Australia’s pension system has “many positive features” but it could be made fairer with the introduction of a universal age pension, according to a policy expert from Mercer.
Former Melbourne University academic David Knox, who is currently a senior partner at Mercer, believes the Danish pension system is among the best in the world in delivering more equitable outcomes.
In a paper presented to the Financial Services Forum on Monday, Mr Knox explained that under the Danish approach part of the public age pension is paid to everyone as taxable income with the balance paid on an income-tested basis.
He suggested this could take form as a universal pension equivalent to 10 per cent of the average wage, coupled with an income-tested pension that is equal to the balance at 17.6 per cent of the average wage.
“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,” Mr Knox 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.”
Mr Knox explained that while the change would represent an extra expense for the Government because of the increased numbers of part pensioners, it could be offset by additional income tax from those with higher taxable incomes.
If a universal age pension system was adopted in Australia, Mr Knox said that he saw no reason to change the planned increase of the Superannuation Guarantee to 12 per cent.
Under this strategy, full pensioners would not be affected.
What do you think of the proposal of a universal age pension? Would you support the change?