Mercer slams means test, strongly urges universal age pension

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Actuaries giant Mercer has slammed the means test and called for a universal age pension in its submission to Treasury for the retirement income review, reports Investment Magazine.

The actuary wants the means test completely scrapped. It also says the superannuation guarantee should remain steady at 9.5 per cent.

Mercer claims the means tests is the main factor hindering effective interaction between the three pillars of Australia’s retirement system – the Age Pension, compulsory superannuation and voluntary savings.

Mercer partner and retirement specialist David Knox said its original purpose was to ensure that those most in need had access to the age pension, alleviating poverty among senior citizens.

Mr Knox says the original purpose of the means test – identifying those retirees most in need of a full Age Pension to alleviate pension poverty – had been lost. He believes a universal age pension would benefit more retirees and households and will have a positive trickle-down effect on the economy and the superannuation industry. And, with the right tax structures in place, it may not have a substantial effect on the federal budget.

“Significantly, if the universal age pension was an important source of retirement income for all Australians together with superannuation, the superannuation guarantee rate need not rise to 12 per cent, while still providing the same living standard in retirement for average income earners,” said Mr Knox.

“This would reduce the cost of projected superannuation taxation concessions, increase the level of take-home pay and increase taxation revenue.”

However, if the Age Pension remains means-tested, says Mr Knox, the SG would have to rise to 12 per cent.

Mercer says a universal age pension could be funded by taxing the Age Pension for all those who receive it, achievable by basing the tax rate on the balance of an individual’s tax-exempt pension accounts. It could also be offset by changing the super tax arrangements, or by implementing a tax on any investment income generated in the pension phase.

“With a universal age pension, Australians will have an incentive to save for retirement,” Mr Knox says. 

“This isn’t the case today. While the Age Pension would be taxable, there would be a clear benefit to the individual for every extra dollar contributed into super.

“While the universal age pension may not be a viable option in the current political environment, it is a compelling proposition for a simpler, more effective system with a clear objective that delivers stronger long-term retirement outcomes for older Australians,” he adds.

The Mercer submission stands aside from many submissions to the retirement income review and has been applauded by some in the retirement sector.

“Many submissions, which are meant to assist the review build a fact-base for future reference, have failed to fully assess the retirement system across all its component parts,” says David Bell, of The Conexus Institute thinktank.

“In our submission we, like others, highlight the lack of a system objective and the complexity of the system. A universal pension could significantly reduce complexity, but the system would remain complex. For instance, the taxation and incentive structures across super, housing and other investments differ greatly, and households would remain exposed to many financial risks.

“Best practice would be to establish an objective and then work towards the best system solution,” he says.

“Nonetheless, I’m sure reducing complexity would be on everyone’s wish list.”

What do you think of Mercer’s submission? Would a universal age pension benefit you? Do you like the idea of different tax brackets for those potential universal age pension recipients who have more money in savings and investments? Or is it merely a variation of what is already in place?

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99 Comments

Total Comments: 99
  1. 0
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    there will be those happy with this and those who are not. this subject has been done to death.

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      Not talked about enough for my money – ie my money that other people
      are spending. I worked hard, paid tax and saved in order to give myself
      a better retirement income than that promised by the governemnt Age Pension.

      I was encouraged to do that by governments of both parties and by the whole of
      the financial “services/advice” industry.

      People who did none of those things are now living high on the hog (but wingeing)
      on my taxes while I live on my own money and don’t get a single cent in Age Pension.

      It needs to be talked about a lot more.

      Good to see one of the big mates (of both parties) from Collins Street singing the
      right tune for once. Governments listen to them – they don’t care about ordinary
      people, except briefly when they want their votes – and on this issue there was
      nothing to pick between either party.

      More (not less) exposure of this issue is urgently needed.

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      I agree with adbob, people haven’t considered the much simpler option of Universal Age Pension adequately or seriously, and with the Retirement Income Review in progress now, it is absolutely necessary to continue focus on this issue and the obvious solution to our Broken Age Pension system. People need to be well informed to challenge or accept the results of that Review, which I think is expected by June 2020.
      I also agree “Good to see one of the big mates (of both parties) from Collins Street singing the right tune for once. “.

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      We once had a Pension system similar to the UK and paid for by a percentage of our wages. A Federal Government stole all our input saving (believed to be in the billions of pounds) the excuse was the gov’t would be unable to pay the debt, obviously, they had used the pension money for other purposes! Then they put us on the present screwed up system and we’re made to feel like criminals by some because we’re on the age pension. I don’t accuse a particular Fed Gov because I’ve always thought it was Bob Hawke others blame others!

