In its hunt for savings, the Australian Government is “seriously considering” a proposal to tighten the assets test for retirees, shaving hundred of millions off the ballooning cost of the pension system.
At the moment, retired couples who own their home, and with other assets up to $1.1 million still qualify for a part pension, a position many consider untenable. The Social Services Minister Scott Morrison has strongly indicated he will look at scaling back access to the pension for wealthy Australians as an alternative to the Government’s current plan to change the rate of indexation.
In the backflip – the government pledged, via last years budget, to decouple pension rises from the ‘average (male) earnings’, instead linking them to the rate of inflation, saving the government almost $450 million a year – cutting into pension payments by as much as $80 a week – might get the boot?
Social Services Minister Scott Morrison said last week that he wanted “modest, incremental change” to the pension system, though he is still standing by last year’s budget measure and an attempt to raise the pension age to 70 – which has also stalled in the Senate ::::
The Social Services Minister Scott Morrison has strongly indicated he will look at scaling back access to the pension for wealthy Australians as an alternative to the Government’s current plan to change the rate of indexation. Last week Mr Morrison said he was “seriously considering” a proposal to tighten the assets test, as the Government searches for savings to the ballooning cost of the pension system.
At the moment, retired couples who own their home and have other assets up to $1.1 million would still qualify for a part pension. Mr Morrison has welcomed a plan put forward by the Australian Council of Social Service to reduce that cut-out point and other eligibility thresholds, saying savings must be made.
“The alternative is to run the pension of the edge of a cliff and to force a future government to have to introduce a short, sharp, shock measure that would be quite catastrophic for pensioners and that’s not something I want to see happen,” Mr Morrison said. ‘Which is why I believe we need to take action in a modest and incremental way and I think that is reflected in the various proposals that are now before us.”
The Senate has blocked the governments plan, announced in last year’s budget, to lock pension increases to the rate of inflation instead of average male earnings, a drop that would save taxpayers $449 million over five years. Mr Morrison said he was willing to reconsider that plan if alternative proposals stacked up.
“The Government is building a coalition of ideas when it comes to a sustainable and fair pension,” Mr Morrison said. “My commitment is the same that I have given since coming into the portfolio, something only comes off if something goes on. If we are prepared to take on an alternative proposal then that would be the only condition under which any current proposal would be removed because the option of doing nothing is not an option.”
The minister who controls pensions, discussed the ACOSS’ assets plan with crossbench Senator Nick Xenophon last week, both are confident a compromise can be found.
“I think that is the way through to cut the Gordian knot in terms of this impasse on pensions,” Senator Xenophon said. “If you’ve got several hundred thousand dollars in the bank, it’s not unreasonable to draw on some of that for the purpose of your retirement.”
ACOSS Recommends Tightening Age Pension Assets Test:
Tighten the Age Pension assets test
Reduce the assets test free area for home owners to $100,000 for singles and $150,000 for couples, and increase the taper rate for both home owners and non-home owners from $1.50 per $1,000 of additional assets to $2 per $1,000, so that the cut out point for the part pension for couples is reduced from $1.1 million in assets besides the family home to $794,250 in assets besides the family home – Savings: $1,350 million ($1,450 million in 2016-17).
Abolish the Seniors Supplement
Abolish the Seniors Supplement (available to people who do not qualify for the Age Pension due to their income and assets) from 1 July 2015 leaving the Pension Supplement in place for Age Pensioners – Savings: $240 million ($250 million in 2016-1).
Reform Superannuation system
Increase the preservation age so that it corresponds to the Age Pension access age by 2027 – with early access arrangements for people with disabilities and caring roles that effectively require them to retire earlier. May include allowing access from age 55 for Aboriginal and Torres Strait Islander people and people whose disabilities or caring roles would ordinarily qualify them for certain social security payments (such as the Disability Support Pension or Carer Payment) or by allowing withdrawals earlier than 55 for any purpose up to modest annual and lifetime limits – Revenue neutral.
• Replace existing tax concessions for superannuation contributions with a simpler taxation structure, in which employer contributions are taxed at the employee’s marginal tax rate and a capped superannuation rebate is paid into employee’s superannuation accounts – Revenue neutral.
• Extend the 15% tax rate on superannuation fund earnings to accounts in the ‘pension phase’, in three annual steps of 5% each year – Saving $300 million in 2016-17.
• Stem the avoidance of personal income tax by individuals over 55 years of age who ‘churn’ their earnings through superannuation accounts: From 1 July 2016, reduce the annual cap for concessional contributions by $1 for every dollar withdrawn from a superannuation account in the same year by a fund member – Saving $500 million in 2016-17.
