Turnbull cops a beating for making pensions ‘fairer’

New pension asset-test rules will effect the wealthiest 10 per cent of retirees.

New pension asset-test rules will effect the wealthiest 10 per cent of retirees. Photo: Getty

Older voters deserted the Coalition in droves over the December quarter according to the latest Newspoll analysis, with primary-vote support in the over-50 age group falling from 49.9 per cent to 43 per cent.

That exodus was, according to The Australian newspaper that published the data, a response to the government’s winding back of superannuation tax concessions, its tightening of pension asset test rules, and uncertainty over the government’s review of aged care reforms.

Let’s put aside the aged-care review for now because it has received scant media coverage – not enough to influence many older voters.

But on the other two issues, we’re again seeing an attempt at serious reform being hampered.

Remember, these reforms are being made in the context of large federal budget deficits – $100 billion or so over the next four years, and probably much more once the usual forecasting errors become apparent.

Pensions for the wealthy?

The government’s pension asset-testing reform comes into force on January 1, 2017, so is front-of-mind for some Australians. The question is, which ones?

The overwhelming majority of older Australians will be untouched or better off under the pension and super reform.

Treasury figures show that:

  • 3.7 million retirees will be better off or see no change.
  • 171,500 pensioners will see a payment increase averaging $30 per fortnight.
  • 50,000 part pensions will now receive the full age pension.
  • 236,000 retirees on the part pension will have entitlements reduced and 91,000 part-rate will lose all entitlements.

So nearly 4 million will be better off, and around 330,000 wealthier Australians will lose some or all of the state pension.

And yet voters are clearly reading these reforms as an attack on the majority of older Australians, when in fact the numbers say the opposite.

Super sound and fury

Prime Minister Turnbull: even genuine reform seems to send opinion polls south.

Prime Minister Turnbull: even genuine reform seems to send opinion polls south.

The government’s super tax concession changes, which passed the Parliament in mid-November, are even more benign.

The Department of Treasury lists the changes, and the percentage of taxpayers/retirees affected by them on its web site. In essence the changes are:

  • a $1.6 million cap on the amount that can be transferred into a tax-free, pension-phase super account. That’s more than six times the amount the average 60 year old has in their accumulation account, and hence affects only about 1 per cent of retirees.
  • the level at which high income earners pay an additional contributions tax fell from $300,000 to $250,000 – affecting 1 per cent of super account holders.
  • the amount of super than can be contributed at the concessional tax rate of 15 per cent fell from $30,000 to $25,000 – affecting 3.5 per cent of tax payers.
  • the amount of non-concessional contributions than can be made to a super account was reduced to $100,000 per year – affecting less than 1 per cent of tax payers.
  • the government beefed up the low income super tax offset (LISTO), meaning that “3.1 million low income earners will benefit from the LISTO, including around 1.9 million women”.

Older and wiser?

Put those pension reforms and super reforms together, and the picture is clear.

The lowest-earning quarter of the Australia’s workforce will be able to save more for retirement through LISTO, partially funded by all those “less than 1 per cent” groups of high-income earners who’ve been using the tax/transfer system to accumulate wealth for years.

And around 10 per cent of retirees – the people the state pension was never set up to serve – will have to hand back some or all of those tax-funded benefits.

Low income workers will be able to save more for retirement.

Low income workers will be able to save more for retirement. Photo: Getty

That will, according to one recent study, lower the percentage of couples hitting the ‘comfortable’ retirement income benchmark set by the Association of Super Funds of Australia – though it will not substantially change the number of singles reaching their benchmark.

While that’s not good, the bigger picture is one of budget deficits and a tax system leaking billions through loopholes such as the more excessive super tax concessions – and higher income earners benefit from them disproportionately compared with lower income earners.

The economic angle

The Labor Party has attempted to use the impending pension asset-test changes to make political hay, but it should know better.

These changes, when seen in context of the strained federal budget, make the tax system and super system fairer and more progressive.

That means people with the ‘highest propensity to consume’ – the low income tax payers benefiting from LISTO and the most vulnerable pensioners who get the $30 per fortnight top-up – will have more money in their pockets.

That’s good for private sector final demand, and good for breathing life into an economy in which household consumption growth is weak.

If older Australians really are rejecting the Turnbull government for making them better off, what must they think of some of its other policies?

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