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      Sen.Cit.90 – probably right there, asset testing and deeming came in under Hawke/Keating administration, but then if not them it would have some other Govt afterwards. With all the money promised for foreign aid and other UN programmes we foolishly sign on to funds were getting short.
      But never forget that Mr Kevin Rudd PM brought in the 67 pension age qualification and for that he should be condemned. 45 years or so should be enough for most people but if those people would like to continue there should be no road blocks either.

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      I agree with you, adbob, it’s unfair and undemocratic, especially as you still pay taxes [GST. etc] so are even now paying for other folks pensions and getting nothing yourself.

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      Spot on adbob.

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      adbob, has been so since at least the 15th century when John Morton, Lord Chancellor, raised taxation funds for King Henry VII by holding that someone living modestly must be saving money and, therefore, could afford taxes, whereas someone living extravagantly obviously was rich and, therefore, could afford taxes as well.

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    Why am I always suspicious of these attempts to change the Age Pension and super systems?

    Because the affluent and outright rich never give wanting more of whatever pie is on offer – especially if it is funded by taxx payers.

    I am not an accountant or an actuary so I don’t have the capacities to adequately examine every variation these people keep putting up. And no-one in their right mind would blindly trust that anyone in banking, finance etc actually had the interests of age pensioners at the heart of their proposals.

    Month after month they trot out ways to force age pensioners out of their homes and communities, increase the cost to pensioners of the age care services battened on the poor and disabled, increase access to pensions for those with millions in superannuation and living in mansions, ensuring the affluent get Health care cards by any devious means available, etc. None of them have the slightest idea what life is like on an age pension, and the challenges to live decently, and they never will because they went from kindergarten to university with the rest of their privileged cohort – whose interests they continue to represent.

    These are the people for whom there is never enough and they push, shove and wheedle until they get compliant governments who give them more. Even this site gives more attention to affluent retirees and their interests than those of the ‘constrained’ pensioners. That’s where the money is and money always talks louder and longer.

    Give me one good reason why I should trust this bloke.

  3. 0
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    Google who stole the workers compulsory pension fund by Australian morning mail
    Workers still are paying their 7.5% which was never removed and now workers also pay for super plus now you want to tax them again
    The pension fund was a non means test one
    Civilised countries around the world do not means test the aged pension except our greedy age of entitlement politicians not even NZ has a means test

    • 0
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      Totally agree Marks. Pensioners should never be means TESTED. If the govt means test pensions then POLITIANS should also be MEANS TESTED. Why 1 rule for Politians and another for pensioners.

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      Politicians are different, Joy Ann. They also do not often eat rissoles and bangers and mash. They have no C/L pension but a Parliamentary one. Too many politicians anyway; if Queensland can function without a Senate why can’t every State and the Commonwealth?

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      Totally agree marls – I can still remember my shock in 1993 when Keating announced the new super system. Here I was thinking I had a nice though small amount from my previous 26 years, to start me off. But no, had zilch. Nil. Nothing. Had I not been lied to, then perhaps I would have been putting away something for my later years. To cop it off, by mid 1990’s, I had to leave working to care for elderly and ill parents for some years, then trouble getting back into the workforce, and when I did get a job, only casual and low paying jobs, so when I had to leave work at 64, I had minimal super.
      Whilst in theory I agree with Mercer proposal, tax implications for pension needs to be looked at, and current systems grandfathered. No retrospective penalising.

    • 0
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      Agree, marls. Keating destroyed the system with the Assets and Income Deeming Tests, with the Libs putting the nail in the coffin in 2017 pretending to save their Budget.

    • 0
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      I would be more than happy to receive an age pension if there was no means test. I don’t think I deserve it though

    • 0
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      Some people who turned up at an MP’s office on appointments would be asked by the MP …,”Did you bring a paper bag?”… Paper bag?…”Yes, for my lunch”…So on next appointment in his office a brown paper bag was thrown on his desk. “What’s this?'”…”Your lunch!…Hope you like ham and cheese sandwiches…couldn’t find any red lobsters”…Interview lasted less than five minutes…”Thanks for coming”…

  4. 0
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    “its original purpose was to ensure that those most in need had access to the age pension, alleviating poverty among senior citizens.”

    This sentence says it all. The thrust of this article is to give an age pension to all which ignores the original reason for an age pension. A home owning couple become ineligible when their assets (excluding the family home) reach $863,500 and people with assets of that magnitude could hardly be thought of as “living in poverty”. By spending some of their cash or converting assets to cash and spending the cash will allow people to become eligible for a part or full age pension.

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      I disagree. Govts have no business to interfere in people’s financial planning, and punish savers or those trying to earn extra income. The Lib party’s objective leading up to Jan 2017 Asset Test changes was to save their Budget (also proved to be a lie later when they handed out big tax cuts), not to benefit anyone or to meet any pension objectives.

