In the light of the Australian Council of Social Service (ACOSS) submission to the Abbott Government and the 2015-2016 budget, I was astonished on 2nd April to wake to the most extraordinary claims by Dr Cassandra Goldie, that the recommendation regarding the Pensions Assets test was a much more equitable way to adjust the Welfare budget of Australia in coming years.
Here is the recommendation from page 33 of the submission.
Recommendation 14: Tighten the Pension Assets test.
Reduce the Assets test free area for home owners to $100,000 for singles and $150,000 for couples and increase the taper rate for both home owners and non homeowners from $1.50 per $1000 of additional assets to $2.00 per $1000, so that the cut off point for the part pension for couples is reduced from $1.1 million in assets besides the family home to $794,250 in Assets besides the family home.
Saving $1.350 million ($1.450 million in 2016-17).
What does this mean?
- Presently the single pension is $782.20 per fortnight.
- For a single person as part of a couple, it is $589.60 and for a couple $1179.20 per fortnight.
What is counted as an Asset?
What do we understand by Asset?
Here is a link to the list of Assets which are included and are counted in allowable assets.
It is worthwhile showing some of the assets which are included, these are the ones at the end of a long list which can be included if you have them. Many older pensioners have worked hard for them during a lifetime of work. In some cases they reflect a life style and one such asset could be a holiday home by the beach where it would be nice to spend more time. However the value of this Real Estate is included in the Assets and deducted from the allowable assets (more on this later).
Other assets included are:-
- motor vehicles
- boats and caravans
- licenses, for example fishing or taxi
- surrender value of life insurance policies
- collections for trading, investment or hobby purposes, and
- household contents and personal effects
So the list is comprehensive and you will note not one of the “Assets” gives any return to the pensioner. They are basically lifestyle choices.
Of course we haven’t mentioned any investments here but they are mentioned in the list. Any income is combined with the Assets test and then the pension or part thereof is worked out.
What value of Assets are pensioners allowed as of 2nd April 2015?
They are $202,000 for a single home owning pensioner and $286,500 for a Pensioner couple.
How does the simple assets test work and affect your pension?
Basically speaking if you are of pension age and have assets below $202,000 for a single home owning pensioner or $286,500 for a pensioner couple, you are entitled to the full rate of pension.
At present every thousand dollars over those allowable assets your pension is reduced by $1.50 per fortnight. This seems a fairly benign situation but when you actually start to ask some questions and do some modelling, it is a huge difficulty.
So what do you think your home owning pensioner Mum and Dad are worth?
As a couple their full pension equates to $84.22 per day
A single pensioner gets $55.87 per day.
Presently the poverty line (as defined in an ACOSS report) in Australia is
Poverty line (50% of median income) – for a single adult was $400 per week, for a couple with 2 children it was $841 per week;
It goes onto say that 15.7% of people on the Aged Pension are below the poverty line.
The weekly income of a single aged pensioner is $391.09 ($782.20)
The weekly income of a couple of Aged pensioners is $589.60.
How will the proposals from ACOSS affect existing pensioners?
I would like to make it clear that any assets, from which a pensioner derives an income are taken into account in two ways. The actual income reduces the amount of pension allowed and the assets are also counted in the allowable Test as described above.
Not all Assets, as Dr Goldie seems to think give an income, yet on ABC News Breakfast she talks about Investment assets. Also, making another large mistake saying that the changes made by Peter Costello in the Howard Government should be changed back.
The changes she speaks of are the amount of money a pensioner loses ever $1000 over the allowable assets. At present they are $1.50, under Howard/Costello they were $3.00 and ACOSS has proposed $2.00.
Let’s look at the Assets which are included. And do an example of what a pensioner might own as a lifestyle choice after a working life of 40 years.
A nice car. Value $25,000
A caravan. Value $50,000 or a recreational vehicle for travel around Australia. (Winebago Value $120,000)
A Boat for fishing. Value $10,000
Household effects. Yes, these are an asset and on the Income and Assets form Centrelink expects the person completing the form to put down a value of $10,000 . I defy anyone to sell their household effects for that value. They are all second hand and have been used. Centrelink does not require replacement value just a value of what you think they are worth. In reality you could probably sell a lot of the furniture to second hand dealers for a pittance.
Some money in the bank, say $15,000
A term deposit, say $20,000
Maybe a share in a beach side property (Holiday home), say 50% Value $300,000.
Note the median house price in Melbourne in January 2015 was $699,000.
So what is an Australian pensioner worth?
A loaded question: Should they be precluded from owning a nice car, boat, a caravan, or a holiday home? How much money should they be allowed to have in allowable assets to live a fair and equitable life. Don’t forget, we are talking about people who do not have a super fund and who are already vulnerable.
When these people finish work, are they to sit at home all day watching the television or should they be allowed a retirement with respect by the Australia they have worked over 40 years to nurture?
In the above example the allowable assets come to $140,000 without the ownership of the property, with that they come to $440,000, AND I consider that the amount of actual investment grade assets I have put down to be very low.
Remember that they didn’t make the choice that Australia should be a welfare state and they are probably struggling now to make ends meet.
In the example above, the couple would meet the ACOSS $150,000 very quickly – especially anyone who had worked hard for 40 years to have the extra investment property. Which, by the way, attracts an income and is separately adjusted in the pension calculation. If the median house price in Melbourne is worth $699,000 and those people bought that house as a private superannuation investment vehicle, (not under the super rules) then they actually have a very low super.
In the second example, where the pensioner couple have such an investment vehicle the detriment to the pension is as follows under the existing rules.
$440,000 minus $286,500 is $153,500 multiplied by $1.50 is $230.25 per fortnight reduction in the ‘couple’ pension. So they get $474 per week or $67.70 per day. Of course they might also get a return from the property which is taken into account. That is a very arcane calculation which can only be worked out by Centrelink.
Under the proposals by ACOSS the following is the straight Asset calculation.
$440,000 minus $150,000 (proposed allowable assets) is $290,000 multiplied by $2.00 (proposed increase in taper rate) so they get a reduction in ‘couple’ pension of $580 per fortnight and receive $446.60 per week in the ‘couple’ pension. So they get $63.80 per day under this scenario.
Of course there is the income they get from their investments, which have to be factored in.
As a result of a health problem when I was 27, I was struck down badly by Arthritis. This year I shall be 61 so I have had the disease for 34 years.
I worked for many years in the telecommunications industry and my last position there was as Product Marketing Manager. In 1992, after the recession we had to have, I struggled health wise and went on a Disability Pension (not an easy process). I was able to work part time as a Sessional TAFE teacher until in 1996 John Howard came to power and swept away all the training hours which I was employed under, so I went onto a full pension.
Generally speaking, people’s aspirations are that they would rather be independent and not have to rely on the Government.
When Howard came to power in 1996 the proportion of household disposable income spent on the mortgage was 31% and when he left office in 2007 it was 51%. Yet wages had risen in their normal fashion. Howard’s boom was a self induced ‘housing bubble,’ which damaged many Australians, but advantaged his mates in the Real Estate business.
Finally, I would like you, the reader to consider again. How much is the value of a pensioner? Should they be given the respect and the dignity due to them? I think so.
I also think that ACOSS hasn’t got a clue how the pension rules work and the absolute goal they have kicked for the Government.
This is a classic example of highly paid executives, who have no idea what they are saying and have no idea of the level of ignorance they display when saying it.