The Abbott Government will face pressure from its own Commission of Audit to cut benefits to the nation's growing army of pensioners.

The audit, likely to be released in coming days, is tipped to follow the Howard government's 1996 audit by arguing Federal finances cannot afford to remain "overly" generous to people aged over 65.

The Howard government's commission of audit argued the fixed twice-yearly indexation of the age pension made little sense.

Instead of set increases, which continue today, that audit backed "regular reviews" of the pension to ensure it was adequate.

Though Prime Minister Tony Abbott said the Government would honour his pre-election promise of "no change to pensions", it is looking at a series of changes to reduce the pension bill.

At $40 billion in age pension payments this year, it is the biggest expense in a $400 billion Budget.

Pressed on possibly lifting the pension age to 70 or tightening the assets test, Treasurer Joe Hockey said the issue was vital to the long-term health of the Budget.

Remedies facing Mr Hockey and the Government all come with a political price. The least costly is an increase in the age at which people can get the pension.

Labor set out a timeline to take the pension age to 67 by 2023.

The Financial Services Council, among others, argues it should be linked to improved longevity. But there are concerns about this option, particularly for those who work in physically demanding industries such as bricklayers.

Another option is a change to the pension assets tests.

This enables a part-pension for a couple with almost $1.2 million in assets. Up to 80 per cent of people aged over 65 qualify at present.

The assets test, which excludes the family home, can also be manipulated. Financial planners in WA report a spike in the number of cashed-up pensioners putting big solar arrays on their roofs to stay within the assets test threshold.

Another option is to change the way the pension is indexed.

Currently, it goes up every March and September by the larger of the consumer price index, a measure of ordinary male wages or a special "pensioner" index compiled by the Australian Bureau of Statistics.

Male wages have outstripped inflation in recent years, meaning a big increase in the age pension.

In the past four years the pensioner cost of living index has climbed about 14 per cent while the CPI has risen 13 per cent. Yet the age pension has increased 25 per cent.

Association of Superannuation Funds of Australia figures suggest if the age pension had increased in line with inflation rather than male wages over the past decade, the pension would be $7000 a year lower.

Another element facing the Government is the growing cost of superannuation on the Budget.

Taxed at a concessional rate, super is estimated to cost the Government more than $30 billion in forgone revenue.

Aligning the age at which a person can access super - now 60 - with the pension would upset many people but would deliver longer-term benefits via bigger nest eggs and less dependence on the pension.

ASFA chief executive Pauline Vamos said that if the Government pressed on with pension changes, it would have to revisit its plan to delay lifting the super guarantee levy because people would need more super in retirement.

However, any changes could be hard to wrangle through Parliament. Clive Palmer, whose party will be a key bloc in the Senate after July, declared yesterday he would not support any changes to pension eligibility based on wealth, particularly the family home.

Also in the Government's sights is the disability support pension, with Social Services Minister Kevin Andrews concerned the number of recipients has surged past 830,000 at a cost to taxpayers of $15 billion a year.

Yesterday he flagged that independent doctors could reassess recipients to determine whether they still qualified for the pension.


The West Australian

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