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      it just shows that some people have absolutely no comprehension or empathy, so a person lives in an expensive house all houses are expensive and to force people to sell just because the government deems it is astonishingly cruel. The amount mentioned here is just for a modest dwelling in Sydney, so they are supposed to live in hovel boarding houses if any excisit today.

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      I agree with that sentence you put up Horace Cope. The pension is not there for wealthy people to access which IS happening when people “arrange” their affairs.

      No problem with people who are less well off getting the pension but by golly I do object when I hear and know of people with expensive homes, boats, winnebagoes etc getting it and when they fall off the perch their children are getting very generous estates (courtesy of the taxpayer who have been paying a pension or part pension to their parents)

      For goodness sake it is (currently) not a right of passage that every one gets it when you become of age. If you qualify fine, if you dont, look after yourself with your super or whatever assets you have built up. If eventually you find yourself on struggle street apply for the pension which you will be entitled to do if you pass the assets/mean.

    • 0
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      So, hyperbole, if you went without holidays and restaurant dinners and nice clothes and new cars to save a nice little nest egg for retirement, you would think it perfectly fair that you should hand all those savings over to the tax man to gift the money to people who enjoyed all the luxuries you went without?

      The problem with your theory is that the current policy is rewarding people for being spendthrifts and punishing saving, so more and more people will reduce their saving and plan to be pensioners. In the end, it’s bad for the nation.

      A universal pension ensures saving is encouraged and rewarded, so more people have a comfortable retirement – but a sensible tax system ensures it costs the taxpayer far less. Also, a fairer pension system enables people to leave a little to help children fund their grandchildren’s health care and education, thus making the next generation better off. Currently, we pay a nice little pension to folk who gambled or drank or partied their wealth away, but tell those who saved that they are not entitled to benefit from doing so. That’s NOT good for the nation. Mercer is spot on.

    • 0
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      So, hyperbole, if you went without holidays and restaurant dinners and nice clothes and new cars to save a nice little nest egg for retirement, you would think it perfectly fair that you should hand all those savings over to the tax man to gift the money to people who enjoyed all the luxuries you went without?

      The problem with your theory is that the current policy is rewarding people for being spendthrifts and punishing saving, so more and more people will reduce their saving and plan to be pensioners. In the end, it’s bad for the nation.

      A universal pension ensures saving is encouraged and rewarded, so more people have a comfortable retirement – but a sensible tax system ensures it costs the taxpayer far less. Also, a fairer pension system enables people to leave a little to help children fund their grandchildren’s health care and education, thus making the next generation better off. Currently, we pay a nice little pension to folk who gambled or drank or partied their wealth away, but tell those who saved that they are not entitled to benefit from doing so. That’s NOT good for the nation. Mercer is spot on.

  5. 0
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    Would a Universal Pension benefit me? was the question in your last paragraph. Probably not now but it would have kept me working 5 years longer before I gave it away. Saw the writing on the wall and I had no wish to slog at work for 45 years just to get zilch out of the system in retirement. I was brought up to believe in work as long as possible with a pension at 65 for men and 62 for women.
    Accept that we are equal these days and we all get the same pension age entitlement. But I still believe it should be 65. Get the young ones into work and give the 40+ year sloggers the pension and tax the whole income.

  6. 0
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    There is no doubt that 5here needs to changes to Pension system and criteria. This is what is in place in UK. Pension rates are lower there but less restrictions.
    I dont think that someone who lives in a home worth $1m+ and has Super that gives them $70k+ pa, needs the Aged Pension. But I do know it is a huge struggle surviving on the current pension rate alone – this what needs to be addressed first

    • 0
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      Just come back from Melbourne and here you are mentioning $1m+ homes etc. What I saw down there my old co-workers are just a smidgen off that magic figure and they built their places 45 to 50 years ago. I am sure Sydney would be similar if not worse. Give everyone a pension and tax all income and assets; the people in higher priced homes would be paying more and might have a rethink about downsizing. At the moment nobody wants to do it because it would affect the kids’ inheritance. The future looks more and more like a two-sided population – kids from wealthy neighborhoods where one inherits the parents’ wealth without inheritance taxes or transfer duties and the other side, kids with parents who never had anything, never will have and no desire to accumulate enough money to buy even a modest place. Something will have to change, house prices are only this high because they seem to be the only tax-exempt asset to pass on.

    • 0
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      You can’t change it Mariner. Some always work and accumulate with the kids getting jobs while at school and uni and saving, buying a car, saving a deposit, buying a home always working and living within their means plus saving. Others have no ambition, don’t get the school job, spend all they earn and often choose not to work when possible including using family as an excuse to not work. It’s human nature and has always been the same.

