What’s in the Budget for retirees?

YourLifeChoices has interviewed Labor’s Families and Social Services Shadow Minister Jenny Macklin and Greens Senator Rachel Siewert on their parties’ approaches to the 2018 Federal Budget.

This week, we quizzed Kelly O’Dwyer, the Minister for Revenue and Financial Services, and Women. We asked for her views on the Age Pension, superannuation, the rising cost of healthcare and energy, and other issues affecting retirees. We thank Ms O’Dwyer for her time.

YourLifeChoices: There are a couple of so-called ‘zombie’ measures still on the table from Budget 2014–2015. These are to increase the pension age in 2023 to 67 and gradually to 70 by 2035; and to reduce the energy supplement to zero. What are your views on these two proposed legislations?
Kelly O’Dwyer: By 2054–55, the number of Australians aged over 65 will have more than doubled to 8.9 million, representing over one-fifth of the expected population.

There will be a much smaller proportion of people paying taxes for a larger proportion of people receiving the Age Pension. Currently, 4.5 people of working age support every person aged 65 years and over. This will drop to 2.7 people by 2054–55.

When the Age Pension was introduced in 1909, the pension age was set 10 years above the average male life expectancy of 55 years. The pension age is now more than 15 years below our life expectancy of 80 years.

A good government needs to ensure our Age Pension is strong and sustainable. When Jenny Macklin increased the pension age in 2009, she said: “Increasing the Age Pension age is a responsible reform to meet the challenge of an ageing population.” Now, Labor attacks the Government for a policy position it supported.

The Energy Supplement was introduced in 2013 to provide compensation for the introduction of the carbon tax. The carbon tax was repealed from 1 July 2014, so it is no longer necessary to provide this compensation.

Since 20 March 2017, the Energy Supplement is no longer being paid to new recipients of Family Tax Benefit or to new holders of the Commonwealth Seniors Health Card, so these proposed changes will ensure consistency across payments.

The current Bill before Parliament will only close the Energy Supplement to new income support payment recipients who began receiving the Energy Supplement on or after 20 September 2016. It will not completely abolish the supplement.

Do you support the current pensioner eligibility and assets and income limits or would you change them? If so, what would those changes be?
Changes to the pension asset test resulted in additional assistance being provided to about 165,200 pensioners, including around 47,600 previously part-rate pensioners who have qualified for a full pension. More than 90 per cent of pensioners were better off or had no change as a result of this measure.

Downsizing legislation (from Budget 2017–2018) is due to take effect from 1 July. Do you support it? While it may free up housing stock, the proceeds would seem to reduce most people’s Age Pension eligibility. Does this concern you?
The intent of this policy is to encourage older people to downsize from homes that no longer meet their needs in order to free up housing stock for younger Australians.

Many retirees aged 65 and over are currently unable to contribute to their superannuation because of the existing age restrictions and caps – this acts as a disincentive to downsizing.

Allowing older Australians to make superannuation contributions from the proceeds of the sale of their home is designed to encourage these individuals to downsize into housing that is more suitable for their needs.

It is also designed to help people be self-sufficient in retirement. The $300,000 contribution per person is in addition to the current caps.

Should the family home continue to be exempt from the Age Pension assets test? 
The principal home was exempted from the assets test when it was introduced in 1985, in recognition of the unique importance placed on the family home in Australian society. There is broad political and community support for this exemption.

The exemption of the home also enables people to remain in their own home as they age. This provides benefits such as proximity to services, family and friends, and maintaining links to their local community.

What is your view on Labor’s franking credits policy?
Labor’s retiree tax is unfair, full of contradictions and riddled with flaws that will require ongoing changes.

When it was announced, we were told by the Leader of the Opposition that his $59 billion retiree tax 1.0 was carefully crafted to hit ‘millionaires’. The only problem was it affected hundreds of thousands of pensioners. Mr Shorten’s new version, retiree tax 2.0, isn’t much better.

Perversely, millionaires can still benefit. It is those on modest taxable incomes who will be hit hardest, around 85 per cent of whom have a taxable income of less than $37,000.

Labor’s ‘guarantee’ is nothing more than a guarantee to turn more self-funded retirees into pensioners. And to punish those pensioners and self-funded retirees who dare to want to control their own money through a self-managed super fund, by making SMSFs more complex and less tax effective.

Labor’s retiree tax will also severely distort investment decisions by making Australian companies with shares that have high-paying dividends less attractive. People will invest more in property, or seek out investment opportunities overseas rather than invest in Australian companies.

The practicalities have also clearly not been thought through. What happens if somebody with a self-managed super fund becomes a pensioner halfway through the year? Or ceases to be a pensioner halfway through the year?

What if somebody is just $1 outside the eligibility for the pension? Is it fair that all their refundable credits are pocketed by the Labor Party?

Worst of all, when we should be using retirement income policy to help more people be self-reliant, their policy will put more pressure on the Age Pension.

What is your view on the Age Pension?
The Age Pension is paid at the highest fortnightly rate of income support payments in the Australian social security system. Since the Coalition was elected, pensions have increased by $99.20 per fortnight for singles and by $149.40 per fortnight for couples combined.

The Government provides comprehensive support for older Australians through the health system, the age care system, social security system, and concession taxation arrangements for retirement income.


The Australia Institute recommends the scrapping of super concessions and the introduction of a universal age pension for all retirees. What is your view on those topics?
A prosperous Australia needs a well-targeted superannuation system that supports and encourages all Australians to save and not be dependent on the Age Pension in retirement. We have a world-class superannuation system and we want to keep it that way. Superannuation tax concessions remain an important feature of our superannuation system as they provide important incentives for retirement saving.

