Pension reform: this is a lick of paint for a much more serious problem

By Emily Millane

8 May 2015

The Federal Government’s proposed changes to the age pension in next week’s federal budget are set to save around *$2.4 billion over the forward estimates. According to Social Services Minister Scott Morrison, increasing the taper rates and lowering the asset-free threshold for homeowners will support the aim of a “sustainable and fair” pension system.

Sustainable and fair. Can’t argue with that. In fact, it’s what various groups have been arguing in favour of, and with particular force after the Government’s proposal to index the pension to inflation rather than wages.

But Scott Morrison’s other adjective for the changes was most telling: “modest”. This is a small change, with a small saving. It is intended to show that the Government is doing something, anything, to allay the legitimate concerns of pensioners after last year’s budget.

Australia’s age pension spend is low by international standards, even under the highest projection scenario in this year’s IGR. The latest Intergenerational Report projects that the age pension will sit at 3.6 per cent of GDP in 2054-55, based on no change to the current method of indexation. That’s still lower than the current OECD average of 7.8 per cent.

It’s legitimate to assess the growth of the age pension and the way these pressures are managed, but not without putting this area of spending in perspective.

For budgetary perspective, look no further than foregone revenue from the taxation of superannuation. Tax concessions alone cost more than the age pension, but the Government has ruled out any changes in this budget. Modelling by NATSEM has shown that the distribution of tax concessions on superannuation is more regressive than was thought, with 41 per cent of the concessions going to the top 10 per cent of income earners.

The larger point here is that the dual aims of sustainability and fairness need to apply to the whole retirement income system, superannuation included. Cast against this greater need, the Government’s changes to the pension look like a paint job. It also makes you wonder about the Government’s commitment to a retirement incomes review that the Treasurer has said he is actively considering.

Labor’s minimal proposed changes to the taxation of superannuation, with an implied promise of “that’s all folks”, are also an insufficient response. The future of the Low Income Superannuation Contribution for people on low incomes hangs in the balance.

An independent, holistic review of Australia’s retirement income system as suggested by groups like the Council on the Ageing would be a step in the right direction. Such a review needs to factor in increasing longevity – or how to pay for longer lives – and the shifting sands of lower wages, a more casualised workforce, and lower home ownership. All of these things affect retirement incomes.

Another step is to develop a policy framework around workforce participation, which has the dual benefit of lifting revenue and retirement incomes if the right policy settings are in place. In the Intergenerational Reports, we hear about the “three Ps” of population, participation and productivity, but at the moment we see little in the way of considered policy to support them. In many ways, policy is the forgotten “P”.

We know that the Government is looking at changing the mature age employment program, Restart, so that payments are made to employers over a shorter period of time. Again, this is a new paint job on a program that has had small take-up. A more visionary approach to mature age employment is required.

Per Capita has proposed investment in a trial jobs hub site, building on the existing Seniors Kiosks program, which places older Australians with flexible, part-time jobs in their local communities. This is based on a Japanese model which started in one local area, and is now operating across 1,600 prefectures and with 800,000 members.

Research by National Seniors released today shows that the total value of economic and social contributions of mature age Australians is $65.7 billion per annum. Just imagine what it could be if people were given more opportunities to continue to participate in the workforce across a longer life course, with new skills and different careers.

Sometimes a bit of putty and a lick of paint can cover a hairline crack. And then sometimes there’s no amount of superficial fixes that are sufficient; you have to re-stump the house. With average Australian life expectancy into the mid-90s, this is one of those times.

*Editor’s Note: This article originally stated that the proposed pension changes would save $3 billion rather than the correct $2.4 billion. The Drum regrets the error.