Economy

Feb 24, 2014

We’re old enough (but wise enough?) to make tough decisions on pension

The aged pension is increasingly unsustainable. And raising the age is only one reform Joe Hockey should be looking at if he's serious about "intergenerational theft", says economist Leith van Onselen.

So, Treasurer Joe Hockey has finally put the aged pension on the block for reform, placing it alongside Newstart and the disability pension. Hockey's comments late last week that the retirement age of 65 (scheduled to increase to 67 by 2023) is unsustainable in light of increasing life expectancy, and that failure to reform would be akin to "intergenerational theft", is appropriate on a number of levels. Like many other advanced nations, Australia is facing a demographic tsunami that threatens to cripple government finances. The large-scale retirement of the baby boomer generation means that the ratio of working-age Australians supporting dependents (mostly the aged) will shrink over coming decades, slashing the tax base at the same time as age-related outlays expand ...

According to the Grattan Institute, without corrective action, the federal budget deficit could hit $60 billion per year by 2023, or up to 4% of GDP, due mostly to rising health and welfare costs. Grattan also argues that the only part of the tax and welfare system that is not well targeted is that for old people -- a view supported by researchers from Curtin University, who recently found that welfare policies across the period 1984 to 2010 overwhelmingly favoured the elderly at the expense of the young. Judging by the Treasurer's comments, the government will likely follow the Productivity Commission's recommendation and seek to raise the eligibility age of the age pension to 70 -- a move that is estimated to save around $150 billion over the period 2025-26 to 2059-60 and increase participation rates among older workers by around 3% to 10%. While such a reform is welcome, on its own it is not enough, and deeper reforms of the retirement system are needed in order to improve intergenerational equity and the long-term sustainability of the budget. Superannuation is a particularly large problem. While the system was originally designed so that a younger generation could pay for its own retirement, it has instead become a mechanism whereby older people pay less tax given their income than everybody else, with the lion’s share of benefits also overwhelmingly going to richer people. Under the current system, all employees that contribute compulsorily into super pay a flat 15% contributions tax, which effectively means that the amount of concessions received increases as one moves up the income scale ...

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28 comments

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28 thoughts on “We’re old enough (but wise enough?) to make tough decisions on pension

  1. MJPC

    The age of entitlement is only stopping for those on low incomes (and not constituants of the LNP).
    This idea that people work longer is “pie in the sky” bullsh*t. If you go about and look at workplaces the facts are that the majority of the pensioner age workers are working in menial service jobs such as check-outs, hardware chains or fast food outlets.
    Yes, there are some workers not in these industries but are usually self employed so can choose what they wish to do or not (and get paid accordingly).
    There is plenty of money out there, after all the ATO just gave back +$800M to Murdoch, not even an Australian company now.
    Get smilin’ Joe of his backside and hit the tax havens (together with his new G20 mates) and this country will be swimming in cash. I think I’ll go out and buy a lottery ticket, better chance of winning that than this government getting the big end of town paying their fair share!

  2. Michael Jones

    As usual, this article neglects the fact that blue collar workers are not ageing nearly as well as white collar economists.

  3. Arthur Moore

    It seems that the very people who worked for 40 and 50 years, paid their taxes and built the budget up to cope with all the entitlement handouts that various governments have dished out over the past couple of decades. Handouts not only to those that “have not” and in genuine need but also in large doses to the “Haves” in large measure. If you work until you are 65 or later you are now being targeted, the very people who have largely done the right thing in bringing up their family without all the handouts that families cannot do without now, are in the gun to solve a government created problem! Why not just take out a few hundred thousand of us out and just shoot us !!! Problem Solved!! The fact that some in the government prattle on about not reacting to “Moral Blackmail”, when in fact there does not appear to be any moral compass in sight, how sad! They then should have no problem about shooting many of us oldies to solve the problem, i.e. not “turn back the boats” but “turn back the ageing population”

  4. Brian Williams

    Thanks for the kudos Dogs breakfast. Regarding your comment about the age at which super can be accessed, you are correct. People born prior to 1 July 1960 can access their super from age 55yo, but not tax free as they can if they wait until they’re 60yo. They also can’t get lump sums until they’re 60yo.

    However, those over 55s can receive what’s called a ‘Transition to Retirement’ pension, tax free from their super account courtesy of a little trick called the pension offset/rebate, while they’re still in fulltime employment. (It has to be between 4% and 10% of their super balance annually). They can then recontribute the same amount back to their super account via salary sacrifice at the current 15% contributions tax, assuming they’re not already maxed out there.

  5. Shaniq'ua Shardonn'ay

    Another Idea, if some people feel that including the entire value of the family home in the assets test is unfair to those who by circumstance now live in desirable suburbs we could just include the Capital Improved value of the property (i.e. the house, not the land)

  6. mike vuletic

    I can’t believe how intergenerationally selfish the writer of this article is. He doesn’t get that the superannuation tax breaks are to INCENTIVISE people, including himself, to work hard and save over long periods of time for enough money to be secure in their old age. This is so that older people don’t have to depend on their children for money. Instead the writer sees older people with nest eggs and seeks to tax their hard earned money so he can avoid any tax increases himself. The fact that he too will one day grow old (and hopefully wiser) seems to have escaped him.

  7. klewso

    I don’t think this sort of defining of their ideological victimization has gone unnoticed out there in Voterland.

    The fact they’re considering targeting the less-well-off working class to carry the can of Howard wash-back (“fend for yourself on sanga and milk-shake tax cuts” over future infrastructure investment) is bad enough.
    But then most of this government trying to make them pay now, was part of that short sighted, politically expedient, myopic government of Howard’s, that pissed the proceeds of the mining boom and the sell-off of the family silver-ware up the wall of populist political opportunism?
    And took us to war in Iraq to compound that profligacy for good measure.

  8. klewso

    All these people being turned out of work now – where are they going to find all these jobs that they can put away money from wages for their old age? What are they going to live on in “the interim” – if they can even get another job?
    Less people in work = less money to go round to the rest of the economy.
    That’s all going to get better – according to Abbott, Hockey, Robb, Macfarlane, Murdoch etc? What if it doesn’t?

    “(Personal) Welfare” is better than subsidising productive lives?

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