Government's 'death tax' talks spark calls for universal basic pension

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Federal government talk of scrapping the compulsory super guarantee and implementing a ‘death tax’ on drawdowns on deceased estates have sparked renewed calls for a universal pension. 

National Seniors Australia chief advocate Ian Henschke wants a universal pension scheme that isn’t means tested.

“Review after review complains about older people failing to spend down their capital; they don’t blame the system, they blame the retiree. And then they wonder why no one’s listening,” he told Savings.com.au.

“By setting income and asset limits which restrict you from, first, getting a pension, and second, limiting your entitlement, it punishes you for having more.”

Mr Henschke’s suggestions come on the heels of Superannuation Minister Jane Hume’s call to scrap the legislated increase in the superannuation guarantee. The minister says such increases would only serve to encourage retirees to hoard instead of spend.

“Australians are retiring with more savings than ever, largely because of our compulsory super system that quarantines nearly $1 in $10 of earnings,” she wrote in the Australian Financial Review.

“And the super guarantee (SG) is legislated to rise by 0.5 per cent every year for the next five years, taking more money away from your standard of living today so you can retire with a higher balance in the future.”

The senator claims Australians should be making the most of assets during working and retired life. However, she said the government’s retirement income review revealed a common trend of frugality in retirement, with retirees choosing to live only on earnings, rather than effectively using retirement savings.

“The review found that many retirees are hesitant to draw from the capital amount of their superannuation, instead drawing only the return from the investment,” she wrote.

The challenge for policymakers, “beyond the structural pillars of our retirement income system, is how to improve the confidence of retirees to use their savings more efficiently to enjoy a better standard of living”.

She added: “The tendency to under-consume in retirement may be driven partly by a desire to leave a bequest, but we shouldn’t underestimate the fear of outliving savings, or the anxiety about paying for future health and aged care costs.”

Public Service Commissioner Andrew Podger wants government legislation to ensure retirees draw down on their savings through annuities and home equity release programs targeting deductions from deceased estates.

Some have described these draw-downs on deceased estates as a ‘death tax’.

“When you have a system that relies so much on so many moving parts, it’s no wonder retirees are not confident and hold on to their money rather than spend it as they head towards the end of their lives,” said Mr Henschke.

“And remember no one knows when that will be. It could tomorrow or in 25 years.

“If every year, you worry whether the market will give you enough or not, you have little choice but to be conservative.

“I’m sure many retirees feel this way, having lived through two of the biggest market downturns in recent history. It’s a terrifying financial rollercoaster you really don’t want to get on.”

The top two pension systems in the world – in The Netherlands and Denmark – both have defined benefits schemes, or universal basic pensions, in place.

Australia’s refusal to implement such a scheme hampers retiree confidence to go out and spend, instead of hoarding cash and assets, says Mr Henschke.

“That’s the beauty of a properly designed universal pension. It takes away the year-on-year risk, but ensures it is fiscally sustainable and fair,” he said.

A universal basic income could, over time, also be good for the government’s bottom line, as it would eliminate the need for massive administration costs.

“It would get rid of the pension assets and income tests, doing away with the need for unfair taper rates, deeming rates and work restrictions, and end the need to engage with Centrelink,” Mr Henschke said in May last year.

“If everyone of pension age received a pension, retirees could just add this to their other income and pay tax. Means testing is costly to administer and leads to perverse outcomes, which are more apparent in the current crisis.

“Asset taper rates unfairly penalise those who save more for their retirement. Income tests undermine ongoing workforce participation and lead to ongoing anger over deeming rates.”

Melbourne Mercer Global Pension Index lead author David Knox says the Danish approach to the Age Pension, which is paid as taxable income with the balance paid on an income-tested basis, is a fairer system for all.

“The universal pension would include provision of the health card, thereby removing the current incentive for many retirees to deliberately rearrange their affairs to receive a part pension and therefore the health card,” he explained

“Such an outcome would encourage all retirees to maximise their assets and income.

“The introduction of the universal pension would improve the retirement income for the average income earner, but would have a reduced effect at higher incomes as it would represent a fixed payment in dollar terms.”

Would you like to see a universal basic pension introduced in Australia? What do you think of increasing the compulsory superannuation guarantee contributions?

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Written by Janelle Ward

24 Comments

Total Comments: 24
  1. 8
    0

    Agree with most of the above and the universal aged pension is needed urgently which would also save admin costs for the govt !!

