The Actuaries Institute has published a discussion paper examining a range of options for overhauling Australia’s retirement income system, which includes as its central recommendation including the family home in the pension assets test, but conveniently not for the baby boomer generation. From The Australian:
Actuarial expert David Knox, former regulator Anthony Asher and public policy guru Michael Rice have labelled Australia’s superannuation, pension and retirement income systems as “complex, intrusive” and “sometimes unfair” in a lengthy paper that argues for radical reforms to how the country manages old age in a bid to end the “perverse incentives” of current policies…
“The current system, though world-leading in some respects, falls well short of that.”
While the experts said any changes to the retirement system should “not disadvantage those who have already retired”, they said the government should consider dumping the part-pension by requiring retirees to spend all their super savings and wealth before receiving the full pension.
Including the home in the pension assets test would also help ensure the pension was collected only by those who needed it, they said, noting that was continually recommended by government reviews.
The Grattan Institute found 40-year-olds contributed twice as much to support older Australians than the baby boomers did at age 40, after adjusting for inflation.
There is a nasty sting in the tale in the Actuaries Institute’s recommendations that should anger Australia’s younger generations, which is summarised in the below statement:
…the experts said any changes to the retirement system should “not disadvantage those who have already retired”, they said the government should consider dumping the part-pension by requiring retirees to spend all their super savings and wealth before receiving the full pension.
That’s right, the Actuaries Institute panel – dominated by baby boomers – has conveniently chosen to spare its own generation from wearing any Aged Pension cuts. Meanwhile, the younger generations – “generations rent” – will be required to bear the full burden of adjustment while their relatively well-off parents continue to enjoy their full entitlements while living in their expensive homes.
Genuine and equitable budgetary reform is about sharing the burden of adjustment. However, by excluding its own generation from cuts, the Actuaries Institute has failed, and in the process declared war on the younger generations.
A fairer solution, which I have espoused over many years, is to:
- Include one’s principal place of residence in the assets test for the Aged Pension at some point in the future (e.g. 1 July 2022), thus allowing current retirees and prospective retirees adequate time to make arrangements.
- Raise the overall pension asset test threshold as well as the base rate.
- Extend the existing state sponsored reverse mortgage scheme, the Pension Loans Scheme, to all people of retirement age so that asset (house) rich retirees can continue to receive a regular income stream in exchange for a HECS-style liability that is recoverable from the person’s estate upon death, or upon sale of the person’s home (whichever comes first).
Under such a plan, asset rich pensioners choosing to remain in place could continue to receive an income stream as they do now under the Aged Pension, but with less drain on the Budget and on younger taxpayers. But they would similarly be incentivised to move as the family home would no longer be viewed as a tax free shelter. Renting pensioners would also be made significantly better-off via the combination of a higher asset test threshold and a higher pension base rate.
The May 2018 Budget addressed the third point by extending the Pension Loans Scheme, but it did not touch the other two areas, which is vital if the system is to be made more neutral towards home owner retirees and renting retirees.
However, the younger generation must not bear all of the burden of adjustment. The wealthy older generations must also wear the pain.
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