Labor blind as a bat on Aged Pension Reform

By Leith van Onselen

The Labor party’s denial around the Aged Pension beggars belief.

Here were have a measure that currently takes up over a tenth of the Commonwealth budget (excluding civil servants) and costs around $40 billion currently or some 2.9% of GDP. The Aged Pension is also forecast in the Intergenerational report to grow to around 3.8% of GDP by 2055 without measures to curb its growth.

At the same time, the proportion of workers is projected to dramatically shrink (see next chart), meaning the burden on younger working Australians from rising pension costs will rise inexorably.

ScreenHunter_2470 May. 16 08.01

And yet despite these inalienable truths, the Labor Party is acting as if the Aged Pension in its current form is totally sustainable and equitable:

“The pension is sustainable,” the opposition families spokeswoman [Jenny Macklin] told interviewer Marius Benson. “If you compare the amount that Australia spends on the age pension relative to similar countries overseas, we spend a very low amount. It’s heavily targeted to those who need it most.”

Sure. Australia spends less on the Aged Pension than the OECD average, but this doesn’t mean that it is targeted nearly as well as it should be. It is still far too easy for wealthy older Australians to receive taxpayer assistance, as was revealed in this month’s Intergenerational Report:

A pensioner can continue to receive some payment and the Pensioner Concession Card with assets (excluding their primary residence) up to $771,750 for single homeowners and $1,145,500 combined for couple homeowners. A single person who does not own a home can have assets up to $918,250 and a couple up to $1,292,000 combined and still receive a part pension. A single pensioner can also earn up to $1,868.60 per fortnight (approximately $48,580 per annum) in income and continue to receive a part pension, while a couple can earn up to $2,860 per fortnight combined (approximately $74,360 per annum).

For example:
• Kathleen and Steve are 68, own their home and have $1.1 million in superannuation, shares and bank accounts. They have no other income. They will receive a part-rate pension.
• Liam is 75 is single and has superannuation, an investment property and shares valued at $910,000. He does not own a home and has no other income. He also receives a part-rate pension.
• Lillian is 85, single and lives in her own home worth $1.5 million. She has bank accounts valued at $50,000 but has no other income. Lillian receives a full-rate pension.

What is worse, Labor’s opposition to pension reform will only make it more difficult to tighten arrangements down the track, given the bulging number of oldies – a point acknowledged today by The Australian’s David Crowe:

As the population ages and “grey power” gets more powerful, it will be a brave government that tells older Australians their pension and super arrangements are too generous. That makes earlier action less painful than a delay…

Both sides of politics are wrestling with this issue but only one [Labor] is denying the problem…

Labor is at odds with independent experts when it claims the pension system is sustainable. Grattan Institute chief John Daley says the family home should be included in the assets test. Deloitte Access Economics director Chris Richardson also believes the pension needs action and eligibility is the priority.

The Parliamentary Budget Office notes spending on the pension has outpaced the growth of the economy and the growth of government spending over time.

The easiest way to dodge the problem is to turn it into a bigger one. That is the tactic used so often by Labor, and others, when taking a question about pensions…

 

Labor (and the Greens) seem to think that it is okay for younger Australians (“generation rent”) to be called on to support their wealthier parents (“generation home owner”) via never-ending tax increases and growing public debt, rather than tightening eligibility to the Aged Pension, so that only those in genuine need receive it.

It’s a diabolical situation that will need to be resolved sooner or later, one way or another. Better to start now before the Grey Army gets even more powerful.

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Comments

  1. Hey UE, you just keep working and paying that tax.
    We set things up for you younger guys and so far I’m unimpressed with how you are managing.WW

    • And right on cue….

      ” Yves Smith March 26, 2015 at 7:04 pm

      That hyperbolic discounting is middle class people projecting stability on to the lives of the poor, who do not have any stable framework. This is just “hate the poor” dressed up in economese. Read this post:

      http://mathbabe.org/2014/11/03/hand-to-mouth-and-the-rationality-of-the-poor/

      By the same token, someone can wind up broke at retirement age because Shit Happened: their company got acquired when they were in their late 40s, and they were fired and drained their savings while enduring long periods of unemployment and McJobs, family member got cancer and they were hit with medical bills, their successful business was killed when their municipality gave all sorts of incentives to build a WalMart a mere two blocks away.

      I’m disgusted by people who are unable to recognize how much good fortune, including being born to the right parents, plays into their current state.”

      Skippy… WW the economic myopia can be so ideological its maddening.

