For the umpteenth time, Robert Gottliebsen (“Gotti”) has penned a 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:
But the good times will not last because the 2017 calendar year is not going to be an easy one for Government politicians.
The bad news starts on January 1 when some 300,000 Australians discover that their pension entitlements have been slashed…
The people who framed the new rules inserted a great incentive for them to end their formal relationship and split their assets down the middle…
As I have written before, the whole scheme was written by a group of public servants who, having feathered their own nests, could not care less about the community and are forcing people to either split or shed assets at a fast pace because every dollar of assets spent (or invested in the family home) receives a 7.8 per cent return.
In other words, if pensioners in the right bracket reduce their assets by $1,000, then their pension goes up by $78 (7.8 per cent). I have rarely seen anything so stupid.
For about three years this silly legislation will raise money but the angry pensioner market will respond quickly and the 46th Parliament will see the pension bill go through the roof.
In other words, we are swapping short-term savings for long-term pain…
Gotti’s incessant criticism of the pension reforms is getting nauseating.
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.
Pandering to rent-seeking dunces is clearly not working for the Turnbull Government in the polls and any government MP tempted to follow Gotti’s hideiously biased advice needs his head read.
