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Social Security and Other Legislation Amendment (Pension Reform and Other
2009 Budget Measures)
Bill 2009
THE INQUIRY
1.1
On 17 June 2009 the Senate, on the recommendation of the Selection of
Bills Committee, referred the provisions of the Social Security and Other
Legislation Amendment (Pension Reform and Other 2009 Budget Measures) Bill 2009
(the bill) to the Community Affairs Legislation Committee (the committee) for
inquiry and report by 23 June 2009. The reporting date was subsequently
extended to 24 June 2009.
1.1
The committee received 15 submissions relating to the Bill and these are
listed in Appendix 1. The committee considered the Bill at a public hearing in
Canberra on 19 June 2009. Details of the public hearing are referred to in
Appendix 2. The submissions and Hansard transcript of evidence may be accessed
through the committee's website at: http://www.aph.gov.au/senate/ca.
1.2
The timeframe for this inquiry was very brief. Yet a large number of
individuals and groups were able to appear as witnesses at the hearing and to
provide submissions or written comments. The Committee is extremely grateful to
all those who contributed at such very short notice to the inquiry and offers
its sincere thanks.
THE BILL
1.2
The Bill implements key elements of the Government's Secure and
Sustainable Pension Reform package announced in the 2009 Budget. Measures
include increasing the single maximum basic rates of certain social security
pensions, raising the Age Pension age by two years, and the provision of new
indexation and benchmarking arrangements.
1.3
The Minister for Families, Housing, Community Services and Indigenous
Affairs, the Hon Jenny Macklin MP (the Minister) stated:
This reform package addresses the adequacy of the pension,
makes its operation simpler and more responsive to pensioner needs, and secures
its long-term sustainability.
It prepares Australia to meet future challenges, including
the ageing population, through amendments to the social security, family assistance,
veterans' affairs and aged care legislation.[1]
Increased pension payments
1.4
Schedule 1 amends the Social Security Act 1991 by increasing the
single maximum basic rates of certain social security pensions by $1,560.00 per
annum on 20 September 2009.[2]
The reforms raise the maximum base rate of the pension for single people by $30
a week. In addition, singles will receive an increase of $2.49 per week in the
new Pension Supplement, bringing their total increase to $32.49 per week. This
increase brings the single rate of the pension up to two-thirds of the combined
couple rate. The $10.14 per week increase for couples combined will be provided
through the new Pension Supplement. These increases are on top of all existing
pensions and allowances.[3]
1.5
The new total weekly pension plus supplement following these reforms
will be an estimated $336.68 for singles and $507.50 for couples combined. This
totals $17,507.36 a year for singles and $26,390.00 for couples combined.
However, the actual figures to apply from 20 September 2009 will depend on
indexation.[4]
1.6
The pensions affected by this increase include:
- age pension;
-
disability support pension (payable to people over 21 years of
age and people under 21 years with a dependent child or children);
- wife pension;
- carer payment;
- bereavement allowance;
- widow B pension; and
- special needs pension.[5]
1.7
The proposed changes do not apply to pension Parenting Payment Single (PPS),
Newstart Allowance, the disability support pension paid to people under the age
of 21 years without children and a number of other allowances.
