Is the Age Pension fair?
Do the rules work for you?
What seems fair to one person may seem the opposite to someone else. So when the national government is the major source of retirement income for those aged over 66 there are often varying perceptions of how fair the system really is. Creating a system that serves the national interest as well as individual retiree needs and remains financially sustainable is a massive balancing act.
Australia’s Age Pension is one of the most finely calibrated in the world. Whilst this can then lead to complexity, it also results in finely targeted means testing on both income and assets, so that those with the least will remain within the safety net of a full Age Pension.
These are not the only upsides and downsides – there are so many in the Age Pension debate.
Below are some of the ways we might view the efficacy of the Age Pension. We’re always interested in learning more about how it works in your case, so please share your thoughts in the comments section at the end. And we’d also like to know whether we missed any aspects of the Age Pension that could be seen to favour one group over another.
According to the 2020 Retirement Income Review nearly 65% of older Australians receive a full or part Age Pension. This is an enormous portion of the population. The pension has no connection with your earnings during your working (or non-working) life, so it is a true safety net provided to older citizens. Fortnightly payments also remain relevant to wages and household expenses through the system of twice-yearly indexation. Our pension is government guaranteed so, for anyone who is eligible, this removes the stress factor that their income stream could ever be removed without warning.
The rules! Yes, they can be both difficult to understand and confusing. This is partly because of the nuance of Age Pension entitlement and perhaps also because the rules have been altered and added to over years and years. There’s a case to be made that it’s time for a simplification and streamlining of all terms and conditions. Searching for detail on the Services Australia or Centrelink website can be frustrating and leave visitors wondering if they have fully understood the information on offer.
The Age Pension is ‘delivered’ through Centrelink which is an agency of the Services Australia department. It is fair to say that the delivery can sometimes feel less than perfect. But the enormity of the task can’t be overlooked either. In a recent report Centrelink met 36 million calls in a 12-month period with a busy signal, so clearly wait times are an issue. There are fewer Centrelink offices than there were pre-Covid, so less opportunity exists for face-to-face interaction. Dealing with Centrelink online can sometimes feel one-sided, with the technology interface not necessarily as intuitive as the agency would like us to believe. And then there are the clients who do not have mobile phones or computers, some of whom who live in regional areas, so they can quite rightly claim to be disadvantaged. The current Royal Commission into the Robodebt Scheme has highlighted a dependence by Centrelink on Artificial Intelligence ‘smoothing’ of income. This reliance on machines was inaccurate and has caused severe hardship and distress for many welfare recipients.
Couples v. Singles
A discussion of retirement income should not become a slanging match for couples versus singles. But feelings do run high.
Currently a Single full Age Pensioner receives a total of $1026.50 per fortnight in pension payments and supplements. A couple receive $773.80 each ($1,547.60 in total).
Singles often say that two can live as cheaply as one, so the fact that each half of the couple are awarded 75% of the single rate means ultimately that couples are better off.
Couples will often claim they should simply receive two times the single rate, with the pension entitlement made to each individual, regardless of with whom they may or may not live.
Who is right and who is wrong?
Homeowners v. renters
This presents another hornets’ nest, as whilst a family home remains exempt from means testing, both the assets and income test have different thresholds for homeowners versus those who are renting or in assisted accommodation. This is an acknowledgement of the massive role that home ownership plays in retirement affordability. Again, there are arguments on both sides as to whether the Australian Age Pension deals with this in an equitable way.
Self-funded v. full or part Age Pension recipients
Again, there are many different ways of viewing this debate. Many self-funded retirees will view their situation as the sum of their efforts over many years to work hard, save and have enough put away to fund their own retirements. The corollary of this, of course, is the implication that those on an Age Pension ‘should’ have worked harder and saved more. This argument sets up a false dichotomy. Not everyone has had the opportunity to work, let alone work hard, or to be paid well. Not everyone has had the opportunity to save. It’s a lively discussion. And it came to a head in January 2017 when the Turnbull Government doubled the taper rate for the assets test, meaning nearly 300,000 part Age Pensioners lost their entitlements in one hit.
The big picture
We pride ourselves on our ‘world class’ retirement system, but sadly the percentage of Australia’s GDP spent on the Age Pension places us at 32 out of the 38 nations measured. For one of the wealthiest nations in the world, coming this far down the list is a very questionable ranking.
This isn’t the whole picture however. Our superannuation system is one of the best private retirement savings systems in the world and when combined with the Age Pension puts Australia near the top of the tree. However, neither superannuation concessions nor the Age Pension come without significant costs. The Government now spends nearly as much on superannuation concessions – $52.5b – as it does on the Age Pension – $54.9b. The super concessions are there to encourage people to help fund their own retirement and take some pressure off the public purse which funds the Age Pension but there are also questions of fairness and equity on this issue.
As we said, we’d love your feedback on this vital topic. We’ve previously written on the concept of a Universal Age Pension which seems to be a very popular initiative. So is the time now ripe to move from the challenges of delivering a complex means tested pension to nearly 65% of Australians to the much simpler and cheaper administrative task of delivering a universal one?
Over to you.