Robert Gottliebsen (“Gotti”) has penned yet another warped piece slamming upcoming changes that wind back eligibility to the Aged Pension to retirees with significant assets, but raises it for poorer pensioners. From The Australian:
As I have pointed out previously, the government has passed legislation that incentivises Australians in the target range of assets to take money out of superannuation and place much more reliance on the government pension…
In just two months, on January 1, for a couple, once your assets rise above $816,000 there is no pension but you are allowed to have $375,000 in assets and gain full pension…
From the government’s point of view, there will be an initial big boost to the bottom line as pensions are slashed on the 313,000 people affected.
Accordingly, ignoring the human anguish being caused, Malcolm Turnbull and Scott Morrison will look good from a budget perspective.
But Australians respond quickly to incentives, so, by the 2020s, the governments of that decade will regard the actions of the 2015 Abbott government, which passed the legislation, as a classic example of gross irresponsibility.
How could Tony Abbott’s former chief of staff Peta Credlin plus Tony himself and former Treasurer Joe Hockey have been so stupid as to encourage middle class retirees onto the full government pension?..
[The changes] have given a clear incentive to retirees who own a home and who, and in the case of couples, have combined assets between $375,000 and $816,000, to liquidate superannuation and expand or renovate the family home because every $1,000 (in the trigger band) that is diverted to the family home is rewarded by extra pension at the rate of $78 a year (7.8 per cent).
Yet again Gotti’s criticism of the pension reforms does not pass scrutiny.
To recap, the 2015 Budget announced that the thresholds for the Aged Pension would be adjusted so that those with financial assets (in addition to the family home) of $547,000 for singles ($823,000 for couples) will no longer qualify for the part-pension (see below table).
According to these changes, financial assets above $375,000 for a couple will lose access to the Aged Pension at the rate of $3 per $1,000 in assets, up from $1.50 currently. It is important to note that this change merely restores the settings back to their pre-2007 state before Treasurer Peter Costello recklessly loosened the financial assets test.
However, while access to the part pension has been curtailed, the assets threshold has also been increased, thus benefiting those retirees with fewer financial assets (see below table).
Thus, the pension changes agreed by the Abbott Government and the Greens will make the system more equitable. As such, they are supported by the Australian Council of Social Services, which noted the following after their passage:
“The changes to the Pension assets test passed by the Parliament last night help ensure that the Pension is going to people who need it, including improving the adequacy for people who have limited assets. The tightening of the assets test to pre-2007 levels reinforces the role of the pension as a safety net payment to prevent poverty,” said Dr Cassandra Goldie.
“ACOSS also welcomes passage of legislation abolishing the Seniors Supplement. This Supplement is very poorly targeted, going to older people who are not eligible for the Age Pension due to their substantial assets”.
What Gotti also fails to mention is that the 75% of retirees that own their homes (most outright) have enjoyed massive windfall gains in wealth, thanks to the mammoth surge in Australian home values over the past 20 years (see below graphics).
This surge in retiree housing wealth has come at the direct expense of their children and grand children, whose wealth has barely increased, and who are now either locked-out of housing altogether or are required to undergo a lifetime of debt servitude in order to pay off a home.
How is it fair that these same mega-mortgaged or renting younger Australians are expected to fund the retirements of older home owners, who are in many cases far wealthier than they are?
If Gotti cared at all about equity he would instead argue to have the family home included in the assets test for the Aged Pension, with part of the money saved redirected to significantly increasing the base rate of the pension as well as the assets test threshold. This way, welfare would be far better targeted to those pensioners without any significant assets – either financial or non-financial.
Meanwhile, home owning retirees that miss out on the pension could maintain their income levels by taking out a reverse mortgage through the government’s Pension Loans Scheme – a state-run reverse mortgage scheme that allows eligible retirees to borrow against their homes to receive payments from the government equivalent to the full Aged Pension.
The interest rate through the Pension Loans Scheme is only around 5.5%, repayable upon their estate or sale, and these home-owning retirees could continue to live in their home as they do now. For all intents and purposes, they would experience no change in their living standards, but with far less drain on the Budget over the longer-term.
With the Aged Pension costing the Budget some $44.2 billion in 2015-16 and rising to $52 billion by 2019-20, and the ratio of workers supporting the elderly shrinking (see next chart), the system as it currently stands is not sustainable and inequitable from an inter-generational perspective.
If only commentators like Gotti would acknowledge these truths rather than running a scare campaign against any and all pension reform.
