The Australian’s David Uren has published an article today imploring the newly established Audit Commission to tackle Australia’s ballooning pension payments, which are projected to skyrocket as the baby boomers enter retirement, as well as to address the sustainability of the superannuation system:
At the top of the list [for reform] is the $40bn annual cost of the age pension…
The last intergenerational report said pension costs would rise from 2.7 per cent of GDP now to 3.3 per cent within about 15 years and to almost 4 per cent by 2050…
There is a paucity of research on what people actually do with their superannuation. Anecdotally, the story is that a portion of lump sums gets spent on renovating the house, consumer durables and travel. This spending lifts living standards for retirees while improving their eligibility for the age pension. No one really knows how much disappears this way.
A new research paper drawing on work of actuaries Towers Watson and the Melbourne Institute shows that 95.8 per cent of singles and 88.1 per cent of couples will wind up drawing the age pension, either in full or in part…
The faster the superannuation lump sums are run down, the greater the burden on the age pension becomes…
The 1996 audit commission suggested that the way to constrain the burden of an ageing population was to reduce the generosity of the indexation of the age pension and make it dependent on budget conditions. Instead, the Howard government legislated the link to male total weekly earnings earnings, deftly exploiting the political potency of the retired population. Kevin Rudd sought to follow suit by awarding a big one-off increase to pensions in his first budget.
This is the terrain that the new audit commission must navigate if it is to confront the impact that ageing is having on the budget, as required by its terms of reference.
Earlier this year, Australian National University’s Alan Tapper, Alan Fenna and John Phillimore released a fantastic research paper examining the extent to which welfare policies across the period 1984 to 2010 have favoured the elderly at the expense of the young. Their three main findings were that:
Advertisement
there has been a substantial shift over this period in favour of the elderly;
this trend has accelerated rapidly in recent years under both the Howard and Rudd Governments; and
as a result of this accelerated trend, elderly households today are on average well off by comparison with younger households.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.