Spending in retirement and the taper rate

In line with the successful launch of the Dialogue paper Spending in retirement and the taper rate, author Andrew Boal recently joined John McLenaghan on the Actuaries Institute podcast to discuss the key points and recommendations of the paper.

Download the Dialogue Paper, listen to the podcast, read the transcript, and keep reading for a summary of the conversation.

Listen to “Spending in retirement and the taper rate” on Spreaker.

In the paper, Andrew Boal, Convenor of the Institute’s Retirement Strategy Group, argues that the asset test ‘taper trap’ encourages some retirees to spend their savings quickly, and risk living on the Age Pension alone.

“The taper rate is essentially a means of reducing access to the age pension for those that don’t need it as much. So, we get a full age pension for people who have a low amount of assets and a low income in retirement, and they’re therefore in greater need for income support from the government, which is ultimately the taxpayer,” Andrew explained.

“But for those that are more well off and need less assistance, then they gradually become less entitled to the age pension, to the point where wealthier individuals receive no age pension at all.”

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 more dignified retirement. 

It was also concluded that a more equitable taper rate was needed, that does not unduly encourage retirees to spend their savings too quickly.

Furthermore, Andrew outlines how the system is complex, and many people would benefit from low cost access to information, guidance and advice, to help them make better decisions because the retirement landscape is highly complex.  In addition, any changes to the system need to consider the inter-connectedness of its various policy levers.

The Dialogue is a series of papers written by actuaries and published by the Actuaries Institute. The papers aim to stimulate discussion on important, emerging issues.

Download the Dialogue Paper.

CPD: Actuaries Institute Members can claim two CPD points for every podcast listened to.