Guv’ invites Boomers to suck Australia dry (updated)

By Leith van Onselen

The AFR is reporting today that the Abbott Government is canvassing ways to include one’s principal place of residence in the Aged Pension assets test in a bid to make the retirement system more sustainable and equitable as the population ages:

Social Services Minister Scott Morrison has discussed the issue in talks with peak seniors groups in recent weeks, while Kelly O’Dwyer, the parliamentary secretary to the Treasurer, said on Monday the matter will “almost certainly” need to be debated following the release of the intergenerational report within weeks.

A taskforce has also been established within Treasury to look at retirement incomes.

While the move is a sensible one, the Government has reportedly agreed to exempt Baby Boomers from the tighter assets test, thus forcing younger generations to once again bear the burden of Budget adjustment:

All parties, the government included, agree that Baby Boomers, whether already retired or approaching retirement, would be exempt from any change that would have to be transitional so those affected would have ample time to prepare…

“Leaving aside for the moment whether it’s the right thing to change the assets test, one of the key questions that advocates of change will need to address is how to be fair to those who decided to overcapitalise in their house over a number of years, possibly decades, precisely because of that exemption for the family home,” [Ms O’Dwyer].

“The challenge for government is that it needs to take into account all of these different perspectives and will necessarily need to make compromises between them.”

The news comes as data from the National Centre of Social and Economic Modelling (NATSEM) shows that around 260,000 Australian households have a net worth of more than $3m yet are ­enjoying welfare payments of about $800 million a year, due mostly to the lax testing around the Aged Pension assets test, which excludes the family home and permits couples to have financial ­assets of up to $1.3 million:

Within the group of Australian households worth more than $3m, those of pension age are receiving about $3700 a year in cash payments, NATSEM found…

This shows starkly the ease with which retirees can qualify for the Age Pension — the federal government’s biggest and among the fastest-growing expense at $42bn a year.

Ben Phillips, a principal researcher at NATSEM, confirmed the main cash payment going to high-wealth retiree households was the Age Pension..

While I agree wholeheartedly that the assets testing around the Aged Pension must be tightened, in light of the growing number of retirees relative to the number of workers to support them (see next chart), and support including one’s principal place of residence in the assets test (along with tighter testing of financial assets), it is quite frankly disgusting that the Government is planning to exempt an entire generation – the Baby Boomers – from bearing any burden of adjustment.

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The Baby Boomers are already the “lucky generation”, which had the benefit of purchasing their homes cheaply before watching them skyrocket in value, to the detriment of their children and grandchildren, who must now support them in old age (see below charts from The Grattan Institute):

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Contrary to popular belief, the “I’ve paid taxes all of my life” argument also doesn’t hold much weight, with the Baby Boomers in aggregate paying less in taxes than they received in government spending:

In the past, each generation took out more from the budget over its lifetime than it put in. This “generational bargain” was sustainable when incomes rose quickly – the norm for 70 years. However, government transfers from younger to older cohorts are now so large that future budgets may not be able to afford them as the population ages. Consequently, the generational bargain is at risk…

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While I understand the need to provide adequate time to adjust to Aged Pension reform, this should take the form of announcing the change well into the future (e.g. 1 July 2025 or 2030) but not excluding any particular generation from the reform. This way, current retirees and prospective retirees will have adequate time to make arrangements and the burden of adjustment would be shared across all generations.

The Government should also consider setting up a state sponsored reverse mortgage scheme, which provides asset (house) rich retirees with a regular income stream in exchange for a HECS-style liability that would be recoverable from the person’s estate upon death, or upon sale of the person’s home (whichever comes first). This way, pensioners could continue to live as they do now, but with less drain on the Budget.

While including one’s principal place of residence in the Aged Pension assets test is easily justified in isolation on the basis of restoring the Budget back to long-run health and equity grounds, it is a bitter pill to swallow when the wealthiest generation – the Baby Boomers – have effectively been quarantined from bearing any pain.

Genuine and equitable budgetary reform is about sharing the burden of adjustment. However, by excluding the Baby Boomers from cuts, the Government has failed before it has even begun on Aged Pension reform, and in the process has once again shifted the burden of repairing the Budget to the younger generations.


The Government’s intention to include one’s principal place of residence in the assets test for the Age Pension appears to have been junked, with Social Services Minister, Scott Morrison, this morning unequivocally ruling out changes to the pension, describing rumours of a policy shift as “false” and “mischievous”. From The Australian:

“We’re engaged in a debate. That debate does not include including the family home in the assets test for the pension — full stop — and to suggest otherwise I think is completely false and mischievous,” Mr Morrison told ABC Radio.

Asked to clarify if the government might consider that in the future, he gave an unequivocal guarantee: “We are not putting the family home in the assets test for the pension. Is that clear enough? Thank you.”

This is disappointing. Although I hated that the Government was looking to exclude Baby Boomers from bearing any burden of adjustment.

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