      Why don’t you all fade away….

      https://www.youtube.com/watch?v=qN5zw04WxCc

      • Ah Skip, I’ll bet you have a car, for sure it has a spare wheel, well in life there are plenty of people getting around without a spare or 2.
        They are bound to be stalled when they get a flat.WW

      • You build a business using life your savings, and a much larger competitor opens up next door rendering its value not much more than what you can get for your office furniture, that’s a bit more serious than a flat tyre.

        Skippy’s examples seem more like the gearbox completely seized or the engine block cracked. Many people keep a spare gearbox or engine in their boot, along with tools to change them on the side of the road?

      • Ah Sailor, to get any where in life you have to move way from the safety of a marina.
        Once you get offshore, you need a different set of skills and spares than you do if you are just poking around on the Wednesday afternoon social sailing.
        Your survival kit has to reflect the risks you are taking.WW

      • Once you get offshore, you need a different set of skills and spares than you do if you are just poking around on the Wednesday afternoon social sailing.
        Your survival kit has to reflect the risks you are taking.WW

        Most people only want to “poke around on the Wednesday afternoon social sailing”.

        That’s kind of the point.

      • Not really compelled by anecdotal allegories, its that kinda reductive reasoning the Austrians et al use.

        Got a life time of that stuff as a kid, was able to figure out the methodology was completely wonky before I was able to drive and with only a fraction of the data I have accumulated to date.

        BTW its not my examples, its Yves and Mathbabe’s, of which both reference Linda Tirado book called Hand To Mouth: Living in Bootstrap America.

        For an Australian reference I would refer to “Dirt Cheap” by Elisabeth Wynhausen.

        “For three decades award-winning journalist Elisabeth Wynhausen has written compelling accounts of the lives of the working poor and the downside of Australia's 'miracle economy'. In late 2001, she decided to join them.Over a period of ten months Elisabeth went undercover and worked as a factory hand, an office cleaner, a retail worker and a kitchen hand, moving from state to state and attempting to live on her meagre earnings.

        Dirt Cheap is the inside story of what it is like to work twelve-hour days on a factory line sorting eggs at a battery hen farm; of working a split shift of thirteen hours cleaning a nursing home for just over ten dollars an hour. As Elisabeth discovers that many so-called 'unskilled' jobs actually require an incredible amount of skill, so too does she learn that exposing the conditions of low-wage work can be sheer hell for your lower back, not to mention your morale.

        Caustic, courageous and often funny, this is a unique view of class, power and middle management seen from the other side of the serving counter, and a very personal experience of what it is like to be under-paid, under-appreciated and part of Australia's emerging underclass.”

        http://www.goodreads.com/book/show/617585.Dirt_Cheap

        Skippy…. it seems more likely that its a assemblymen issue relating to – its – architects, but, their indemnified.

  2. We are in the middle of all this now, but I have left our super in accumulation phase since I got to 60.

    They shouldn’t attach houses, they will need them to pay for nursing home care which is an even bigger problem in the long run. Maybe some sort of gov. reverse mortgage, but what a can of worms with a crash coming up.Tax rates on super won’t change behaviours, for conservative funds taxes are now miniscule.

    I would stop access at 55 and make all retirement accounts assessable at age 60 for centrelink. Maybe 25% available as lump sum, the rest as a pension but sweeten the pot with 4% pensioner bonds, the 30/20 rule in modern guise.

    Though even in Singapore with their 36% contributions they are starting to take money from Tamesek. Here super is useless for an ordinary worker, we only have some because of an 11.5% company contribution to my 5%.

    I will probably take ours out of the super system before I reach pension age, the tax free thresholds make this an idea, I just wouldn’t trust them for 25 years.

  3. I think the Liam and Lillian examples were put in there on purpose to illustrate the stupid system that it is.
    Lillian has far more asswets than Liam and yet she gets the full pension and Lian a part?

  4. It’s not just increases to pensions that the younger generations will be supporting.

    By way of example I received notification that the cost of my private health insurance was increasing by $33.45 or 9.78%

    Your current premium $341.95 per month
    Your new premium: $375.40 per month

    With all of the increase “explained” by an ageing population.

    http://tinyurl.com/ns7rf7b

    Hence as the population is forecast to age over the coming 40 years we should expect premiums to rise significantly quicker than average incomes.

    Assuming real average wages increase at 1.4% (per intergenerational report) (Gross 3.5%) and health insurance premiums continue to rise at 7.5% then premiums will increase from 5% of average household income to 23% by 2055

    Anyone see a problem with this?

    • My health insurance went from $300 to $460 (in several staged increases) – nearly 50% in twelve months. How is that 6%?

