Govt has stark choice on pension reform to improve fairness and Budget sustainability

14 April 2014

The Australian Council of Social Service today urged the Federal Government to tighten access to the Aged Pension for people with significant assets and increase the preservation age of superannuation rather than introduce changes that make savings from those on the lowest incomes.

“The Government has a stark choice in this Budget: it must target payments to people who really need them, not make people at the bottom of the income and wealth scale struggle to survive day to day on even less income or work longer by increasing the retirement age,” said ACOSS CEO Dr Cassandra Goldie.

“We reject calls today for the Federal Government to “cut hard and cut early” in next month’s budget. This is unnecessary and risks hurting people at the very bottom the hardest.

“The Aged Pension is a vital shield against poverty for older people and many people of working age, and it is frugal by international standards. ACOSS has consistently argued it should be better targeted to those who need it – couples with a million dollars in financial assets should not receive a part-pension – but the rate of the pension for those who do need it must be high enough to prevent poverty.

“Before we can consider raising further the age to receive the age pension, two things must happen in tandem: income support payments especially Newstart Allowance must be raised to an adequate level, and the preservation age for superannuation should be increased so that it is the same as the pension age.

“ACOSS acknowledges the Government faces a challenge to restore the budget, but it must not be done at the expense of people struggling to survive on the lowest incomes . Raising the pension age would mainly affect people on the lowest incomes. Many people would be stuck on Newstart Allowance if unable to get paid work and lose $166 a week in income. Before increasing the pension age, we need to increase other working age payments to a liveable level and improve the employment prospects of older people.

“The maximum rate of pensions and other income support payments should not be cut, and all income support payments for people on low incomes including pensions and Newstart Allowance should be indexed to wage movements, not just to prices. The inadequacy of Newstart shows what happens when we only index payments to the Consumer Price Index. It hasn’t been increased above price movements since 1994, which means people who are unemployed have their living standards frozen at 1994 levels, falling well behind the rest of the community.

“The gap between pensions and allowance payments should be closed, but lowering the indexation of pensions to the CPI is not the way to do this. Instead, the lowest payments for single people should be raised by $50 a week, so that people who are unemployed, sole parents and students, also benefit from the payment increases awarded to single pensioners in 2009.

“On the other hand, the superannuation preservation age is only 55 years, a full ten years before the existing pension age. This early access to super mainly benefits people on high incomes and significant assets with large super account balances, who can either chose to retire early or avoid income tax on their earnings by churning their wages though their super accounts.

“Our immediate recommendations for changes to the retirement income system are targeted, and measured, generating savings for other priorities, and taking long term reform in the right direction. Our proposals would tighten the pension assets test to make it fairer (so that the pension is no longer available to those with over a million dollars in assets in addition to the family home), while reforming superannuation tax concessions to reduce the proportion of tax breaks going to those on the highest incomes.

“This would include capping concessionary contributions to $25,000, extending the 15% tax on superannuation earnings to include earnings generated in the retirement phase, and reducing the capacity for people in the retirement phase to churn their income through superannuation funds. These changes could be introduced in the short term, without impacting on those on the lowest incomes.

“The pension age should not be increased until the alternative social security payments are adequate. To strengthen workforce participation among older people, the best and fairest place to start is to raise the age at which people can claim their super,” Dr Goldie said.

Media Contact: Fernando de Freitas 0419 626 155

More information on ACOSS Budget proposals here.