Reforming the Age Pension

[Denis-NFA]

This article appeared in The Australian this morning and I think it has a lot of merit.

The author is detailed here en.wikipedia.org/wiki/Cassandra_Wilkinson

The old view is narrow

CASSANDRA WILKINSON
The Australian
April 26, 2014 12:00AM



IN political debate, up until the age of 65 we are rich or poor, abled or disabled, enterprising or idle, but suddenly at retirement the population becomes one mass of people understood only as “old”. The old are no more a single group with universal needs than are the young or the middle aged. Some are needy, some are well provided for. Some can work, some cannot. Some need the community’s help, many do not.

As long as we treat the elderly as a single group, the less needy have benefited from belonging to the same club as the genuinely needy. Wealthy retirees gain access to Seniors Card discounts, cheaper medicines and transport concessions. While sharing status in this way in the past may have been simply unfair, it is now about to become quite detrimental to the needy who will be swept up in general reforms necessi­tated by the rising cost of supporting people who shouldn’t be in the system in the first place.

The wealthy who access pension benefits are so numerous that they are making the system unsustainable. The responses that now appear inevitable, to raise the age of retirement for everybody and hold down the rate of increase in the stipend, will acutely affect the people who actually need income support while only marginally affecting those who don’t.

There are two solutions to this challenge. The first is to properly implement superannuation as the better retirement option for everyone who can work and save during their lifetime. While the present generation of retirees and the one coming next have not had superannuation for their full working lives, the next will have been contributing for their full careers. By this time superannuation must not be seen as the money you spend first before going on the pension or the money you top up with enough pension to qualify for seniors benefits. Both parties should commit to this — Labor as the architect of superannuation as an alternative to aged poverty and the Liberals as champions of self-reliance.

The second necessity is to deliver welfare for the aged the same way we deliver welfare for everyone else: targeted and means-tested. Carers who have not been able to work full time and accrue superannuation cannot be expected to fight over a bucket of money diminished by people who have assets and investments they would prefer to leave to their children than spend on their own care.

People who have struggled to participate in full-time employment because of sickness are not as well placed to save as those who have benefited from a lifetime of good health. It makes no sense to suddenly treat all these people as one group with one required response from government. Which brings us to one of the unspoken issues in the debate. Many people support our effectively universal access to pensions because they don’t want their parents’ wealth to be dimin­ished before their inheritance. This amounts to a general taxpayer subsidy to those whose families have enough wealth to disburse on death.

There has lately been a revival of debates about inheritance taxes as a partial remedy for inequality. The simpler and fairer path is to stop subsidising the wealth preservation of higher-income families through the pension system. As we live longer it makes sense to recognise our increasing number of productive and healthy years with a higher age of retirement. But this must not be a lazy proxy for serious pensions reform that separates the needy from the freeloaders.

www.theaustralian.com.au/opinion/columnists/the-old-view-is-narrow/story-fnhuliiz-1226896167534#

[Banjo]

Joe Hockey’s pension bomb

JUST five years before the outbreak of the war we remember today Australia laid the first foundations of a social security system. That system ­remains largely unchanged in structure more than a century later.

When the national aged pension was first introduced in 1909, however, very few people were expected to live long enough to get it.

Set at 26 pounds a year, or around $50, it only kicked in when men and women reached the age of 65.

At the beginning of the 20th century, that wasn’t many people. The life expectancy for men back then was just 55 and for women it wasn’t much longer.

The aged pension wasn’t exactly a drain on the federal budget. It was a very humble start to a state welfare system designed as a safety net for those who lived long enough to have a life after work.

The big difference now is that people obviously live longer. A lot longer.

As a consequence the pension has grown from being a modest replacement to the private charity that people once relied on to the single largest item of Government expenditure.

Millions of people now live well beyond the eligible pension age, which is a good thing. Of those who do, around 80 per cent receive either a full or part pension, which isn’t such a good thing when you are trying to work out how to pay for it.

According to the Government’s Commission of Audit, within a decade the cost of sustaining the aged pension in its current form is likely to reach $72 billion a year. This is almost twice the spending of any other area of the budget.

There are few remedies available to the Federal Government to deal with this as it also ponders the related issue of a shrinking tax base. You can either raise taxes or raise the pension age. Both are political poison.

The time has long passed for Australians to face the grim reality that this sort of expenditure, like many similar demands on the public purse, has become unsustainable.

The difficulty for Treasurer Joe Hockey is how to address the intergenerational dilemma which has produced a generation of under 30s living on an extended childhood, a generation of 55 year olds who want to retire and the rapidly growing group of over 65s who are retiring poor.

He has to wean the nation off welfare while limiting the fiscal burden that now rests with the productive generation — average families and working individuals, trying to make ends meet. The size of this burden is about to become very apparent in tighter means testing for income support and co-payments for government services such as Medicare.

But the May budget will only be the start. The really hard stuff is yet to come.

The Commission of Audit and its 86 recommendations to be released next Thursday is what senior Government sources describe as “blue sky stuff”. It’s the stuff that politics prevents a government from doing.

If there is one thing Tony Abbott has learnt from Julia Gillard it is that broken election promises will sink you.

So this budget is unlikely to contain anything that could be construed as such and will be focusing in the short term on government spending.

The aged pension has always been regarded as a cut of last resort. Politics will demand that tackling pension indexation is about the only thing the government can really do to avoid being turfed out of office.

But even then, pensioners will only accept taking a hit to pension rises if everyone else is taking one too. They won’t cop it if the government isn’t also kicking people off the dole and taking on the bludgers who rort schemes such as the disability support pension.

There is an important distinction to be made too between what the Government is likely to do in this budget, and what the Opposition are certain to accuse it of.

What Hockey revealed this week was that the first function will be to arrest the annual rises in spending in 15 key areas identified in the Audit Commission.

In other words, most people won’t lose money in this budget. They just won’t get the increases every year they may have expected.

The really hard stuff that the audit will call for, such as wholesale structural reform on the intergenerational issues — raising the pension age to 70, raising the GST, asset testing, DSP reform and how super will fit into this new retirement equation — are likely to be canvassed in the budget.

But they are unlikely to appear as immediate or imminent measures.

These are things Tony Abbott and Joe Hockey will have to seek a new mandate for, mindful of the lessons Labor learned that the ‘battlers’ of Australia are always the difference between Government and opposition.

www.dailytelegraph.com.au/news/opinion/joe-hockeys-pension-bomb/story-fni0cwl5-1226895265396