There’s a lot of inaccurate and misleading commentary on the Age Pension at the moment. So as an end of year round up, I thought it might help to place a few facts on the table in order to add some context to the wild statements from people who should know much better.
Many part pensioners are facing cuts to their income in January and as we noted on Monday, they are understandably concerned whether this situation is fair or necessary. Today we consider the background to the Age Pension, who it was meant to help, and what has happened in more recent years post the introduction of the Superannuation Guarantee Contribution (SGC). We then ask, where is this leading and how reasonable is the expectation of an Age Pension for those who are still working?
The Australian national Old-Age Pensions Bill was passed by the House of Representatives on 3 June 1908, replacing state pensions schemes and awarding a maximum of 10 shillings per week, applied to men and women over age 65. On the day, an opposition minister, Mr Reid, commended the bill, stating “… it removes the idea of old-age pensions from any suggestion of a charitable allowance. An old man, who has done his duty as a citizen for 25 years (is) as much entitled to a pension as a commander-in-chief or a chief justice”. Members of the Labour Party and the Ministerialists cheered these sentiments (Argus, 4 June 1908). As has been noted by academic TH Kewley, “It brought … the provision of fixed rates of benefit to which there was a clearly defined entitlement. This marked a revolution in social policy too, which in turn reflected a new understanding of the causes of poverty and a new attitude to collective responsibility.” (my italics)
So it is fair to understand the intention of the introduction of an (almost) universal Age Pension was as a reward for service, not a handout.
The universal Australian Age Pension was non-contributory and, importantly, unrelated to an individual’s employment capacity and history. Shortly afterwards in 1910, the pension age for women was lowered to 60. In 1912 the family home was exempted from the Age Pension means test. There were few significant changes in social welfare from this time until the end of World War II, with the exception of the introduction of a service pension in 1936 and a Commonwealth widows pension in 1942.
The post-war period saw a consolidation of the welfare state, whereby the Government assumed a greater responsibility for the welfare of its citizens. Worldwide economic turmoil in the 1970s created conditions for the rise in a neo-conservative political ideology in the 1980s, championed particularly by Margaret Thatcher in the UK and Ronald Reagan in the USA, which supported the notion that the (economic) market knows best and that individuals should now assume responsibility for their own financial wellbeing. It also maintained that the ‘trickle-down’ effect would mean wealth created by the rich would find its way into the hands of the poor.
In Australia, starting in the late 1960s, many unions had begun to agitate for a portable superannuation scheme which meant their members would gain the privilege already enjoyed by civil servants and the professional classes – a dignified retirement. This came to pass in 1992 with the introduction of mandatory superannuation, brokered by the Keating government and as a trade-off for wage demands by the unions. So the unions would forgo annual wage or salary increases in order to allow employers to pay the initial 2.5 per cent (planned to rise to nine per cent, then 15 per cent – it’s currently stalled on 9.5 per cent) SGC.
Contrary to popular current political mythologists, there was no ambiguity or lack of definition around superannuation when it was introduced in the House in 1992 by
Keating Government, Treasurer, John Dawkins who stated: “The increased self-provision for retirement will permit a higher standard of living in retirement than if we continued to rely on the Age Pension alone. The increased self-provision will also enable future Commonwealth governments to improve the retirement conditions for those Australians who were unable to fund adequately their own retirement incomes.” (Superannuation Guarantee Bill 1992).
We can see that the SGC was intended to be in addition to the Age Pension, not instead of it.
So fast forward to 2016. We have an Age Pension that now seems to be considered, at best, a safety net and, at worst, a handout. So much for the years of service, paid and unpaid, from our senior citizens. Superannuation has not been in place long enough to offer sufficient extra savings to make a significant difference to retirement income for older Australians. Had it risen at the rate originally intended, and not stalled by conservative governments, particularly the Howard government, most Australians would have been much better off. The result is that the median super savings on retirement is around $100,000, which is hardly likely to supplement an extra 30 yearsof living. As recommended by the Financial Services Inquiry (FSI) and supported by current government ministers, there is a call to ‘define’ super, based upon the myth that it was always intended to replace the Age Pension – which, as we have seen, it was not.
In the 1990s the World Bank described Australia’s retirement income system, with its the three pillars (Age Pension, compulsory superannuation and private savings), as world’s best practice. This is no longer the case. What was not viewed as an integral pillar to retirement income – the family home – has now become the single most important factor in defining the level of comfort retirees will experience.
Those fortunate enough to have purchased a house and to still own it, have a fighting chance of living a reasonable retirement. Those who are renting – and this is about 15 per cent of retirees – are facing increasingly high rents in overheated city housing markets and few ways of having sufficient income to do more than exist hand-to-mouth until the next Age Pension cheque comes through.
Recent political debate has zeroed in on the ‘lifters’ and ‘leaners’ (thanks Joe Hockey, currently enjoying a cigar at the taxpayers’ expense in downtown Washington) and the ‘taxed’ and ‘taxed not’ a throwaway (we can only hope) line from Treasurer Scott Morrison. The fact that the ‘taxed not’ would actually appear to be 300 of Australia’s largest companies makes this remark even more ironic.
It is in this political climate that we have seen the introduction of changes to the Age Pension that will reduce allowable assets and caps on contributions.
It has been noted that Australia’s Age Pension is one of the most generous in the world.
But as we have pointed out countless times, this is simply not the case. It is a political myth that needs to be laid to rest for once and all. According to the OECD (2014–2015), the percentage of our GDP spent on the Age Pension is the third meanest in the world, behind Korea and Mexico. Our Age Pension is also described as ‘unaffordable’ because of the high debt our Federal Governments have failed to address. But no one has as many choices as federal governments have. And currently they choose not to remove billion dollar subsidies given to narrow interest groups (think investors and negative gearing or mining company fuel rebates for starters). A report by The Australia Institute reveals that all Australians could be paid an Age Pension if the overly generous subsidies on superannuation for the very wealthy were removed. This is hardly rocket science. But the so-called ‘affordability’ of the Age Pension is a furphy when it comes to where our taxes are really being spent. And this has led to a sport where bashing older people and welfare recipients is the easiest shot.
By contrast, New Zealand allows its age pensioners to work as much as they like without losing their pension. Funnily enough they do, so the problem of retaining older workers to improve productivity is not a problem ‘over the ditch’.
There is no argument that conditions surrounding superannuation need to be continually reviewed. But tinkering with the income and assets test for the Age Pension can cause stress to many retirees. The changes to the asset test thresholds will mean some people are losing income upon which they thought they could rely. What we are lacking is something seniors’ groups have been advocating for years – a comprehensive retirement incomes review that considers the Age Pension, superannuation and taxation as a whole, so the full system can be understood and benefits can be maintained for those in need, whilst those who use superannuation as an estate planning vehicle can be made to pay a fairer share of taxation.
Sadly, in the current political climate, this is unlikely to happen.
But in the meanwhile, let’s remember the original purpose of the Age Pension and mandatory superannuation. The Age Pension is not a handout, it’s an entitlement. And superannuation is not a gift from an employer, it is your right as negotiated long and hard by unions on behalf of all.
We live in the Commonwealth of Australia – which is meant to be based upon the ‘common wealth’ i.e. the ‘collective responsibility’ noted by TH Kewley. This, in fact, was meant to ensure that the retirement of all should be dignified and never dependent upon capacity or previous employment. Rich man, poor man. Rich woman, poor woman, we all deserve the right to a productive and enjoyable old age.
Tell us your story of pensions and super and how our system works for you?