Pension changes force workers to pay for retirement

The Abbott government has been pushing for cuts to the pension since its horror budget last year. The Commission of Audit that drew up Abbott’s attacks declared the pension had to become “a social safety net”, with less people accessing it. Their aim is to force workers to save more during their working lives and then wind back pension access.

The changes to the pension that passed parliament recently—sadly, with the support of The Greens—are a step in this direction.

The government tried to sell the changes as fair by increasing payments to pensioners with fewer assets. But its claim that 170,000 pensioners would benefit has been questioned by the Combined Pensioners and Superannuants Association, because pension payments are means tested on income as well as assets. It says that most of these people, “won’t see any increase in their pension.”

The overall effect of the changes is a substantial cut to total pensions spending of $2.5 billion over four years. The Greens say this simply reverses a change made by the Howard government in 2007 that was over-generous.

The changes sharpen the means testing of the pension, pitting better off workers against others. The immediate impact will see 330,000 people either lose pension payments or get a reduced payment. This will hit people who were well-paid workers, or the top 14 per cent of people on some pension. The very wealthiest 20 per cent already receive no pension payment at all.

Single homeowners with over $290,000 of superannuation savings and couples with over $451,500 will lose money. This sounds like a lot, but the average superannuation payout at retirement for men is now $200,000.

Younger workers lose

The most severe impact will be on those retiring in future decades. Modelling has found the changes will hit workers on modest incomes in today’s workforce when they retire. The changes mean an extra 30 per cent of single women and 20 per cent of single men set to retire in 2055, aged 27 today, would fail to get income sufficient for a comfortable retirement.

This is a product of the introduction of compulsory superannuation since 1992. This will increase from 9.5 per cent of wages currently to 12 per cent over the next ten years. The result is that younger workers will have greater savings when they reach retirement. This was designed to force the burden of paying for retirement onto workers.

As Paul Keating, who designed the scheme, has explained, introducing compulsory superannuation cost workers, not business, because employers compensated for the superannuation contributions by not giving workers pay rises.

As he has put it, “In every year the super guarantee charge rose, from 4 per cent in 1991 to 9 per cent in 2002, unit labour costs fell sharply…Super was a cost only to the employees, not the employers.”

Or as Tony Abbott said in 1995, “Compulsory superannuation is one of the biggest con jobs ever foisted by government on the Australian people…The basic objective of compulsory superannuation is that the government is taking our money now so that it does not have to pay us a pension when we retire.”

Instead of tightening the means test on the pension, the government should be providing a universal pension set at a high enough standard to live comfortably in retirement. A single pensioner is currently living on just $22,365 a year.

One way to pay for this is properly taxing the superannuation and assets of the wealthy. The cost of superannuation concessions is an enormous $29.7 billion this year. They will cost more than total aged pension spending within three years. They are hugely inequitable with 60 per cent of the benefits, $18 billion a year, going to the top 20 per cent of income earners.

Instead of saving the government money they are just welfare for the rich. According to research by the Australia Institute, “the total cost of the pension and the tax concessions, at some $76 billion, far exceeds the $55 billion it would cost to simply pay the pension to everyone over 65”.

Paying a pension for everyone instead would enable the government to increase pensions across the board by 25 per cent. The Australia Institute estimates that 80 per cent of people would be better off.

But the Liberals are determined not to touch these handouts to the wealthy, with Abbott declaring there will be “no changes to super”. The Greens have secured a greater focus on superannuation concessions in government’s Tax Review. But there is no commitment to do anything about them.

Taking back some of the handouts from the rich would be a step in the right direction. The Greens’ support for stricter means testing to wind back the pension is not.

By James Supple

Magazine

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