Debate needed on future of the age pension
By any measure, Australia has a generous pension system. As a retirement safety net, it serves as a key part of the “fair go” attitude that we see as intrinsically Australian. That is why there is always an unholy clamour whenever a government even hints that it might look at tightening access to the age pension or limiting future increases in the payment.
In a way this is understandable. A nation with the wealth of Australia should always make certain that people who have worked hard and paid taxes over many decades should be looked after on the public purse. But this approach begs several questions. Should this apply to all retirees? What of those who are independently wealthy? How far should this generosity stretch?
The Abbott Government looks set to examine these questions. After a submission from the Australian Council of Social Service to cut the assets threshold for pension access, Social Services Minister Scott Morrison said he was looking seriously at such a move.
Under current rules, a retired couple can own assets of up to $1.1 million, not including the family home, and still get a part-pension. The pension may be only a few dollars a fortnight and mean little in itself, but the benefits that come with it — cheaper prescription medicines and discounts on a range of bills, most at a cost to taxpayers — are highly prized.
Two things should be central to the pension system. The payment should be fair in providing a realistic safety net for retirees without adequate savings of their own. And it should be sustainable. Taxpayers have to fund the pension and there is a limit to how much they can contribute from their own earnings, especially as the proportion of taxpayers to retirees is forecast to increase significantly over the next 40 years.
Mr Morrison’s willingness to put pension eligibility up for debate is a welcome signal that he is interested in engaging in the question of equity as a means to Budget repair. It is a better approach to the quest for savings than the Government’s last effort. In the Federal Budget last year, Treasurer Joe Hockey took a stab at limiting growth in pensions but went about it the wrong way. He wanted to peg pensions to the CPI rather than the usually higher growth in average weekly earnings. In opposing this shift, Labor pointed out it would erode the pension by $80 a week within 10 years.
It is crucial that assessment of the pension looks at the broader picture. Changes should not be considered in isolation from the impact on superannuation and the tax system. The focus should be on how to encourage people, as much as possible, to prepare for their own retirement through superannuation savings. The pension should be seen as a back-up for those who really need it. A thorough review that takes all these issues into account will set the stage for an important debate.
Opposition Leader Bill Shorten might see an opportunity for a scare campaign but he must accept that current growth in the age pension is not sustainable in the long term. Labor should engage in this debate, rather than shut its eyes to the looming problem.
