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Public service pensions: it could get worse

More financial pain could be in store for retired public servants around Australia if their state or federal government pensions were included in a toughened-up assets test for the Centrelink age pension, a leading superannuation expert has warned.

Daryl Dixon: the income test would have been fairer if it was only applied to new retirees
Daryl Dixon: the income test would have been fairer if it was only applied to new retirees Photo: Louie Douvis

Tens of thousands of retired police officers, firefighters and nurses, as well as former state and federal public servants, will see their Centrelink payments reduced under changes to the income test, known as the "10 per cent cap" which came into force on January 1.

Retirement income Daryl Dixon said on Wednesday that the income test would have been fairer if it was only applied to new retirees, but warned things could get much worse for hundreds of thousands of public sector superannuants around the nation.

Mr Dixon, who specialises in advising public servants, agreed with Social Services Minister Christian Porter that the cap changes would bring greater consistency between former government employees and their private sector counterparts.

"This does bring the treatment of defined benefit pensions more into line with the private sector," Mr Dixon said.

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"But what they should have done is apply it to new pensioners.

But the veteran advisor said that former government employees remained fortunate that their superannuation savings were not defined as an asset for the purposes of calculating Centrelink entitlements.

"Defined benefit pensioners are fortunate that their annuities are not subject to the assets test as is the case with private sector annuities purchased since 2007," Mr Dixon said.

The federal government says the changes simply bring the rules for retired public sector pensioners into line with those of other pensioners.

The Australian Council of Public Sector Retiree Organisations (ACPSRO) says that many retirees will only learn their incomes are to be slashed under the changes to the income test on the first pension day of the year.

The cap drastically reduces, from 50 per cent to 10 per cent, the proportion of a retiree's payments from their superannuation savings that can be exempted from the Centrelink income test for the age pension.

ACPSRO says it is getting calls from pensioners all around Australia whose incomes are being slashed, including a Tasmanian couple, whose only assets are their caravan and car, who have lost $161 a fortnight.

The council's president, Richard Griffiths, said the policy change ignored the original purpose of state super schemes which were fully funded and meant to provide a living income to the states' retired public sector workers.

"Alternatively the budget policy, which has been made in advance of any community-wide reform of national retirement income policy, was based primarily on an ideological dislike of public servants." Mr Griffiths said.

He said the original projection that 47,000 retirees would see their pensions cut through the revised cap now looked like a gross under-estimation with 5500 state superannuants in Tasmania alone who would see their fortnightly payments slashed.

"So the total for all the other states and territories, plus the Commonwealth, plus non-government retirees on schemes like UniSuper and residual corporate defined benefit schemes, seems likely to be much higher, even before affected families are included.

"The public sector retirees who are affected include not only what some might like to think of as just paper-shuffling bureaucrats, but retired teachers, firefighters, nurses and police, people whom almost all of the public would recognise as being useful citizens."

But a spokesman for Mr Porter said on Tuesday that changes were about ending an anomaly that gave an advantage to defined benefits pensioners.

"We simply want people to be treated consistently," the minister's spokesman said.

"This change will enable a fairer assessment of a person's need for income support.

"Under the previous rules for defined benefit income streams, there was an anomaly which resulted in some people having a higher deductible amount, and consequently higher income support payments.

"This meant that they may be receiving more income support than people who had the same amount of income from a different source.

"What we are trying to do is have a system that treats people consistently and equally."

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