This may seem like a fairly boring subject to the younger generation, it may seem boring to those who are looking forward to their retirement in the next few years. For those who are retired it is an abiding subject. Do I have enough to live on?
It affects us all, particularly those who were working when Paul Keating brought in compulsory superannuation. Their retirement needs require a part pension because they haven’t enough saved in their fund to survive without Government help after retirement.
There is no doubt that the Welfare payments to Aged, Service and Disability pensioners, a large and mostly unrepresented group (over 3.5 million people) are a hefty part of the Budget (About 10% of GDP). But we live in a country which is based on the premise that we have a Welfare State.
In asking the Question “Are they fair and balanced?” I have used the criteria which has always been used, namely are they helping people who need help? I have also cut through some of the rubbish talked by people who should know better.
As well as doing a short analysis of the politics, I have done a detailed analysis of the changes and measured them against the poverty line. My analysis shows that they are not fair and balanced.
The economic talk around the Budget is all around “The Age of Entitlement” being over. It appears that this is the case for some and not for others. To understand what this means we must look at the present Government and their approach.
- Indexation changes to the pension.
In the 2014 Budget the Government unsuccessfully introduced changes which would impact on everyone getting a Service Pension, Disability Pension and Aged pension.
They already have made the Disability Pension almost impossible to obtain due to the work requirements. But that doesn’t surprise me; conservatives don’t believe disability exists along with climate change and science.
Read more about what they planned here.
- Pension Assets tests.
I was very surprised to see ACOSS’s submission to the Government which contained a proposal for home owner couples to have a reduction of allowable assets from $286,500 down to $150,000 and an increase in the taper rate from $1.5 per $1000 of assets over those allowable assets to $2.
Their assumptions were that too many “millionaires” were getting a pension. A ‘nonsense’ which the main stream media eagerly engaged in. What they failed to realise was that those assets were the property of two people.
You can read the ACOSS submission re the reduction of allowable assets here (Page 33. Recommendation 14.)
One wonders if the ACOSS staff had actually done any modelling. Just to show you how this would affect someone on the maximum allowable assets, which is now $268,500. Here is the calculation – $268,500 minus $150,000 is $118,500 (now over the recommended allowable assets by ACOSS) so what happens is 118 is multiplied by $2 which makes $236. This amount is taken off the Pensioner couple per fortnight – a reduction of $118 per week, leaving them with a disposable income of $1039 per fortnight or $74 per day.
I might also point out that in the report on Poverty published in 2014 by the same organisation (ACOSS); the poverty line for a couple was $600 per week – or $1200 per fortnight. Pushing them $80 per week UNDER the poverty line.
Simply put ACOSS’s suggestion drives people under the Poverty line. Using the example of allowable assets now and changing it to ACOSS’s recommendation.
Do ACOSS do any modelling? I don’t think so. Do they read their own report on Poverty and apply it to their Aged Pension recommendation? I don’t think so. Is their recommendation fair? I don’t think so. Do they actually know what they are doing? The evidence suggests that they don’t.
- The Home to be included in the Assets test.
The next suggestion, just before Budget night and put out by the Centre for Independent Studies (CIS), (a Liberal/Conservative think tank), was that home owners should have the ability to reverse mortgage their home with Government loans and still live in it whilst living off the earnings from the mortgage. They used an interest rate return of 5.25% (an extremely optimistic return in the present low interest rate regime).
The authors, Simon Cowan and Matthew Taylor managed to get onto ABC’s the Drum and ABC’s QandA respectively to tell some of the most misleading things about “How unfair the pension was for non homeowners compared with home owners.” They conveniently missed the salient fact; that the allowable assets of single and couple non home owners adequately compensate for the family home in their much more generous allowance.
I suspect that the Conservatives are viewing the housing assets of Pensioners as the last bastion of wealth that they haven’t yet got their sticky little hands on.
The report can be found here.
“With four out of every five retirees on the pension, and pensioners with over a million dollars in assets getting the same payment as those with almost nothing, the pension clearly needs reform,” says Simon Cowan, research fellow and co-author of the report, The Age Old Problem of Old Age: Fixing the Pension.
This is an astounding statement by the author of this so called Report. Pensioners with a million dollars of assets do not get the same payment as those with almost nothing.
For example, in the four types of Pensioner: (note Energy concession not included).
1/ A couple home owner with a million dollars worth of assets gets a part pension of $178 a fortnight. Someone with “almost nothing” gets a full pension of $1275.60 per fortnight.
2/ A single home owner with a million dollars worth of assets gets no part pension at all. (In this case the pension tapers off to $766,000).
Someone with “almost nothing” gets a fortnightly payment of $846.10.
3/ A couple non home owner with a million dollars worth of assets gets $425 per fortnight whilst the couple with “almost nothing” get a full pension of $1275.60 per fortnight.
