A universal Age Pension would reduce the cost of the projected superannuation tax concession, increase the level of take-home pay, and increase tax revenue, according to Mercer.
In its submission to Treasury for the Retirement Income Review, Mercer said the universal Age Penson was means-tested the superannuation guarantee (SG) would need to increase to 12%.
The firm called for a universal Age Pension to be considered, to scrap the means test, and simplify the Australian retirement system.
Mercer senior partner, Dr David Knox, said a universal Aged Pension with the right tax structure would be feasible without a substantial impact to the budget.
Knox said it would also give Australians an incentive to save for retirement as this “isn’t the case today”.
“While the Age Pension would be taxable, there would be a clear benefit to the individual for every extra dollar contributed into super, ensuring the three pillars of the system – the Age Pension, compulsory super and voluntary contributions – are complementing each other,” he said.
The submission noted funding costs that needed to be considered were:
- Taxing the Age Pension for all those who receive it, which could be achieved by basing the Age Pension tax rate on the balance of an individual’s tax-exempt pension accounts;
- Given every eligible aged Australian would receive the Age Pension, modifying the tax arrangements for super, such as introducing a limited tax on the investment income generated in the pension phase; and
- Drawing on some of the fiscal headroom expected since the projected cost of public pensions in Australia will be one of the lowest of any OECD country by 2050.
The submission said the universal Age Pension would:
- Ensure financial decisions made by retirees were not informed by how to best maximise their access to the Age Pension;
- Provide retirees with greater security of income with the knowledge of longevity protection, leading to a better quality of life;
- Provide stronger incentives to downsize from the family home, improving housing affordability for younger families; and
- Enable a simpler, more efficient system with reduced administration costs incurred by the Government from the means-tested Age Pension.
“While the universal Age Pension may not be a viable option in the current political environment, it is a compelling proposition for a simpler, more effective system with a clear objective that delivers stronger long-term retirement outcomes for older Australians,” Knox said.