      You can’t keep taking from the savers and ambitious to give to the wilfully wasteful. It will only make everyone give up like in communist countries.

    • 0
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      money is deducted to pay for your pension in the UK…that is not happening here.

  7. 0
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    Makes sense. Think of the money saved by getting rid of the Centrelink paper shufflers trying to deny pensioners.

    • 0
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      Quite correct. Also, think about the massive Health Benefits for Retirees by NOT dealing with the monstrous Centrelink machine. Will help the Health Budget too!

    • 0
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      Agree. Good side effect. Can put these people into more productive areas like in aged homes.

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      Macheke – shock horror! That would mean actually working, so wouldn’t go down well.
      I needed to go to CL at one stage to discuss working part time. The guy who ‘served’ me, knew practically nil about the Pensioner Work Bonus (though I for the life of me cannot understand why they call it a bonus). I had to sit there and explain it to him. He then wanted me to come back at another time to speak to someone who could help me more.

      I had already waited nearly 2 hours, and I had clearly explained to the person who greets customers, exactly what I wanted. Why send me to someone who couldn’t help me? Even then, they got it all wrong, and started weeks of phone calls and visits to sort it out. Underpaid me, they refused to provide breakdowns of how they reach their figures, and though I am a fairly strong person, they really pushed me to the limit. Made me absolutely determined to have as little to do with them as possible – and chucked in my part time job. Simply don’t trust them, especially with this Robodebt disaster. I don’t want to get a notification in 7/10 years time.

  8. 0
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    I agree with the concept of a universal age pension to simplify the current system. I would however have a mechanism (via tax system) to effectively negate the age pension for the wealthy. This is to avoid spending money where it’s not needed plus negate criticism that the wealthy get more when there are needy out there. There are a few more things needed. One of the submissions talked about you should have pride in providing for your own retirement if you can. The discussions on the age pension is riddled with comments about maximising the age pension. This should be seen as robbing from those that need it more than you. I know the response is well others do so I am a mug if I don’t. We need to change the culture and mentality. It’s not “the government” it’s the taxpayers. Your friends colleagues etc. that fund it. Secondly SG should not be available as a lump sum on retirement other than a basic amount or in extreme hardship. Whether or not lump sums are being spent or not doesn’t matter. If they are not no change if they are these few are taking advantage of the system. We would the have the SG with the unversal age pension with offsets for the wealthy. The individual would then have freedom to spend other assets accumulated through their desire to save.

    • 0
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      Having an each way bet Macheke? There is a mechanism already in place to effectively negate the age pension for the wealthy. It’s called the asset and income test.

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      Do you think anyone would make extra payments into Super if it cannot be taken out upon retirement in a lump sum? Took the lot out myself at 64 as I was concerned that the Govt might one day make me take it out monthly thus cancelling my age pension altogether. For every action there is a reaction as they say.

    • 0
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      You have missed the point, Macheke, Universal means universal. But, I agree the tax benefits for the Rich should be cut back – by capping any Tax Benefits from Super to say maximum $600K in tax-free status, with the rest taxed at marginal rates. Also, a Minimum Tax for Individuals of 25% on Gross Income to prevent all the rorts by the rich evading tax. Such additional measures have been missed by Mercer, and would make the UAP proposal much more acceptable to all, other than the rich (who cares about them, they do well anyway).

  9. 0
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    The easiest way is to raise the asset test to $600.000 and leave the system as it is.
    That way, both people with no super and people with a little super would receive a FULL PENSION. People with A LOT of super would get either a part-pension or no pension at all.
    And for Christ’s sake, leave the primary home alone. We paid x it, we have the right to keep it in our old age!

    • 0
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      No one said you can’t keep your home. If it’s very valuable why should you get the age pension and the renters suffer? If it’s not valuable no problem.

    • 0
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      Why do the renters suffer because Blinky has his own house, Macheke? It usually takes a lot of years to finally pay off your house and there are a lot of people who made a decision to rent because they didn’t want to be tied with an overlarge debt or tied to a place. Thirty or forty years ago houses cost tenth to a quarter of what they do today and rents were low and folk at that time decided either to buy or rent. That was their decision and renters can’t put the blame on house holders now for the mistake they made then.

  10. 0
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    You don’t have to re-invent the wheel on this – just look at most of the other countries in the developed world. Australia is out on a limb on this one.

    The Paul er y’know Keating super system, taken together with the means-tested Age
    Pension, benefits the wealthy and high income “earners” and the welfare-as-a -lifestyle-choice contingents.

    Ordinary hard-working people pay and suffer.

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