Pension changes: not fair Joe

August 31, 2014
Close-up of senior woman in contemplation. Image shot 2006. Exact date unknown.

The government’s plans to change the age pension will make Australia a less fair and equal society, and worsen poverty among the elderly. If you’ve been worried about surviving in retirement, the government’s cost-cutting measures give you more reason to lose sleep. The proposed changes  mostly won’t take effect until 2017 but have already passed the House of Representatives.

Action is needed to make our retirement income system more sustainable. People are living longer than expected, and pension and superannuation costs are set to rise. But like all issues to do with the budget, it’s a matter of basic fairness. With the pension changes, it’s poorer people, not the well-off, who’ll be doing the heavy lifting. It’s people with a history of casual, contract or part-time work, women who’ve taken time out of the workforce to have children, carers, renters, and those with a history of low or modest wages who’ll be worst affected.

The most contentious proposal in the May budget is the indexation of the pension to the Consumer Price Index (prices of goods and services). Currently pension rises are linked to whatever is the highest measure – average male fulltime weekly earnings, the CPI or the Pensioner and Beneficiary Cost of Living Index. The Council on the Ageing (COTA) has calculated that if the pension had been linked, as the government now plans, only to CPI since 2009 it would be $30 a week or $1560 a year less. Compared to the rest of the community, pensioners’ living standards would go backwards, falling below what’s needed for a modest retirement lifestyle.

The indexation change “will affect full pensioners worst; people with the least assets and other income will be hardest hit,” says COTA Australia CEO Ian Yates. Raising the pension age to 70 by 2035 will also affect low-waged and manual workers more than managers and professionals. These measures were introduced without public consultation and despite election commitments of no change to pensions. To be fair to the government, its abolition of the $800 Seniors Supplement for self-funded retirees and tightening of eligibility for the Commonwealth Seniors Health Card are moves in the right direction that Labor should support.

A new report by the progressive think tank Per Capita argues that our pension and superannuation system does need fixing – but just not in the way the government proposes. The report, The Entitlement of Age, by Emily Millane  argues we need to target more support to people who need it most while encouraging people to save. We need to tighten eligibility for the pension and change the system of super taxation.

“It is manifestly unfair,” Emily says, “that people who do not need public money should receive it, through either the age pension or superannuation tax concessions, when others who are more needy are struggling.”

Some changes to the pension are in order. For example, people can claim the age pension despite owning a multi-million dollar home and having a second property or other assets worth around $1 million. Public funds are being used to provide a very comfortable lifestyle to people who are already asset rich. Is this fair? The report supports continuing to exclude the family home from the pension assets test. But it recommends reducing the amount of other assets you can have before it affects your pension from $202,000 for singles, and $286,500 for couples to $100,000 and $150,000 respectively.

The report suggests a way to make this proposal more politically palatable. The government would provide loans to people excluded from the pension under the proposed new assets test. And the loan would be repaid out of the money from their estate. What do you think?

The other way the current system cushions wealthier Australians is through the superannuation tax concessions. This is where the greatest inequities lie. Over 50 per cent of the super tax concessions are paid to Australia’s top 20 per cent of income earners, according to Treasury. Top salary earners who pay a marginal income tax rate of 45 per cent can avoid tax by putting all their spare cash into super and pay only 15 per cent. It’s too big a tax lurk. Instead of making the system fairer the government is going in the opposite direction. It will abolish the Low Income Superannuation Contribution for people on less than $37,000. And it’s abandoned Labor’s plan to tax the super contribution of people earning more than $300,000 at 30 per cent instead of at 15 per cent; and it won’t go ahead with the proposed taxation on super that provides an income of $100,000 or more.

Superannuation gets complicated (do read Emily’s full report). But the cry for reform is coming not just from progressive think tanks but from the former Treasurer Ken Henry, and the CPA (chartered accountants) and the Actuaries Institute.

If the government wants to balance its books it has be fair to young and old. It can’t ignore the inequities at the heart of our retirement income system.  COTA is calling for an independent Retirement Incomes Review to look at the full picture of pension and super, assets and income. Here’s the link to the COTA Hands Off the Pension petition.

Have you been able to save enough for retirement? Please leave a comment

Coming of Age is updated every Monday. Click ‘Subscribe for free’ to get it emailed to you.

Recent Posts

    Help wanted: older workers please apply



    Lyn McDonald was always attracted to the funeral industry. But it wasn’t until she was 62 that she finally got her dream job – memorials manager for a big lawn cemetery and crematoria. Two years into the job of selling …


    read more...

    Cheap and exotic: the overseas retirement option



    Retirees who face the prospect of a frugal existence in Australia’s high cost cities are taking off to live in Asia where their pension and super go further. Can you imagine doing that – selling up the family home or …


    read more...

    Friends across the ages



    My mother is feisty, informed and opinionated but she’s 86 and often finds herself sidelined by younger people. By ‘younger’ I mean anyone from teens to 60s. At a recent social gathering, she was treated as the invisible woman by …


    read more...