There have been claims the pension age will be raised to 70, and pensions cut. Will the assets test be tightened, or the family home included?

Will the tax concessions on super be reduced? How likely are these changes, and what action should people take before the budget?

Most rules affecting retirement income policy were introduced by past governments after careful thought. One that wasn’t and that continues to grow quickly, costing the budget large sums, is the ‘transition to retirement’ strategy. 

This involves workers over age 55 using their accumulated superannuation to start a pre-retirement pension providing extra cash income.

This enables them to sacrifice more of their salary into super. This eliminates earnings tax on the pension account and cuts personal income tax sharply.

When it allowed people to start a super pension before retirement a few years ago the Government surely did not foresee tens of thousands of workers using this strategy.

It seems the most likely to be changed in the coming budget. People over age 55 should get in now while they can. 

The Government may revert to the old rule that people must be retired to access their super.

Such a change would have no retrospective impact with pre-retirement pensions already in place continuing on.

The Government could start taxing the earnings of pension fund accounts. This would be politically saleable if the rate was low.

The tax on super accumulation fund earnings is 15 per cent, so any tax on pension funds would need to be below that. 

The Government could raise the preservation age, the minimum age at which retired people can access their super. It is already set to increase from 55 to 60 between 2016 and 2024. The Treasurer could raise it beyond that but doing so won’t fix his budget problem now.

The Age Pension age is also set to rise, from 65 to 67 between 2017 and 2023. If the formula is continued to age 70 it will take until 2035 to get there. That might be politically saleable as it’s so far off but it won’t fix the current deficit problem either. 

Cuts to the rate of age pension payments were ruled out by the Government during the last election campaign.

They would not be saleable to the electorate and will not happen. Minor changes to the rate of indexation of payments are possible. 

Tougher assets and income tests are a possibility. Currently a couple’s annual income must be over $73,247 or their assets, excluding their home, over $1,126,500 to prevent them receiving any pension. Many people would accept a modest tightening, even retirees.

The formulae on both tests could be adjusted to phase out entitlements more quickly. Some people at the top end of the scale would then miss out.

This would help the budget now. However it is difficult to earn a good income at today’s interest rates.

A great deal of capital is needed. 

The electorate would react badly to any plan to include the family home in the assets test, except for very expensive homes. Only the value in excess of say $2 million might be included.

Many elderly people bought average homes decades ago in areas that have become sought after since and highly valued.

If they have few savings should they miss out on the pension? There was no compulsory employer super when they were working. 

An old chestnut that is wheeled out to scare the naive is forcing retirees to take their super as a pension, with a ban on lump sums. 

This is not politically saleable. Interestingly the UK is going the other way, recently legislating to allow lump sum super benefits.