1.8
Under Divisions 1 and 2 of Part 2 of Schedule 1, Pension Rate
Calculators D and E applying to calculate the rate of disability support
pension payable to people who are under 21 years and have a dependent child or
children will cease. Instead, the rate of disability support pension for people
under 21 years who have a dependent child or children will be calculated under
Pension Rate Calculators A and B. The Explanatory Memorandum detailed the
effects of this change:
Through these amendments, this group of disability support
pension recipients will receive the same rate of disability support pension as
'adult' disability support pension recipients who are over 21. These amendments
will also mean that single people of this group will benefit from the single
maximum basic rate increase provided by new section 1206GE.[6]
New indexation and benchmarking
arrangements
1.9
Other measures in the Bill include new indexation and benchmarking
arrangements. A Pension and Beneficiary Living Cost Index (PBLCI) which
measures increases in living costs faced by pensioner and beneficiary
householders will be introduced. It will be used to 'adjust maximum basic
pension rates where the movement in the PBLCI is greater than movement in the Consumer
Price Index (CPI) for the relevant indexation period'.[7]
1.10
The Explanatory Memorandum details the establishment of the PBLCI and
benchmarking to Male Total Average Weekly Earnings (MTAWE):
The Australian Statistician is developing a new index, the
PBLCI, to measure specifically increases in the cost of living experienced by
pensioner and beneficiary households. To ensure that pension rates keep up with
increases in the cost of living experienced by pensioners, this index is being
introduced into pension rate calculations in social security law so that
movements in the CPI can be compared to movements in the PBLCI. Maximum basic
rates of pension will be indexed in line with the higher of these two indexes
before benchmarking to MTAWE.[8]
1.11
Current arrangements will continue to apply in relation to Parenting
Payment (Single) and for the Disability Support Pension to people under 21
years of age without children.[9]
1.12
In addition to the PBLCI, a new 'combined couple benchmark' for maximum
basic rates will be established at 41.76 cents of the annualised MTAWE figure
and will apply to certain social security pensions from 20 March 2010. The
Explanatory Memorandum detailed the proposed changes:
The maximum basic rate of a socials security pension that can
be paid to a person who is a member of a couple will be half the maximum combined
couple rate of pension.
The maximum basic rate of pension for a single person will be
66.33 per cent of the maximum combined couple basic rate of pension. This will
result in an effective benchmark of 27.7 per cent of MTAWE for the maximum
single rate of pension.[10]
Pension Supplement
1.13
As a means of simplifying pension payments, pensioners will receive two
main payments following passage of the Bill: the base pension; and the Pension
Supplement.
1.14
The new Pension Supplement detailed in Schedule 4 will increase payments
of $2.49 a week for singles and $10.14 a week for couples combined.[11]
In addition, the supplement incorporates the value of the existing GST Supplement,
Pharmaceutical Allowance, Utilities Allowance and Telephone Allowance.
1.15
In the second reading speech, the Minister detailed the changes:
The Pension Supplement will be included in the pension
payment rate and subject to income and assets testing. This means that, once
the base pension rate is reduced to nil, the Pension Supplement will decrease
until it reaches a minimum payment of an estimated $790.40 a year for singles
(or $15.20 a week) and $1,190.80 a year for couples (or $22.90 a week). The
payment a person receives will not fall below the minimum amount of the Pension
Supplement until the person's income or assets reach a level that would
otherwise reduce their payment to nil.[12]
1.16
Mirroring the new single to couple ratio established for pension rates,
the Pension Supplement for a single pensioner will be around two thirds or
66.33 per cent of the Pension Supplement for a couple combined.[13]
1.17
The Pension Supplement will be indexed in March and September each year
in line with the increases in the CPI. It will be available to people resident
in Australia or temporarily absent from Australia for 13 weeks or less.[14]
Tapering rates and income thresholds
1.18
Schedule 6 will increase the income test taper rate from 40 cents to 50
cents per dollar of income over the ordinary income free area and remove the
additional income test free area for dependent children from the calculation of
the amount of a person's ordinary income free area. Transitional arrangements
will apply for existing pensioners affected by the changes to ensure current
payments rates are maintained in real terms, and that those pensioners also
benefit form a pension increase.[15]
1.19
From 20 September 2009, the income test for pensioners will be tightened
'to ensure the pension scheme is sustainable in the longer term, and that
increases can be targeted to those most in need'.[16]
1.20
The increased taper rate of 50 cents in the dollar of excess income
returns the pensions' income test taper rate back to the rate it was before
July 2000.
Age Pension age
1.21
Currently, the qualifying age for age pension for men is 65 years and,
for women, 63.5 years. The women's age pension age is progressively increasing
and will align that of men's (65 years) on 1 July 2013.[17]
1.22
Under Schedule 11 of the Bill, the qualifying age for Age Pension will
increase for both men and women from 65 to 67 years to 'improve the longer-term
sustainability of the pension system'.[18]
1.23
To ensure that the changes allow affected individuals time to plan for
their retirement, the change will be introduced gradually, with the qualifying
age for Aged Pension increasing by six months every two years, commencing 1
July 2017 with implementation complete by 1 July 2023.[19]
The effect of this Schedule does not apply to people born before 1 July 1952.[20]
The Minister detailed the changes in the second reading speech:
The change will ensure Age Pension age is adjusted to reflect
the significant improvements in life expectancy that have occurred since Age
Pension was first introduced in 1909. It will allow the Government to respond
to the long-term cost of our demographic challenges. This change will not
impact on current Age Pensioners, and will only affect people born on or after
1 July 1952. The phase-in of the increased age mirrors the rate of increase of
the pension age for women, which is currently increasing and will reach 65
years on 1 July 2013.[21]
1.24
The pension age for veterans will not be increased under these changes.