4/ A single non home owner with a million dollars worth of assets gets no part pension. Someone with “almost nothing” gets a fortnightly payment of $846.10.
So the premise stated in the statement above is nonsense. Because they haven’t taken into account the allowable assets and the taper rate.
So there was a three pronged attack by the Conservative side of politics against the 3.5 million pensioners of Australia. I suspect this was a deliberate strategy.
Firstly to reduce their actual pensions because it represents a large expenditure in the Budget, secondly because they want to create the impression that many pensioners are living high on the hog with their assets as well as their homes and that they are somehow rorting the system. (Thus they decrease payments by class war). Thirdly they want to gain access to the billions of dollars of Pensioner home ownership so that they can milk that cow.
With that introduction in mind we come to the Budget. The narrative of the “millionaires” and “middle class welfare” was a good softener for what Minister Morrison actually proposed on 7th May 2015, a week before the Budget was actually brought down.
Along with the press release were two other word documents which showed tables of the projected changes in 2017 at the present $1.5 taper rate and the present allowable assets (adjusted upwards to 2017 levels) versus a new taper rate of $3 and increased allowable assets.
I set myself the task of matching the figures in the table by using a spreadsheet model. This I have now done and using the assumptions I have done the following summary table of the number of pensioners covered, the one affected by the changes and the ones who are not affected.
As the numbers given in the table are for a range of assets covering $100,000 it is impossible to calculate any meaningful figures as to savings for the Budget, but approximations can be made.
However, whilst it is possible to make such approximations it is also possible to examine how fair these measures are.
The measure I have used is the Poverty line.
See ACOSS 2014 document.
The document uses $400 as the cut off line for singles and $600 for a couple. Below those two figures people are assumed to be in poverty. (See attachment 2)
For each scenario in the Departments tables I have assumed that the disposable income per week of a single person and a Pensioner couple is 75% of their assets in an interest bearing account plus their pension.
Before the changes (see attachment 1) one can see that there are a total of 3.518 million Pensioners who are referenced in the tables provided. Approximately 362,523 Pensioners will receive a reduction in their pension.
Before the changes and assuming an interest rate of 3% on 75% of the assets invested there were a total of 41,502 pensioners who were just under the poverty line. With the changes in taper rate and allowable assets, this increases to 428,041, an increase of 386,539 Pensioners who will now receive a weekly income below the poverty line.
Approximately 63% of Pensioners are home owners, comprising 40.37% couples and 21.42% singles.
In the spreadsheet model I wrote, I allowed for a change in interest rates. In fact all of the factors affecting the pension can be changed to give a series of “What if” scenarios. It was interesting to see how many pensioners were above the Poverty Line at 5% interest rate and at 3% interest rate (it climbed dramatically as the interest rate reduced). My point is here that not only is the Government driving more people under the poverty line by their pension changes, they are also driving people under that line by their extremely poor economic management.
There is another point I would like to make and that is the tables talk about drawing down of assets. If a Pensioner uses all of their assets up, instead of investing them then they can quickly divest themselves of assets and coming under the allowable assets threshold, thereby costing the Government more money.
Most of the hurt is for people who have higher assets and are home owners, whereas those with around $500,000 of assets actually benefit from the changes.
So for Pensioners with around $500,000 of assets they get (depending on the level of assets they hold in the range shown), a large increase in weekly income. Where as someone with assets of $1,000,000 doesn’t get any pension at all. A good example is a home owner couple who get a reduction of $111.38 per week under the proposal at $600,000 asset level, $186 at $700,000, $261 at $800,000 and $278 reduction per week at the cut off point of $823,000.
Contrast these figures with those of Superannuants and their Tax concessions and these changes are manifestly unfair.
As the reader can see in all of this, the talk has been about home owners and the concessions they get. In fact a good look at the data shows that home ownership in fact saves the Government money on welfare payments. If you didn’t own your home the Government would have to pay singles and couple home owners more under the existing rules.
|Summary of the Government changes 2015 Budget to Pensioners Assets Test|
|Home owner couple||Home owner single||Non Home owner couple||Non home owner single||Totals|
|Pensioners in cohort||1,420,451||753,498||333,937||1,010,290||3,518,176|
|Number with reduction in Pension||265,867||88,846||3,678||4,132||362,523||10.30%|
|% of cohort||73.34%||24.51%||1.01%||1.14%||100.00%|
|Number not affected||1,154,585||664,652||330,259||1,006,158||3,155,654||89.70%|
|Number under Poverty line before changes||38,096||3,406||0||0||41,502||1.32%|
|Number under Poverty line after changes||160,268||79,808||117,158||70,807||428,041||13.56%|
|Increase of those under Poverty line||122,172||76,402||117,158||70,807||386,539||90.30%|