Is this a case of ‘here we go again’ as senator refers to Retirement Income Review?
As debate continues over next year’s legislated increase in super contributions, and as Australia waits on the federal government’s response to its Retirement Income Review, the assistant superannuation minister has flagged a review of the Age Pension and the family home.
Super sector leaders and everyday Australians have repeatedly called for a moratorium on change in the sector, but Senator Jane Hume appears to be having none of that.
She has slapped down calls to cease reform of the system in favour of cementing policy stability. And she has hinted that any further reform would also encompass the Age Pension and voluntary saving arrangements.
“One of things we keep hearing is ‘stop tinkering and making changes’,’’ she told The Australian. “Well, you know what? From the members’ perspective, they are seeing improved efficiency from these changes.
“I can’t give away too much ahead of the release (of the Retirement Income Review) but one of the things the review focused on explicitly was the interaction between different pillars of the retirement system.”
The review was announced on 27 September 2019 and handed to Treasury on 24 July this year. It was recommended by the Productivity Commission to assess the state of the retirement income system and how it will perform as Australians live longer and the population ages.
It set out to consider “the incentives for people to self-fund their retirement, the fiscal sustainability of the system, the role of the three pillars of the retirement income system, and the level of support provided to different cohorts across time”.
More than a month since the handover, there has been no official government response.
Senator Hume was criticised last week after saying she was ambivalent about the legislated increase in super – from 9.5 to 10 per cent – going ahead, adding that super attracted too much attention compared to the other pillars.
“A good retirement outcome is not driven solely by one’s super balance,” she said this week. “It’s about the other pillars as well: [the] Age Pension and voluntary savings outside of super, including the home.
“There are also payments in kind: things like health and aged care, the fact that those things are heavily subsidised matters when we compare our system to those of other countries.”
The Age Pension is indexed twice yearly and calculated according to the greater of the movement in the Consumer Price Index (CPI) or the Pensioner and Beneficiary Living Cost Index (PBLCI). It is then ‘benchmarked’ against a percentage of Male Total Average Weekly Earnings (MTAWE).
Indexing pension rates to CPI, says the government, “maintains their real value over time”.
The case for continuing to exclude the family home from the assets test for the Age Pension has drawn many critics in recent years. The argument presented by Deloitte Access Economics' Chris Richardson is typical.
“Including the family home [in the assets test] is still the right thing to do,” he said. “You have some people who have incredibly valuable homes and yet qualify for the pension.”
A Productivity Commission report claims that the federal government would save up to $6 billion a year by including the family home in the Age Pension assets test.
The report, Housing Decisions of Older Australians, states that around 360,000 pensioners would lose their entitlements if the family home was included in the assets test.
It says the move could also make Australia’s tax system fairer, stating that asset-rich and cash-poor retirees could live a better quality of life in retirement if they were to draw on the equity of their assets instead of claiming a pension.
The Productivity Commission believes “there is a strong case on equity grounds for setting limits on the value of the principal residence that is exempt from the Age Pension means test” but acknowledged that it couldn’t happen in the immediate future.
A well-placed super industry source told The Australian the sector feared the Retirement Income Review would “undermine the raison d’etre of the whole sector”.
“Hardly any of the submissions were about the other two pillars, so who knows what’s coming on that front,” the source said.
The Department of Social Services confirmed last week that age pensioners would not receive an automatic indexation increase on 20 September because inflation had gone backwards. It is the first time since 1997 the pension hasn’t risen with indexation.
Prime Minister Scott Morrison later suggested there might be an interim sweetener for pensioners, but that was quickly watered down by federal finance minister Mathias Cormann, who said any additional government support for pensioners would be “a matter to be determined in the context of the budget”.
Are you fearful of what might eventuate from the Retirement Income Review? Do you almost feel it is inevitable that the family home will one day be included in the assets test for the Age Pension?
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