Whilst the male veteran age will remain at 60 years, the pension age for female
veterans will be gradually increased from the current 58.5 years to 60 years by
2013. However, the pension age for non-veterans under the Veterans'
Entitlements Act will increase in the same manner as the qualifying age for Age
Pension under the Social Security Act.[22]
Family payment indexation changes
1.25
Under provisions of this Bill, from 1 July 2009, the maximum rates of Family
Tax Benefit A will be indexed in accordance with movements in the CPI. For
rates of payment for children under 16 years, current benchmarks to the
combined pensioner couple rate (which enable benchmarking to MTAWE) will be
removed. The Minister detailed the changes:
The removal of the link to earnings ensures that Government
expenditure on family assistance is more sustainable in the long-term. The
indexation of maximum payment rates in accordance with movements in the
Consumer Price Index will continue to maintain the real value of assistance for
families on low and moderate incomes.[23]
Other measures
1.26
Other measures in the Bill include a new 'work bonus' which will provide
concessional treatment of employment income under the income test for
pensioners over Age Pension age. Under the new rules, employment income will be
assessed fortnightly for pensioners over Age Pension age. Half of all
employment income (up to a maximum of $500 a fortnight) will be assessed in the
income test.[24]
BACKGROUND
1.27
As at December 2008, there were 2,070,300 recipients of the Age Pension.[25]
Of persons aged between 65 and 69 years in Australia, the proportion receiving
either a full or part rate Age Pension rose from 49 per cent in June 1991 to 64
per cent in June 2008.[26]
1.28
According to the Australian Bureau of Statistics (ABS), the number of
people aged 65 to 84 years is projected to grow from 2.4 to 6.4 million between
2007 and 2056. For each person 65 years and over in 2007, there were five
working-age people whilst the ABS projected that by 2056, there will be less
than three working-age people for every older person.[27]
1.29
In 2008, the Minister commissioned Dr Jeff Harmer to lead a review into measures
'to strengthen the financial security of seniors, carers and people of
disability'. The Pension Review Report (Harmer Review) informed the Government
in developing reform of Australia's pension income system represented by the
Secure and Sustainable Pension Reform package.[28]
ISSUES
1.30
The inquiry focused substantially on key issues including the adequacy
of the pension, the tapering rate, indexation, the increase in the Age Pension
age, restrictions on eligibility in relation to the pension increase, and the
impact of the Bill on single parents.
Adequacy of the pension increase
1.31
Many submitters including UnitingCare Australia welcomed the increases
in the pension.[29]
Others, however, voiced concerns that the pension increases were inadequate. ACOSS
stated that:
While the outcome of the legislation before the Senate will
be greatly improved income support for most pensioners, which we certainly
acclaim, it will also result in a less equitable and more complex social
security system.[30]
1.32
COTA Over 50s Ltd stated that the increase in the Couple Pension should
have 'been at least $19.23 instead of $10.14' and that 'on the two thirds
proportion the Single Pension should therefore have increased by $40.20 instead
of $32.49.[31]
1.33
Whilst welcoming the pension increase, the Brotherhood of St Laurence
argued for greater recognition of the differences between pensioner groups:
...in particular non home owning pensioners have a much greater
need for assistance than those who own their own homes and this was not
recognised in changes to the pensions system.[32]
1.34
The Brotherhood of St Laurence also argued that the base rate of the
single age pension should be increased from 59 per cent of the couples rate to
that of 66 per cent.[33]
1.35
The Pension Review undertaken by Dr Jeff Harmer in 2008–09 (the Harmer
Review) found that the single maximum rate of pension does not adequately
recognise the costs faced by those wholly reliant on the pension to support
themselves.[34]
The review established that the relativity of the single maximum rate of
pension to the couple combined maximum rate of pension is too low and should be
in the range of 64 to 67 per cent.[35]
Finding 5 stated in this regard:
The Review finds that a relativity in the range of 64 to 67
per cent across the package of support would be more appropriate than the
current relativity. Adopting a relativity towards the upper end of this scale
would appear to be reasonable if a three-tier approach were to be adopted.
