FLAWS in the Abbott government's plans to block wealthy retirees' access to the age pension may result in them being unable to draw an income if their superannuation provider goes bust, an expert says.
Government budget changes will reduce the asset threshold for part-pension eligibility to $823,000, forcing about 91,000 Australians off the benefit and reducing pensions for another 235,000 people.
QUT Business School pension expert Dr Anup Basu, who has examined the policy in detail, says the policy, although designed to be "fair", will have "unfair consequences".
While lowering the threshold should make the pension accessible only to those who needed it, "simple arithmetic" showed the changes were "deeply flawed", he said on Thursday.
Dr Basu said under the new rules and based on rates from major providers, a retired 65-year-old couple who owned their own home and had $823,000 in liquid assets could draw an annual income of less than $29,000 in the current low-interest environment by buying an inflation-protected lifetime annuity.
However, while the current assets tests treated annuities as a "reducing asset value", a lifetime annuity meant retirees would need to hand over all their savings to a private provider to guarantee a regular income.
Dr Basu he said that "guarantee" from private providers was not as certain as a government pension as "adverse circumstances" could change the provider's ability to pay the promised income.
"In contrast, a retired couple who own their home and have liquid assets up to $375,000 would receive the full pension and associated supplements close to $34,000 per year, plus the benefits of many other government concessions," Dr Basu said.
"The 'wealthy' retiree couple who bought the annuity would not get back their original savings of $823,000, at least if they live as long as the average Australian."
Dr Basu said while lower income couples would get a "risk-free government pension", wealthier couples would be worrying about financial markets.