A comprehensive review of the costs and benefits of a Universal Age Pension must be undertaken by the next federal government.
That’s the view of lobby group National Seniors Australia (NSA), which says such a system would make retirement simpler for thousands of older Australians,
The push is part of the NSA’s Fairness in Retirement campaign to provide all older Australians with a basic pension.
The proposal is based on a report by Melbourne University emeritus professor of finance Kevin Davis, which outlines how a universal pension could fix several superannuation problems.
Prof. Davis’s ‘opt-in’ universal pension scheme would do away with means testing, deeming and taper rates.
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It would trigger the application of a different tax schedule for wealthier retirees – Prof. Davis calls this the retiree tax schedule (RTS) – and he believes it could solve several issues with the superannuation system without breaking the federal budget.
NSA says that a universal pension would allow retirees to earn as much as they wanted from their investments or from work and still receive a pension.
“They would simply pay tax to fund their entitlement, making the system sustainable,” the NSA states.
“They would only pay back the pension when they earned sufficient income in a given year, giving all retirees access to a year-on-year safety net.”
Prof. Davis says retirees would be rewarded:
- for having more savings for their retirement
- have no incentive to overinvest in housing to simply gain the pension
- not have to deal with Centrelink
- not have to constantly report the value of their investments and income to meet government rules.
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“If we [give] them (retirees) more certainty and said, ‘here’s an income, it’s going to be payable for as long as you live’ … then in fact retirees have got less risk, and they’d probably go and spend a bit more, and that of course would be good for the economy,” Prof. Davis says.
He says that on retirement, people would be able to elect to receive a non-means-tested pension, however the retiree would agree to a different tax schedule with two main features:
- Superannuation account earnings would be included in the retiree’s taxable income and subject to personal income tax at the rate specified in the RTS.
- The RTS would be no different to the normal tax schedule up to some income level, to enable a retiree to currently receive (for example) a 25 per cent part-pension. Above that income level, the RTS would involve a higher marginal tax rate than the normal tax schedule, designed to offset the additional income to be received by wealthier retirees from the universal pension.
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“For older Australians on full or significant part pensions, opting in to the universal pension would leave their after-tax position no worse off and avoids the hurdles of means testing,” Prof. Davis says.
“For the wealthier, the decision to opt in would require some analysis, but no more than could be readily available from web-based calculators.”
Prof. Davis says an opt-in system solves a number of problems including the enormous waste of resources in the financial planning industry aimed at enabling people to structure their affairs to gain access to the Age Pension and would also remove the excessive government red tape associated with managing a means tested pension system.
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