Does the Age Pension need an objective?

22 May 2018by Mike Taylor
3 Comments

Financial advisers are seeking support on how the Assets Test change will affect their Age Pension eligibility, according to Challenger.

Has the Age Pension evolved from being a safety net to a supplementary benefit to superannuation?

According to Rice Warner principal, Michael Rice that is precisely what has happened, giving rise to the need for better targeting of the Age Pension including the need for a national objective to sit alongside the objective already devised for superannuation.

In a paper delivered to the Actuaries Institute’s Financial Services Forum yesterday, Rice said that as a result of tightening means testing, later retirement ages and further growth in superannuation balances, the cost of continuing the Age Pension in its current form was projected to reduce as a percentage of gross domestic product (GDP), from around 2.7 per cent of GDP in 2017 to around 2.5 per cent of GDP in 2038.

In doing so, he said that, on this basis, some of the matters which could be considered for future policy initiatives included subjecting the family home to means testing as a fixed value of average earnings, significantly increasing rental assistance for age pensions and enhancing incentives for part-time work in retirement.

Rice also suggested the setting of a target for combined Age Pension and age care costs as a percentage of GDP.

Elsewhere in the paper, Rice said that while many younger members of the community might be concerned that the Age Pension may not exist in future, his firm’s projections modelling clearly showed that, whilst the proportion of the eligible population receiving the Age Pension would fall over the coming decades, a reasonably significant proportion would still receive the benefit.

“… the proportion of the eligible population receiving the Age Pension will fall from around 69 per cent in 2017 to around 56.6 per cent in 2038,” it said. “By 2060, the proportion of the eligible population receiving the Age Pension will fall to 45.1 per cent. At these levels, it will remain a supplementary benefit as well as a safety net, in line with the Objective of Superannuation.”

“Given the overall wealth of retirees when including the family home, it is valid to question whether we should be targeting higher superannuation balances with a goal of the Age Pension becoming a safety net in time.”

Read more about:: age pension; rice warner; michael rice; actuaries institute

Author

Mike Taylor

Mike Taylor is Managing Editor of the financial services publications Money Management and Super Review. He has been a journalist for the past 41 years with a career spanning coverage of financial services, federal and state politics and industrial relations.

Comments

Permalink Submitted by George on Tue, 2018-05-22 13:59

From the above comments In doing so, he said that, on this basis, some of the matters which could be considered for future policy initiatives included subjecting the family home to means testing as a fixed value of average earnings, significantly increasing rental assistance for age pensions and enhancing incentives for part-time work in retirement. Does this mean, that the proposer is expecting "retirees" to work, to pay, for so that the government/politicians have more money to spend, whereas the "retired ' worker" is subsidizing his income to work until when? Absolute crazy, either you are retired or you are working or forced to work, because there is no structure in the retirement for the aging Australian citizen) for how long will the politicians try to penalized the elderly? Any answers? i am talking about so called retirees over 65 -70 who have a home, pay no rent but the council, water, garbage fees etc which all incorporate one levy or the other for the respective so called government service. i wonder where we finish??? I can't see any publication on governments savings for service for foreign aid, consulting firms, arts grants etc and you name it?!!!

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Permalink Submitted by Cam on Wed, 2018-05-23 11:53

I support the idea of a broad discussion about the objectives of the age pension. The family home exemption can have a range of unintended consequences. A retiree thinking of selling in a capital city and moving to the coast where housing is cheaper can lose their age pension entitlement, discounts on council rates, public transport, car rego, etc and be affected by Labor's franking credit policy with its pensioner guarantee. The couple deciding to stay means one less family home for first home buyers and the older couple struggles to maintain their property. The exemption favours retirees in Sydney and Melbourne where home values are higher so they have more assets exempt from the age pension.It seems a poor allocation of taxpayer money to pay an age pension to someone living in a house worth $millions rather than people struggling to survive from week to week. A public discussion will give us all time and information to consider the facts, and conclude what to change if anything.

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Permalink Submitted by George on Sun, 2018-05-27 22:56

Has anyone cosidered the house in Syndney had be earned, with hard earned cash. The same way as the person in Moree? Then way should the retiree been penalised in Sydney? The restriction on the so called rich is crazy. Look up the definion of rich. It is in the eye of the beholder. I can be rich on an island but poor in the City, think about it?