In a statement ACOSS called on the Government to “Reject its plan to lower the Indexation of pensions that would severely impact all pensioners, and instead focus on eligibility for the part-pension and reforming the unfair retirement incomes system, including superannuation tax concessions.”
The decision to reduce the Indexation of pensions in the last Budget came as a great surprise to most of us, especially to pensioners. It would effectively lead to people on pensions, including older people, sole parents, and people with disabilities, falling behind community living standards,” ACOSS CEO Dr Cassandra Goldie said.
“We know these groups are already struggling to get by on a daily basis and if this measure goes ahead, they would lose as much as $80 per week over the next 10 years based on modelling by the National Commission of Audit.” Dr Goldie said. “This would be a massive cut to the income of some of the most vulnerable people in our community, who simply could not afford to absorb it. The last thing we should be doing is reducing indexation of payments for pensioners down to the inadequate indexation which is still in place for people struggling to survive on Allowances, including young people on Youth Allowance (just $30 a day) and unemployed people on Newstart (just $37 a day). Two thirds of people on Newstart and Youth Allowance have been on these payments for over a year.”
In a statement, Dr Goldie said, indexation to wages should be maintained for older people but also for sole parents and people with disability who already experience high levels of income poverty. Indexation for all basic income support payments -both Pensions and Allowances – should be linked to wages if they are to be enough for people to live with some dignity.
ACOSS urged the government, opposition parties and crossbenchers to work together on alternative solutions to ensure the sustainability of retirement incomes system into the future. This must include reform to better target the Age Pension to those who need it and to superannuation tax concessions as part of the tax review.
“ACOSS has put forward sound and fair recommendations to this end, including reducing the current threshold that allows couples with as much as $1.1 million dollars in assets on top of the family home to qualify for a Part Pension.” Dr Goldie said. “We also support the Government’s move to abolish the Seniors Supplement, which is available to people who are not eligible for the Aged Pension because they are in a much better financial position than most.”
The Supplement extends to older people who are disqualified from the Age Pension due to the assets test – which means for example, it would go to couples with assets in excess of $1 million apart from the family home. By excluding superannuation income from the income test for existing recipients, it also extends to people with significant superannuation incomes.
“A couple could have a million dollars in a superannuation fund paying them an income of $100,000 a year in addition to their assets and still receive the supplement.” Dr Goldie said. “We strongly support the need for an adequate safety net system to ensure that people are supported when they fall into hard times. However, this supplement of $858 each year for singles and $1,295 for couples, simply cannot be justified.”
Government Offers Independent Review of Pension Rates
In mid-March the Government offered to set up a three yearly independent review of pension rates in a bid to win support for changes to the way the payments are calculated. The Government said an independent review could recommend increases to pension rates which would then be considered at budget time.
Scott Morrison argued the review would act as a “safety net” for pensions but said its findings would not be binding, and that the pension system must be sustainable.
“This is a very serious issue for the future of the country, the pension is currently being received by around 2.5 million Australians and it is costing taxpayers obviously significantly in the order of over $40 billion,” Mr Morrison said.
Prime Minister Tony Abbott backed his ministers proposal saying the offer showed the Government was “serious about trying to get this reform passed”.
“Under our proposal, pensions will go up twice a year every year, they’ll maintain pace with cost of living,” Mr Abbott said.
Shadow minister for families and payments Jenny Macklin said while Labor did not oppose a regular review, it could not come at the cost of a “proper indexation method”.
“CPI indexation will see the pension reduced dramatically, pushing pensioners below the poverty line,” Ms Macklin said in a statement. “The only way to protect the pension is to reject this cut to indexation entirely. And the only way to guarantee proper living standards for pensioners is to link pension indexation to wages.”
One seniors group said they wanted more detail about the offer of a review. National Seniors’ chief executive Michael O’Neill said he was cautious about the offer and would prefer if any recommendations the review panel made were binding.
“For … the government of the day to decide whether it implements it really doesn’t provide satisfactory comfort for us or older Australians,” Mr O’Neill said.
From other news sites:
Herald Sun: Many reasons not to touch GST: Hockey
The Australian: Libs offer pension peace plan
News.com.au: How the Harper Review is a win for consumers
SBS: Morrison signals possible new assets test for retirees
The Age: Abbott government prepares to dump pension barnacle
Yahoo!7 News: Morrison indicating a scale-back of access to the pension
Australian Financial Review: Abbott says pension proposal ‘worth looking’ at
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