Apr 14, 2014

Pensions, superannuation and the Education of Joe

A debate on changes to the retirement age is welcome, but it's more complicated than it appears, according to Bernard Keane and Glenn Dyer. And watch out for vested interests ...

"Joe’s discovered the Intergenerational Report," a Labor figure said last week. Indeed. Suddenly retirement issues are front-of-mind for Hockey, something they very much weren’t when he sacked the Advisory Panel on Positive Ageing, chaired by Everald Compton, last year. As Compton (not exactly a raving lefty, given his long links with the Nationals) noted in Crikey, dumping the panel was primarily about obliterating any reminders of the treasurership of Wayne Swan. But there’s one legacy of Swan’s that Hockey must be grateful for -- Labor in 2009 decided the pension age would rise from 65 to 67, from 2017 through to 2023. In that period, the preservation age -- at which you can access your superannuation -- will also rise from 55 to 60. Why did the preservation age rise as well? Because the policy problem here is removing disincentives for people to keep working if they can. Both access to the age pension and access to super create financial and social disincentives to keep working. The Henry Review recommended that eventually the preservation age rise to the same level as the pension age. Then again, if you have a set of superannuation tax concessions that cost the budget nearly as much in lost revenue as the cost of the pension itself, you’re offsetting a fair amount of your savings from lifting the pension age -- which is exactly what Hockey did last year when he dumped Labor’s (modest) proposal for higher taxes on super earnings over $100,000 pa. All this could be called the Education of Joe, a process that has been in train since late last year when Hockey got a look at the real numbers about the economy, not the confections from consultants and compliant business economists. The Coalition had blithely issued pre-election assurances that it wouldn’t make any changes to pensions, and they were doubtless honest ones; why on earth would the Coalition want to alienate its key support base? The Coalition had gone after Labor in 2008 for failing to increase the cost of pensions by lifting the pension level, which the Rudd government eventually did. And as Labor's Chris Bowen pointed out back in February, Hockey remained in that mindset right through until November, when the Productivity Commission recommended the pension age be increased to 70 by 2035. "We have no plans to change the age," Hockey’s office said, dismissing the PC as "an adviser to government, it's not the government". Well, that's all changed now. Maybe he had a chat with his new Future Fund chairman Peter Costello, who began the Intergenerational Report process in the Howard years.
"And, as always in retirement policy, there is the unseen hand of the fee clippers in banks, insurance companies and financial planning ..."
As the PC explains, this is complex -- it’s not as simple as bumping up the retirement age because we’re living longer. Note that we're talking about the 2030s and not now, the next budget year or the run-up to the federal election. This is fair dinkum long-term policy making. Some of the complications the PC teases out are:
  • Large numbers of older workers are on the Disability Support Pension because they can’t get work -- employers are stigmatising them, or they physically can’t keep working;
  • The practical issue isn’t increase in life expectancy but increase in years of "healthy life expectancy" in which one can actually work, which is less (how many 69-year-old construction industry workers do you know?);
  • Large numbers of workers work more part-time as they near retirement, and our volunteer workforce is primarily people near or in retirement;
  • The interaction of the age pension and superannuation is complex: leaving the preservation age at 60 will leave in place incentives to retire early, especially if one can take super as a lump sum then move onto the age pension or part thereof (with its attendant health care cost benefits). Watch out for changes to the preservation age if and when Hockey's changes to the retirement age are announced; and
  • On the positive side, the older workforce of the 2030s will be very different to the older workforce of today in educational and skills terms.
There are also equity issues: high income earners aren’t affected by pension age changes, because they won’t qualify. Low-income earners, those with low super and those on the DSP are likely to be affected significantly more. Still, the savings from getting it right are significant -- the PC estimated $150 billion would be saved between 2025 and 2060 from lifting the retirement age to 70. And, as always in retirement policy, there is the unseen hand of the fee clippers in banks, insurance companies and financial planning sucking tens of billions of dollars a year from the $1.8 trillion dollar super pot, which will be affected by changes to the preservation age (Australians will be drawing much more on the super pot in the 2030s than they are currently, so an increase in the preservation age will offset some of that, to the benefit of the wealth management industry. This links into the muddled (we're being generous) thinking on the FOFA repeal, which will mean retirees have significantly lower retirement incomes in the 2020 and 2030s because of fee-skimming by planners and the banking/insurance cartel. It also means Hockey's financial system inquiry should make retirement policy and superannuation its first order of business. The submissions from the Reserve Bank, APRA and federal Treasury show they understand the primacy of this issue. Will Joe follow up and tell the Murray Inquiry that its priorities have changed? Compton’s panel was looking at many of these issues when it was axed by Hockey. The Treasurer is to be commended for trying to drive a debate on this, and more broadly on the long-term sustainability of the budget. Too bad he dumped something that could have ensured that debate was significantly better informed. One more thing: in 2012, the average life expectancy of an indigenous male was 69.1 years. There's something horrific about proposing to lift the retirement age to above how long Aboriginal and Torres Strait Islander men currently live. By the 2030s, one can only hope the Gap will definitely have been Closed. But what are the chances?

