people in their 60s have at least one parent, possibly all four for a couple, still alive,” he said.

“If you are banking on (inheritance) money being available when you retire, in most cases it won’t be. Also, aged care is expensive and can gobble up a lot of elderly parents’ assets.”

Thousands of retirees aged over 60 are topping up their pension payments by dipping into the equity in their homes. Latest statistics show more than 40,000 Australians have borrowed $3.5 billion through reverse mortgages.

Prescott Securities financial adviser Helen Dundon said Baby Boomers did not have the luxury of a working lifetime of compulsory superannuation to provide a big nest egg, so their children should not be expecting inheritances.

“The Baby Boomers are healthy, fit, they’re travelling, they’re spending, and they’re underfunded moving into retirement,” she said.

Ms Dundon said the best strategy was to invest money, both inside and outside of super, as early as possible in life. For many people, paying off a mortgage debt faster can be a better financial option than locking it up in super for decades.

“It’s never too late to start, and don’t rely on the government,” Ms Dundon said.

BDO private wealth partner Tony Simmons said anyone in their 40s worried about having to work until 70 should focus on building a healthy super balance.

“The superannuation preservation age has not been changed, meaning people who want or need to retire before 70 will be able to access their super from age 60 — but they will need to ensure they have enough saved,” he said.

Catapult Wealth director Tony Catt said the Budget did not tinker with the super rules despite speculation about possible changes.

“It shows confidence that the system we have will help people provide for their retirement,” he said.

Financial advisers recommend that people should pay for the future before paying their daily bills, by setting aside 5-10 per cent of their wage each week in a savings or investment account before they have a chance to spend it.

“Advice, planning and goal setting are important. They were as important before the Budget as they are after it,” Mr Catt said.

MyBudget director Tammy May said people of any age could do something now to brighten their finances. “My best advice is to take an interest in your financial future as no-one else will do that for you,” she said.

“Planning is key, as is saving. And while it’s true that the sooner you plan and the sooner you start a savings account, the better it is, it is important to remember that it is never too late.”

Originally published as Federal Budget 2014: Age pension changes mean Australians must take control of their financial futures earlier