    • 0
      0

      I agree with a lot of the comments too, Johnp, and have a few that I would add to the conversation. I have read in several publications that the lurks and perks in the way of tax deductions etc handed to the superannuation industry add up to more than what is paid out each year in aged pension, so, scrap compulsory super altogether, (back to voluntary), and pay everyone of retirement age a living wage. This would be taxable, along with accumulated super and other investments they hold. The present huge bureaucracies would not be needed, and properly administered, should be fairer and much cheaper system.
      We could sit back and block our ears to the squeals of the super industry who would see some cushy, highly paid jobs disappear, and of a certain political party which benefits so richly at the expense of those with money tied up in the funds.
      In the short term, the hike in super guarantee rates should not go ahead, both businesses and employees can’t afford it. It is time for a government to show some intestinal fortitude and make some wholesale changes to a very inefficient system.

    • 0
      1

      The aged pension only allows those who are not well off to try to live comfortablty. Why shoulf we give it to those who already are rich and have plenty. If anything the rich should not be able to live off the interest of their super but withdraw some to live. The rich get richer and the poor get poorer

    • 0
      0

      I agree with “Olbiddy” but the other Pollyannian view isn’t Pollyannian at all.
      It seems that anyone earning more than her (?) is to be considered rich though, particularly in today’s financial climate, with the contradictory system of pension plus benefits, many pensioners may earn more than someone on a SMF.
      It appears that the writer views anyone who looks like they may earn more than her, wealthy irregardless of any reality or understanding of other people’s situation or the broken benefits system.

  2. 7
    0

    When an investor using their knowledge and skill sells shares for a profit, they pay capital gains tax on that profit. To say many retirees do not pay tax is rubbish. And let’s not forget older generations have long memories: Black Monday, 1987, the dotcom bubble, 2001, global financial crisis, 2008, health crisis, 2020. Andrew Podger conveniently overlooks these interruptions. Warren Buffet replied to the question, ‘how to get rich’ by saying, “The rich invest in time; the poor invest in money.”

  3. 4
    0

    “Would you like to see a universal basic pension introduced in Australia? What do you think of increasing the compulsory superannuation guarantee contributions?”

    For a start this article has another misleading headline, nobody from government has said anything remotely similar to what has been said in the article.

    For a universal pension to be introduced, there will need to be a costing put in place first and then the age old question comes into play. “Where does the money come from?” The answer is always the same; taxpayers. We no longer pay income tax so a universal pension won’t affect us greatly but our children and grandchildren will be affected and buying a home will be that much harder. I can imagine the headlines when Gina Rinehart, Sir Frank Lowy and Twiggy Forrest line up for their age pension which suggests that there should be a cut-off point to qualify for an age pension. But wait, that’s already happening isn’t it? It’s called an income and asset test.

    The article makes a great leap of faith when it is stated that many retirees are hesitant to draw from the capital amount of their superannuation, instead drawing only the return from the investment. Can we have some numbers please to define the word “many”? We don’t have a lot of super and I certainly don’t want any politician, bureaucrat or university professor telling us how we should spend our own money. Any time there is a poll taken amongst retirees about money, a very high percentage answer in the affirmative to the question; “Are you concerned about running out of money?”

  4. 8
    0

    Universal pension, taxed, is the only equitable way to go. Investment revenue is shaky. Just look at last year where the banking dividend was reduced to a trickle meaning recipients were often on the breadline and uncertainty was the watchword. Can you blame people hanging onto their capital?

  5. 2
    0

    In SA we already have a tax on Deceased Estates. It’s called Probate. The form that has to be filled out is very precise. If you make the tiniest mistake they won’t accept it. I know somebody who had to fill some out as she was an executor of 2 estates. She put the comma in the wrong place. You can only lodge them during certain short hours and you have to line up in a queue. Tip – make sure you are there early or you may have to go back.

  6. 8
    0

    Yes, universal pension is much better for everyone and will save money for Govt as well

  7. 7
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    From my understanding, the amount of tax that the country will loose if Super rate is increased to the eventual 12% is enough to fund a universal pension and some. And the biggest winners in an increased super % is the wealthiest earners while the poorest lose more of their $ because employers cannot afford to lift wages and they need the money now. A universal pension scheme would also save millions on the current admin costs needed to run the very complicated current scheme.

  8. 7
    0

    Yes we need universal pension . The actual Centrelink system is pain in the neck for older people with memory problems

  9. 2
    0

    I was executor for my mother-in-law in SA. Her Will had been lodged with a solicitor. His fees to lodge Probate were about $2,500, the Probate itself about $1,100 to the Govt.

  10. 4
    2

    Yes we need a universal pension.

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