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16 thoughts on “Pensions, superannuation and the Education of Joe

  1. Howard Lin

    people need be taken care of! if we get old? what do we have? some people don’t have money! they need their own money, for god sack!

  2. SusieQ

    If the government want us to work longer or not be so dependant on the aged pension, then there are several things that need doing – firstly, encourage people, where they can, to save more in their super and stop using our super savings and contributions as a stream of tax revenue.
    We also need some culture change to allow people to stay at work longer – there were incentives built into the tax system for over 55’s who continue to work, but Gillard got rid of these.

  3. Jimmy

    I know this might be revolutionary thinking but instead of trying to fix the budget entirely from the spending side why don’t we look at what can be done on the revenue side?
    Maybe fix the MRRT to raise a bit more money sooner?
    Maybe increase the medicare levy to help cover increasing medicare costs?
    Maybe tax high income earning super funds more as Labor had proposed?
    Maybe we could pay a little bit more income tax?
    Maybe we could raise money from reducing carbon emmissions instead of spending money to do very little?

  4. zut alors

    And while Australians 65+ are clinging to their jobs what’s happening to the youth workforce – will they be denied positions at the novice end of the chain while seniors clog the upper end?

    Here’s a question for Hockey: explain how New Zealand can afford to pay a pension to EVERY New Zealander over 65? They call it NZ Super (but it’s actually their retirement pension) which is not subject to an assets test, nor subject to an income test.

  5. Griffiths Karen

    love what you are saying Jimmy! Hockey is not being honest or committed or sincere or relevant or forward thinking or informed because he has no bloody idea. he travels to washington and thinks his bubbly ideology will gain traction because he is with important people. I have said it many times before and I will say it again, “hockey doesn’t understand economics!” Listen to the speeches he has given-take away slogans like; heavy lifting, sugar off the table, a mature discussion, living beyond our means, age of entitlement, let me make it crystal clear[? maybe abbott], you don’t reduce debt by increasing debt, we must grow the economy….etc. It is frightening that this is the message of the treasurer. Please, take away the slogans, and what is he saying. Where is the detail? Where is the ‘implied’ knowledge? Where is the big picture stuff?

  6. Jimmyhaz


    The refusal for this government to contemplate raising taxes should tell you all you need to know about their financial credential’s.

    They come from the US Republican school of thought, where fiscal responsibility and living within our means are just code-phrases for reverse redistribution of wealth.

  7. Ron E. Joggles

    Approaching 63 I need to work till 70 at least, having negligible super and a child in school, but who will employ me? Govt Depts could lead the way by genuinely embracing non-discriminatory employment practices, but they are among the worst offenders for selecting staff within a narrow demographic that their HR people feel comfortable with. How many 60+ blokes do you see working in Medicare offices, or Centrelink? Or any customer service or admin role in a Govt agency? SFA!

  8. Ron E. Joggles

    Access to loan finance is increasingly an issue for older workers, as so many jobs we do are low paid, casual, part-time or short-term contracts. Lenders don’t want to know, and say it’s because Govt has restricted their ability to lend to people whose circumstances fall outside strict guidelines, even when they’ve demonstrated their reliability. So the poor old buggers can’t borrow a few grand to buy another old car so they can keep driving to their crumby job!

  9. Griffiths Karen

    let me ask this Q of you again crikey – how long does it take to ‘achieve’ moderation? why the hold up?

  10. Bill

    I don’t doubt that people in jobs like Joe Hockey’s could carry on until they’re 70 and beyond but what about bricklayers, nurses, truck drivers, and anyone engaged in the kind of physical labour that often sees people worn out by 60?

    Oh sure, they can retrain, but they’re gutting training as well.

    This is what happens when policy is made by career politicians who really only understand real life in the abstract.

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