The age pension is no con job, though super concessions may well be

February 9, 2014

By Emily Millane

Try seeing a heart specialist with $39 to spend on health a week. Or paying for all your week’s groceries with $76. The age pension won’t let you do that.

Yet the age pension is considered a pile for the sizeable group of older Australians who are on Newstart but do not yet qualify for the pension.

A quarter of all recipients of Newstart, which is set at $100 a week less than the pension, are over 50 years of age. Most of these people would prefer to be in work, but face discrimination in securing it – even part-time or casual work.

Yet we are to believe that the age pension is middle-class welfare. According to columnist Chris Berg, it is a benefit for those who don’t need state assistance and that exposes the social justice myth of the welfare state (”Why protecting the pension is a political con job”, Sunday Age, January 26).

This sort of grandstanding is plainly ridiculous. Worse still it is counterproductive to any mature discussion about how to pay for our ageing society. Radical thinking is needed to tackle the fiscal issues our changing demography presents.

Berg’s main piece of evidence to show that the age pension is a middle-class benefit is the exclusion of the primary residence from the means test. It is the case that because of this exclusion, asset-rich people are often able to claim a part-pension. It is a loophole, and one that needs to be dealt with if we are to design a sustainable and fair retirement income system.

The value of the primary residence should be taken into account when assessing eligibility for the pension and, accordingly, pensions should be reviewed. But it does not follow that the age pension itself is a middle-class rort dressed up in the attire of fairness.

For most people on the pension it is their main source of income; they are not wealthy people topping up their income with public funds. According to the Australian Bureau of Statistics, the most commonly reported source of personal income when people retire is the age pension – 51 per cent of men and 42 per cent of women. As people move into their retirement years this figure rises – almost 66 per cent of people who have retired say the pension is their main source of income.

It is also the case that most older Australians are living on basic incomes. At the time of the last census, 67 per cent of men and 76 per cent of women aged over 65 were living on less than $600 a week from all sources of income, or $31,200 annually. By contrast, the Association of Superannuation Funds standard for a single person to fund a comfortable retirement is $41,830 a year.
In launching the government’s welfare review, Social Services Minister Kevin Andrews noted: ”The reality [is] that the population is ageing … there will be more people who are dependent upon income support payments and … a very substantial shrinkage in the growth of the workforce.” So, what measures is the government considering in preparing Australia for this reality?

In addition to excluding the age pension from its welfare review, we know that the government is not planning to change the retirement age – currently at 65 and going up to 67 in 2023. With life expectancy steadily rising, many people simply won’t be able to afford to retire at 67. A further review of the pension age is required.

Andrews notes the shrinkage of the workforce. This is caused mainly by the changing old-age dependency ratio as more people move into retirement compared with those in the workforce. Andrews’ solution is to focus on the fertility rate, but that will not create a replacement workforce for some years to come. Nor does it create jobs. What we can focus on now is investing in jobs for older people so they are assisted to stay in work and to find other work if they choose. Working with employers to overcome discrimination in the workplace is another area the government needs to tackle. This will improve productivity and generate revenue.

At the same time as the government is reviewing its spending, it is giving money away in the wrong areas when revenue is already in decline. Several superannuation concessions operate to benefit the wealthy and lose the government revenue. As the ACTU has found, an individual earning $60,000 has a marginal tax rate of 32.5 per cent and pays 15 per cent on superannuation contributions – a concession of 17.5 percentage points. By contrast, an earner on $180,000 or more receives a concession of 30 percentage points. Retirees with more than $100,000 of income a year from superannuation investments are not taxed on this income. Reviewing the distribution of superannuation concessions would raise government receipts and would be fairer to those on lower incomes.
Rather than focusing purely on welfare payments, the government would do well to take a balanced look at all aspects of the fiscal challenge presented by ageing. And it shouldn’t proceed on the assumption that Australia’s older people are on a gold-plated welfare wicket, because that simply isn’t the case.