The federal government is keen to cut the age pension. Its latest proposal to double the taper rate on the assets test has been supported by the Greens on the basis that this measure will reduce government support to those with significant wealth.
The Greens also hoped that by supporting these pension cuts, the government would rein in tax concessions on superannuation. However, the government has since publicly ruled out any superannuation changes.
So the deal does not reduce benefits given to the rich. It reduces benefits to those in the middle, while providing a small benefit — about $15 per week — to pensioners with modest assets. The poorest pensioners receive nothing extra.
National Seniors Australia has expressed concern that these changes will reduce pensions, while not addressing superannuation tax concessions.
The government provides support for people’s retirement through the age pension and through tax concessions on superannuation. The Australian Institute of Superannuation Trustees (AIST) and Mercer have modelled the total lifetime government support for retirement incomes received by those on different levels of income.
Their modelling found that the bottom 10% of earners average about $400,000 in government retirement support over their lifetime. Meanwhile, the top 10% of earners average about $489,000. This group doesn’t even get the age pension.
But the greatest government largesse is reserved for those in the top 1% income range. The modelling showed that the richest 1% receive on average around $630,000 of lifetime government support. Under the new law, lifetime support for some middle income earners has now been slashed to $214,000.
The Greens claim that the new measure will lead to high pensions for those with modest assets, while reducing or eliminating the pension for those with significant assets. How then do the changes affect retirement incomes?
The effect of the changes differs depending on home ownership and partnership status. Here we examine how the changes affect a 65-year-old single homeowner.
Those with less than $200,000 in assets (the vast majority) receive nothing extra. Those with modest assets ($200,000 to $300,000) are the beneficiaries of the changes, due to the increase in the lower threshold of the assets test. But many will not see any change, because their pension is determined by the income test. This is because financial assets are deemed to earn income. Once deemed income exceeds $4160, a single person’s pension is reduced. Those who gain from this assets test change are likely to lose the benefit if interest rates rise.
Those with assets over $300,000 will see their pensions reduced under this measure. Those with assets above $550,000 will no longer receive a pension. Initially they stand to lose more than $9000 a year, though this will decline as their asset value drops.
The Greens suggest that a single homeowner with more than $550,000 in assets is well off, and should not receive government support. But consider how 65-year-olds might organise their finances. A healthy, active woman of 65 could easily live for another 30 years. She could reserve the value of her home to cover aged care costs, and live off her financial assets. She is likely to invest in a low-risk fund.
If she assumes no further cuts to the pension over her lifetime, she would expect that later, as her assets decline, she would gain access to some pension. In total she could expect an annual income of around $40,000 — less than the
Association of Superannuation Funds of Australia (ASFA) Retirement Standard for a comfortable income ($42,500).
However, the neoliberal agenda is to slash the welfare state. This pension cut will undoubtedly be followed by further cuts. If our 65-year-old single retiree assumes she would never become eligible for the pension, she would live off her financial assets. This would provide her with an income of around $23,000 — about the same as the age pension.
More likely, our pensioner will anticipate something in between — gradual pension cuts over her lifetime. So our retiree could live off between $23,000 and $40,000 annually, but is likely to take the cautious approach. She is certainly not rich. She has saved in good faith to provide herself with a comfortable retirement income. She has been badly let down.
What is a fairer alternative? How about following the suggestion of The Australia Institute? Provide a universal age pension that is not means-tested, eliminate superannuation tax concessions, and apply a progressive tax to all income. This would reduce the total cost to government of retirement benefits. While the rich would get government support through the age pension, this would be more than offset by the higher taxes they will need to pay.
By supporting the pension cuts, the Greens have badly miscalculated. They have allowed middle Australia to bear the brunt of the cuts while leaving untouched the massive concessions to the rich.