    • Health is going to knock us black and blue. The pension is just the continuous jab to soften us up, health is an upper-cut and hook combination to finish us off.

      • @footsore – 100% agree – you only have to look at the health spending assumption in the Intergenerational Report to see the intention is to pass on the extra costs through higher user pays or a significant increase in the GST.

        In any event someone will have to pay and it will be at the expense of our living standards.

      • If user-pays (probably inevitable) then expect to see longevity increases slow or reverse. Interesting way to solve the dependency problem.

    • Add in your out of pocket expenses, or ‘contributions’, and I bet it’s grown shit loads more.

  5. There is only one reason that neither side of government wants to include the PPOR in any means test, and that is because if there was no incentive for pensioners to keep their million + dollar houses, prices would fall. Everything must be done to keep the bubble alive.

  6. The March of the Boomer Brigades will shape the political landscape for the next 20 years. Their impressive numbers are growing at exponential rate.

    Where do they march? To the abyss at the end of time.

    Let them enjoy their last Hurrah , the grave is for a long time.

  7. It is so obvious that our children won’t have the life we had, no matter how educated they would be. It is very sad that many BB don’t even grasp the reality of the 20 century and the following tremendous change toward global world and pure capitalism, which means no social benefits for all and no pension other than for the government and the army. This is the long history average and long history normal. Why would anyone beleive in the fairy tells that the eqitable and fair distribution of national income can persist beyond the political and social chalenges of the 20th century? Today anyone who dares to talk system changes would be name as a terrorist, so no chances of any inequality relief on the horizon, just make up talk to soot the population anger. But still the greed blinds the human reason and ethics. We lost the golden age for ever. It will be another world, maybe better for some and at some stage, or maybe much worse, but our children won’t be able to compare it with ours, which is already history and not of the one which can be repeated.

    • Lori, the answer to your bleat is right there in your first sentence. Education is not the answer, in fact education is often a hindrance to being sucessful.
      How about, Gina R. Andrew F. Lindsay Fox, Dick Smith, Mark Creasey, all had limited education, but all got off their arse and had a go.
      Many have tripped and fallen a couple of times but persistence has paid off.

      Take your kids away from the safety of the marina and point them at the horizon, tell them if they take a few over the bow, you will assist for the first couple of times.
      Works wonders WW

      • @WW

        Gina Reinhart inherited her position in life and has ridden a once in a life time mining boom.

        Roy Hill may end up being her undoing.

      • Forrest has a university education (and an expensive private school education) – it was an essential first step that got him the stockbroking job which lead to his first business venture , Intersuisse.

      • Education is not the answer, in fact education is often a hindrance to being sucessful.
        How about, Gina R. Andrew F. Lindsay Fox, Dick Smith, Mark Creasey, all had limited education, but all got off their arse and had a go.

        Gina is the epitomy of a silver spooner.

        You can always find outliers, but the correlation between education and higher earnings (or lack thereof and lower earnings) is comically strong.

        Take your kids away from the safety of the marina and point them at the horizon, tell them if they take a few over the bow, you will assist for the first couple of times.

        Easy to do for the parents that are in a position to assist.

        Shame for the majority.

    • So true. Pure greed has distorted the whole system to one that is not even recognisable. Before, anyone who had a job could afford a house in a suburb that was not too far from the city. It might not have been a fancy house, but it was a house on a full quarter-acre block.

      Those days have gone forever.

  8. ceteris paribus

    Don’t rely on Shorten or Bowen for any fairness or rationale. They are within a hair’s breadth of their personal life goal, occupation of Office at the highest level. They will say or do nothing to affect their chances. They are prize opportunists of the Abbott and Hockey ilk.

    Shorten and Bowen show no motivation to reform the wicked superannuation system, the other side of the age pension coin, which together forms the Government contribution to retirement income. The only mention of super by Labor is that the Libs have deprived us all of progression of the current rort to 15%.

    Can you imagine in your wildest dreams Gough and Malcom ever being so venal and unprincipled as the Dodgers of today.

  9. do old crew living in $5 million houses need hand-outs from the tax-payer ???????????????????????????????!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! FFS !!! FIX this shit.

    yours truly,

    Young Australia

    • Not going to happen, bendy wire. Didn’t you read yesterday’s article about how terrible it would be if prices fell? And that’s what would happen if there were no incentives for pensioners to keep their multi-million dollar houses.

