Calls to overhaul the pension system and introduce a universal part pension.
Every retiree should be given a part pension, say seniors groups concerned that COVID-19 has wiped out many nest eggs, leaving many cash poor and increasing the number of older Australians living in poverty.
Seniors groups are calling on the federal government, which is still in the midst of its Retirement Income Review, to overhaul the pension system and introduce a universal part pension.
Changes to tax concessions, such as removing franking credits, would be used to fund the new pension which, if introduced, could mean the end of the income and assets tests.
The pandemic has wreaked havoc on retirement income, with equity and investment markets and global interest rates all taking a massive hit.
Analysis firm JPMorgan estimates dividend income will drop by $68 billion in the 12 months to the end of June, property income will slump by $59 billion while interest payments will be $8 billion down, according to a Fairfax report.
Many retirees who had already suffered loss of income caused by back-to-back-to-back reduced interest rates will not see much reduction in the value of their assets. Under the income and assets test, the value of those assets – not the loss of cash – will still determine whether or not they qualify for the Age Pension.
A universal pension would make the means test redundant and could improve retirement outcomes and incentives for savers, says National Seniors spokesperson Ian Henschke.
“It would get rid of the pension assets and income tests, doing away with the need for unfair taper rates, deeming rates and work restrictions, and end the need to engage with Centrelink,” said Mr Henschke.
“If everyone of pension age received a pension, retirees could just add this to their other income and pay tax. Means testing is costly to administer and leads to perverse outcomes, which are more apparent in the current crisis.
“Asset taper rates unfairly penalise those who save more for their retirement. Income tests undermine ongoing workforce participation and lead to ongoing anger over deeming rates.”
YourLifeChoices has been calling for a universal pension for years. The Australia Institute senior economist Matt Grudnoff is also a proponent of a universal pension.
“At the heart of the problem is an Age Pension system that is both inadequate and hugely complex. But there is a solution – a Universal Age Pension,” Mr Grudnoff wrote for YourLifeChoices in 2018.
“The means testing of the Age Pension results in pension payments being focused mainly on lower income retirees, while the far less means-tested superannuation tax concessions mean that the majority of the tax concessions go to high-income earners.
“The main advantage of a Universal Age Pension is that the whole system becomes simpler. It reduces the cost of administration to both the Government and to retirees. No more having to work out if you’re eligible for a pension or part pension. No more asset or income tests.”
Mr Grudnoff says a universal pension would also increase work participation rates among older people which would strengthen the safety net for those who rent.
“The idea that the Age Pension is unsustainable and that we need to accept the high rates of poverty facing retired people is simply wrong. Reform does not need to break the budget. We just need to more efficiently and fairly distribute the money already being used to boost retirement incomes,” he said.
“A system with integrity and fairness at its core should reflect the underlying purpose of having a pension in the first place: Every Australian should be able to live in retirement with dignity.”
Mercer actuary and senior partner David Knox says the means test hinders many from getting a fair go in retirement and praises the notion of a universal pension.
“The advantage is the universal part pension gives everybody a base to build on while the means-tested pension ensures that no-one lives in poverty,” he said.
“Another advantage is that the means testing will cease at a lower level of assets or income than currently, as it would only apply to half the pension.
“This means that many retired Australian households would not be subject to any means testing and there would be a much clearer incentive to make some extra savings for your retirement.”
The federal government will report on its assessment of Australia’s retirement income system on 24 July.
What do you think of a universal part pension? Has the pandemic had a big impact on your nest egg?
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