2016/11/24 by Johan Andréasson, Andreasson, Johan G., Pavel V. Shevchenko +1
Business, Management and Accounting · Decision Sciences · Social Sciences · #91 #FOS: Economics and business #Financial Literacy, Pension, Retirement Analysis #General Economics (econ.GN) #General Finance (q-fin.GN) #Retirement, Disability, and Employment #demographic modeling and climate adaptation
paper · pdf · doi:10.48550/arxiv.1611.08330
openalex publication_date 2016/11/24 · openalex created_date 2022/09/27 · openalex updated_date 2026/07/28
The Australian Government uses the means-test as a way of managing the\npension budget. Changes in Age Pension policy impose difficulties in retirement\nmodelling due to policy risk, but any major changes tend to be `grandfathered'\nmeaning that current retirees are exempt from the new changes. In 2015, two\nimportant changes were made in regards to allocated pension accounts -- the\nincome means-test is now based on deemed income rather than account\nwithdrawals, and the income-test deduction no longer applies. We examine the\nimplications of the new changes in regards to optimal decisions for\nconsumption, investment, and housing. We account for regulatory minimum\nwithdrawal rules that are imposed by regulations on allocated pension accounts,\nas well as the 2017 asset-test rebalancing. The new policy changes are modelled\nin a utility maximizing lifecycle model and solved as an optimal stochastic\ncontrol problem. We find that the new rules decrease the benefits from planning\nthe consumption in relation to the means-test, while the housing allocation\nincreases slightly in order to receive additional Age Pension. The difference\nin optimal drawdown between the old and new policy are only noticeable early in\nretirement until regulatory minimum withdrawal rates are enforced. However, the\namount of extra Age Pension received for many households is now significantly\ndifferent due to the new deeming income rules, which benefit slightly wealthier\nhouseholds who previously would receive no Age Pension due to the income-test\nand minimum withdrawals.\n