  10. The reality is that the young ‘uns won’t have the scratch or the numbers to support their parents in the style to which they become accustomed. Pensions are going to be cut – the dependency ratio makes it certain. Both Labour and Liberal can’t afford to say so because of the grey army, except where its a useful pretext for defunding they don’t like, but the mean payout per pensioner is virtually guaranteed to fall. The only real question is whether the cuts end up being somewhat equitable or completely unfair. Place your bets now.

    • First place to cut is the excessive administration fees and remuneration metrics associated with pensions.

      This could be extenuated to a wide swath of industry’s imo.

      Skippy…. golf on Fridays is still OK tho….

      • Yeah it’s the best place to start cutting, but it’s also kind of the least likely…because Australia.

      • Yes, while it is better for retirees to take everything out of super and pay the marginal tax rate, than keep it in super, it’s going to be a hard sell to get any reform.

        Get fees down so it’s worth keeping money in super, and you might have a chance.

        But you’d have to get fees down to world parity for that, and as you say…Straya!

    • Isn’t the dependency ratio merely going back to where it was when boomers were raising gen x? Leith carefully left that out.

      If so, it’s not really an affordability issue.

      Given that gen x oldest people are now fifty, we can be pretty sure that gen x outrage at pension “generosity” will gracefully mute over the next twenty years. Or more likely mutate into how they, in their turn “deserve it”.

      • Try telling that to most parents.

        Having said that, I never had kids, and with what I saved, I’ll never ever qualify for the pension.

      • You may have saved and then buy an expensive PPOR and then get the full pension. Dumb as batpoo to let it continue.

      • Frankly, it’s dumb as bat poo to do it like that.

        I mean, I suppose I could convert my investments into cash, and buy a bigger place to live in. On the other hand, I might stay where I am, get no pension, and continue to travel to Europe First Class every year.

        If I were so silly as to give up my present lifestyle so I could get a pension. Yup, bat poo crazy it would be!

  11. The future is demographics and demographic change, for the bulk of the economic situation, we know this, but…

    For me it is like a huge company, people in the company are people who don’t like change they like the known steady state know job and roles and if possible careers and pensions. Captains and senior staff are selected for being safe hands, little changes until changes is inevitable profits are negative, market share falling, etc. Then there is a massive restructuring. At the moment the crew (middle majority L or R), are determined not to see the need to change early and avoid the massive re-structure leaving things unchanged will cause.

    The educated in all parties see the need for change, but the major middle doesn’t yet and they are the voters. They will vote for anyone that says no change necessary now. Politicians have to be in power to make changes, so they must say what the majority want to hear to get elected.

    It is simply gaming theory, read Games of Strategy Dixit and Skeath or any of the others.

    The property merry-go-round is spinning a bit too fast now, and it will stop and recession will happen. The maintenance staff will be working on maintaining it until it breaks, the ticket masters (banks/pollies) will be selling tickets until it breaks. Some of the riders will get hurt and others will find the hobby horse next to them is now vacant and the ticket price halved, sad but true.

    Life does change, it has always been that way, live the four seasons, some are born in spring and summer, others in winter. I am an Xer and I was born at the end of summer/ Autumn, I did worse than the Spring and Summer born Boomers, and fear my children are born in the Winter.

    We have always had pure capitalism, just before we were so far ahead of the rest they were the only ones that felt the real competition. Now the playing field is leveller and it is blood hard.

  12. “Labor (and the Greens) seem to think that it is okay for younger Australians (“generation rent”) to be called on to support their wealthier parents (“generation home owner”) via never-ending tax increases and growing public debt, rather than tightening eligibility to the Aged Pension, so that only those in genuine need receive it.”

    I’m sorry, did I miss the bit where Morrison said he wanted to include the family home in the assets test?

    Or do we add the Coalition to the list above?

  13. “Kathleen and Steve are 68, own their home and have $1.1 million in superannuation, shares and bank accounts. They have no other income. They will receive a part-rate pension.”

    yer they will get $1,300pa mostly made up of energy supplements. or as everyone likes to say a ‘part age pension’….. who cares.

  14. A single pensioner can also earn up to $1,868.60 per fortnight (approximately $48,580 per annum) in income and continue to receive a part pension, while a couple can earn up to $2,860 per fortnight combined (approximately $74,360 per annum).

    Also, a single pensioner earning $48,580 per annum still gets some Seniors and Pensioners Tax Offset (SAPTO) which doesn’t cut out completely until $50,119 per annum.

    Middle class welfare extraordinaire. Way to suck the country dry.

  15. Better to start now before the Grey Army gets even more powerful.

    One thing many people of this country are very well endowed with is a sense of self-entitlement.