Drop unfair plan to lower pension indexation, reform super and pension assets test instead

1 April 2015

The Australian Council of Social Service today issued a call to the Federal Parliament to reject the 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,” said ACOSS CEO Dr Cassandra Goldie.

“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.

“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.

“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.

“We urge 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.

“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.

“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,” Dr Goldie said.

Media Contact: Fernando de Freitas – 0419 626 155

ACOSS recommendations

1. 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).

2. 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).

3. 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.

DOWNLOAD ACOSS Budget Submission 2015-16