Tax, age pension reviews must reassess priorities

26 February 2009

The Brotherhood of St Laurence has labelled the retirement income system for pensions, taxation and superannuation as unfair and unsustainable and called for wide-reaching reforms.

The recommendations come on the eve of the release of the Government-commissioned Harmer Review into pensions and are backed by research the Brotherhood has commissioned from the National Centre for Social and Economic Modelling (NATSEM).

“The NATSEM research shows that the picture for aged pensioners is actually quite varied. While many are struggling with daily living expenses some people on the aged pension are actually doing quite well. With an ageing population, it becomes even more important that the Government targets funds to the most needy,” Brotherhood of St Laurence Executive Director Tony Nicholson said.

The NATSEM report has found that:

• Although most age pensioners had lower overall incomes than average, 2% of age pensioners, 51,200 people, were in the highest income quartile.
• The age pension is not well targeted in terms of wealth (net worth). Half of age pensioners live in a household in the top half of the wealth range.
• Fourteen per cent of people receiving the age pension are living in the wealthiest 25% of households with an average net worth of more than $1.6 million. The analysis of “net worth” includes owner occupied housing, which is not assessable as part of the means test for the pension.
• Moreover, age pensioners who own a home also tend to have the highest non-pension private incomes, including superannuation income. Of these age pensioners, 12.6% have private incomes of more than $200 per week.
• By contrast, age pensioners who are not owner occupiers tend to have much lower private income – 83% have private incomes of less than $20 a week. Moreover, unlike owner-occupier pensioners these pensioners have to pay for their accommodation, through rents.
• In addition to renters, age pensioners who are single are at the most risk of poverty. More than half of single age pensioners are in the lowest quarter of the income.
• The single female age pensioner is the most disadvantaged, with three quarters in the bottom half of the income range. Women in the pre-retirement age group (55-64) also had much smaller superannuation savings – 62% have less than $20,000 in superannuation, with only a few years left to save before retirement.

The Brotherhood of St Laurence says the report’s findings make a strong case for policy reforms – some that should be introduced quickly and some that should be considered as part of the Henry review of taxation.

As a matter of urgency the Government should:

• Increase the base rate of the single age pension from 59% of the couples rate to 66%.
• Increase rent assistance by 50% for all recipients of rent assistance.
• Introduce a second taper rate (the rate at which the pension decreases as other income increases) for those with high private incomes – from 40% to 60% at twice the current threshold, using a threshold of $480 for both couples and singles.

As part of the Henry review the Government should:

• Introduce a universal pensioner concession card for all people over 65 to prevent people reorganising their assets in order to qualify for at least a part pension and therefore eligibility for concession entitlements.
• Include owner-occupied housing as part of the means test for the age pension for homes of high value, say above $1 million.  This could include arrangements for reverse mortgages so people can remain in their family home while drawing down on its equity to create an income.
• Reform the grossly inequitable superannuation system, which provides tax concessions worth over $20 billion to the wealthy.
  Make superannuation contributions for people with intermittent labour force participation and those on government benefits for extended periods.

Download the NATSEM report, "Reform of the Australian Retirement Income System", here (PDF file, 244 kb) .