The Government introduced a number of changes to better target the superannuation tax concessions through the Budget 2016–17 Superannuation Tax Package. These changes improved the sustainability and the integrity of the superannuation system. The Government is committed to making no further adverse changes to the taxation of superannuation.

In addition, by assisting and encouraging Australians to retire with a larger level of savings, the concessions are also expected to reduce future Age Pension expenditure, helping to manage growth in Age Pension expenditure over time.

Superannuation is taxed concessionally because, by law, wage earners are denied access to a portion of their own wages (the 9.5 per cent Superannuation Guarantee) until they retire.

While they are working, people are taxed at their marginal rate, but the tax on the super portion of their wages is lower (15 per cent) as a trade-off for that delayed access.

If you ended concessional taxation of superannuation contributions and earnings, there would be no incentive for taxpayers to save for their retirement in superannuation. There is a big difference between what is spent out of general taxation revenue on the Age Pension, and the taxation arrangements that apply to people’s own retirement saving. The Australia Institute doesn’t seem to understand or value the difference.

The Government has no plans to introduce a universal pension that is paid to all retirees.

Energy prices and the cost of private health insurance have increased at a greater rate than the CPI-pegged increases to the Age Pension and energy rebate, leading to a view among our members that the value of their Government payments has eroded over the past few years. What can be done to ensure pensioners are not disproportionately disadvantaged by these rises?
During six years of Labor government, electricity prices doubled.

Federal and state Labor policies have continued to increase pressure on prices, through: shortages in gas supply, unrealistic renewable energy targets, and open hostility to reliable baseload power.

The Turnbull Government is taking action to fix this mess and reduce household electricity bills.

The Government’s National Energy Guarantee will cut electricity prices by:

  • ending subsidies for energy, which are passed on to all customers
  • creating a level playing field that ensures all types of energy are part of Australia’s mix
  • providing certainty for investors – more certainty will mean more supply and, in turn, lower prices
  • reducing volatility, by ensuring reliable energy sources which provide power when it’s needed.

The National Energy Guarantee will ensure Australians will be $300 a year better off than they would be under Labor.

We are taking decisive action to help families and businesses with their electricity bills right now by:

  • requiring power companies to provide better deals
  • securing a priority gas supply for Australia, and
  • putting downward pressure on network costs (which are passed on to customers) by stopping the energy networks from gaming the system.

Labor is the party of blackouts and higher electricity prices. When Labor was last in office, electricity prices doubled.

Bill Shorten wants to replicate South Australian Labor’s 50 per cent renewable target on a national level, which will mean more subsidies and, therefore, higher prices and greater unreliability.

And Mr Shorten plans to introduce a new tax on electricity (or EIS) which means that if Labor got back in office, the electricity bills of Australians would be $300 higher ever year.

Labor also wants Australia to go far beyond the rest of the world and cut carbon emissions by 45 per cent. This reckless policy will harm our economy and cost local jobs.

The OECD estimates that a quarter of retired Australians live in poverty, which is twice the OECD average of 12.5 per cent. Are you alarmed by this finding?
Australia has one of the strongest social safety nets in the world. This is achieved by the significant expenditure on welfare of around $160 billion a year, equating to a third of all government expenditure. This represents 80 per cent of all individual income tax raised in Australia.

Seventy-four per cent of Australian age pensioners, unlike many age pensioners in other OECD countries, own their own homes. As a result, their housing costs are, on average, lower than most of the rest of the population, and their income goes further.

In Australia, the Government provides an Age Pension as part of the retirement income system to act as a safety net payment that is designed to support a basic, acceptable standard of living, particularly for those with few other resources. The Government-funded Age Pension is an important part of Australia’s three-pillar approach to the provision of retirement incomes that seek to deliver incomes efficiently and effectively. The three pillars comprise compulsory superannuation savings through the superannuation guarantee arrangements, voluntary superannuation and other private savings, plus a means-tested Age Pension and associated social security arrangements.

Poverty in developed countries is multidimensional, with complex causes and remedies.

The OECD considers individuals to be in relative income poverty if their income is less than half the national median income. This OECD measure disadvantages Australia for a number of reasons.

First, it does not fully reflect payments from superannuation. The OECD noted that the discrepancy between old age income poverty rates in Australia and the OECD average is ‘partly related to the high prevalence of taking superannuation funds as lump sums rather than annuities at retirement, which obscures the comparison of relative income poverty measures between age groups and between countries’.

Also, a number of benefits and concessions for Age Pension are not captured by the OECD measure. In addition to their main social security payment, Age Pension recipients receive a range of additional benefits and concessions that increase their security, including through Rent Assistance, subsidised prescription medicines under the Pharmaceutical Benefits Scheme, subsidised health care and related products and concessions provided by State and Territory governments.

Australia is one of the most prosperous countries in the OECD with higher incomes, and provides a generous Age Pension, in comparison to many other OECD countries. The Australian system targets assistance to those who need it most, with a higher share of benefits to lower-income groups than any other country in the OECD.

Retired Australians who rely on the full Age Pension and who are forced to rent because they do not own a home are among the most financially vulnerable citizens. Do you think the rental assistance they currently receive is adequate?
As at June 2017, there were 300,681 individuals and families aged 65 years or over who received Commonwealth Rent Assistance (CRA). This represents 12 per cent of all Age Pensioners.

It is estimated that 64 per cent of these older Australians would be paying more than 30 per cent of income on rent without this assistance. After CRA is paid, this proportion drops to 33 per cent.

CRA is indexed in line with the Consumer Price Index (CPI) in March and September annually, to maintain its value. CRA is means tested and subject to the income and/or assets test applied to these primary payments. Payments are means tested to target assistance to individuals and families in greatest need.

Do you agree with the Government’s policies? Are there areas that you believe need attention?

Related articles:
Labor’s policies
The Greens’ view
Universal Age Pension

Written by Olga Galacho

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