In last night’s Budget speech, Treasurer Hockey took the bold move of placing the Aged Pension on the reform agenda, announcing less generous indexing arrangements, and tighter means testing of the Commonwealth Seniors Health Card by including untaxed superannuation income in the income test:
We promised at the last election not to change pensions in this term of government and we won’t.
But so that we can make pensions sustainable and affordable for decades to come, from September 2017, increases in pensions will be linked twice a year to inflation.
Currently, an individual with a home and almost $800,000 in assets still qualifies for the age pension; a couple with a home and almost $1.1 million in assets also qualify for the age pension.
Asset and associated income test thresholds will be indexed between now and 2017, but then remain at fixed levels for three years.
With these changes, pensions will always increase with the cost of living, and the value of the pension will continue to rise, but the system will be much better placed to meet the challenge of a significant increase in demand.
We should celebrate the fact that Australians are living longer but we must prepare for the adjustments in our society.
Building on the move by the former Government to increase the pension age eligibility to 67 by 2023, this Government will gradually increase the age of eligibility to 70 by 2035. That is over two decades away.
To ensure more consistent treatment of senior Australians with similar incomes, untaxed superannuation will be included in the income test for new recipients of the Commonwealth Seniors Health Card. And so that we can better target assistance, the annual Seniors Supplement [of over $850 a year] will be abolished from 1 July this year.
Already, seniors groups and pensioners have slammed the changes, inundating talk back radio with complaints. And the heat will only increase in the lead-up to the next election, highlighting the braveness of the Coalition’s actions.
Indeed, by targeting the Aged Pension, the Coalition has put at risk a key plank of its electoral base – the vocal grey vote – and given Labor an outside chance of winning the next election (although a lot can obviously happen between now and then).
Other commentators, like The AFR’s Brian Toohey – a long-time advocate of equitable retirement policy and inter-generational fairness – believes the reforms do not go far enough, and that wealthy retirees have gotten-off fairly easy in this Budget:
…the budget does almost nothing to tighten the extremely slack means tests for this pension…
[And Seniors] card holders can now have an income of $50,000 indexed to the CPI. But they will be able to pay $6.90 for prescription drugs instead of $42.70 for a minimum wage earner on $33,000…
However, the budget’s biggest failure to cut support for well-off retirees is its refusal to touch tax-free super from age 60. This allows retirees on $400,000 a year or more to pay no tax, while those still slogging away in the workforce have to pay higher marginal rates than necessary. Action in this area would have obviated the need for the debt surcharge.
I obviously agree with Toohey’s criticisms.
Means testing should be tightened further for reasons outlined by Hockey above: “currently, an individual with a home and almost $800,000 in assets still qualifies for the age pension; a couple with a home and almost $1.1 million in assets also qualify for the age pension”. This level of support is more generous than necessary and allows precious tax dollars to flow to those that are not in genuine need.
The cost of superannuation concessions, which overwhelmingly flow to high income earners, as well as the tax free treatment of superannuation once one turns 60, are also ripe for reform, both on Budget sustainability and equity grounds. And one hopes that the Coalition will implement reforms in this area, as flagged last month as part of its response to the Murray inquiry into financial services.
Nevertheless, we shouldn’t lose sight of the Coalition’s reforms, and it should be commended for tackling the Aged Pension head-on, rather than taking the politically expedient option of ignoring reform altogether.
Rome wasn’t built in one day, and the Coalition has laid the groundwork for further important retirement policy reform.
