In a welcome development, Treasurer Joe Hockey has flagged major changes to the Aged Pension, stating that failure to reform would be akin to “intergenerational theft”. From the AFR:
[Hockey] noted the aged pension, introduced in the early 1900s when life expectancy was 55 years, was now servicing an expectancy of 85 years.
“And yet the pension starts at 65,” he said.
“So we have got to be fair dinkum with the Australian people.
“If nothing happens, we will never get back into surplus. We’ll never pay off debt…
Mr Hockey later told 2GB that failing to fix the budget was akin to “intergenerational theft.”
“It’s a call to arms to the nation – these things will not be fixed overnight,” he said. “We’ll be guilty of intergenerational theft.”
Needless to say, Hockey’s statements are music to my ears. With Australia’s population ageing, and the ratio of workers supporting non-workers set to plummet, the Budget is facing a demographic tsunami (see below charts).
An objective examination of the data also shows that the aged are the group that have received the biggest increases in taxpayer support over recent years, with the Pension becoming much more than a safety net (see next chart).
Judging by the Treasurer’s comments, the Government is seeking to raise the pension age, presumably following the Productivity Commission recommendation last year that it be raised to 70, up from 65 currently and the scheduled increase to 67 by 2023.
Certainly, an increase in the pension age would assist in alleviating Budget pressures over the longer-term. According to the Productivity Commission, raising the eligibility age of the age pension to 70 would reap around $150 billion in savings over the period from 2025-26 to 2059-60 and increase participation rates among older workers by around 3% to 10%.
That said, even bigger Budget savings could be made if the Government: 1) reformed Australia’s inequitable and unsustainable superannuation system so that the lion’s share of concessions no longer flow to higher income earners; and 2) tightened the assets test around the Aged Pension, so that wealthy retirees living in expensive homes (currently excluded from means testing) received less benefits.
Regardless, Hockey’s acknowledgement that the Aged Pension system is both unsustainable and inequitable is welcome, and will hopefully begin the long path to meaningful reform.