Under a two-tier approach, where the same relativity would be applied to single
pensioners living alone and those living with others, a relativity at the lower
end of this scale would more adequately reflect the average needs across both
these groups.[36]
Exclusion of Parenting Payment Single pension and Newstart Allowance
recipients
1.36
Many witnesses raised concerns regarding the proposed changes to the
pension in which the pension increase and the Pension Supplement do not apply
to Parenting Payment Single (PPS) and Newstart Allowance recipients. The
Australian Council of Social Services (ACOSS), Catholic Social Services
Australia, St Vincent de Paul Society, Solomums Australia for Family Equity,
the Council of Single Mothers and their Children, Victoria, and Uniting Care
Australia were amongst the organisations who called for an extension of the
pension increase to sole parents on PPS and Newstart Allowance.[37]
1.37
The St Vincent de Paul Society noted that the PPS for sole parents with
young children has always been paid as a pension and that for the first time,
this nexus between pensions for sole parents and other pensioners has been
broken.[38]
The society continued:
The St Vincent de Paul Society does not accept the rationale
that the Parenting Payment Single is temporary as opposed to other pension
categories. Our experience on the ground in providing assistance and support to
sole parent families is that the financial stress incurred by income inadequacy
creates significant barriers to the future employment participation of the
parents as well as contributing to the entrenched exclusion of their children.[39]
1.38
The Council of Single Mothers and their Children, Victoria (CSMC) raised
concerns that the pension increases excluded single parents on the PPS or
Newstart Allowance and called for the pension increases to extent to both
groups.[40]
Citing evidence from the ABS, the CSMC noted that single parent families are
the 'most disadvantaged families in Australia' and that many 'single mothers
are now raising families on the much lower Newstart Allowance, placing them and
their children at even greater risk of poverty and deprivation'.[41]
1.39
Ms Thelma Edelsten held a similar concern regarding single parents on
the PPS and Newstart Allowance:
Both categories of single mothers now face more difficult
financial times. Those not required to work because they have children under
seven will now be required to exist on a pension considered not adequate for
other pensioners. Under other recent legislative changes, those with older
children must now survive on Newstart, a benefit designed to sustain in the
short term only until full employment is found, when the Welfare to Work
Legislation itself acknowledges that 15 hours a week will be the limit for many
single parents.[42]
1.40
ACOSS held the view that the pension increases should be further
extended to allowance payments including Austudy, Abstudy, Special Benefit and
Youth Allowance (for those living independently of their parents) which was an
initiative not fully explored by the Harmer Review because its terms of
reference related to a specific range of pension payments.[43]
ACOSS continued:
It is very clear from research on financial hardship in
Australia, and from our own members such as emergency relief providers, that
these groups face at least the same risk of deprivation, if not a greater one,
than age pensioners.[44]
1.41
Solomums Australia for Family Equity (SAFE) held that if current payment
rates on the pension cannot adequately support a single age pensioner, 'it is
not clear why lower rates of payment are adequate for sole parents, unemployed
people and young people'.[45]
As an alternative, SAFE recommended:
Single parent pensioners, Newstart Allowance and Youth
Allowance claimants should be paid a percentage increase in line with the aged
and disability pension increases proposed in this Bill.[46]
1.42
Similarly, UnitingCare Australia took the view that those on
unemployment benefits, single parents, those under 21 years of age on a
disability support pension and 'especially people on youth allowance receive
significantly less income support and experience ongoing financial hardship and
deprivations as a result'. The organisation held that the pension increase
should be extended to them.[47]
1.43
According to ACOSS, apart from the payment gap between the single rates
of pension (including the proposed supplement) and Newstart Allowance to over
$100 a week, denial of the increase to such recipients will:
...also give rise to greater complexity in the system, and
exacerbate work disincentives for people with disabilities. Since Allowances
are only indexed to the CPI and pensions are indexed to average earnings, this
gap will widen substantially in future years. Given that many people transition
between different payments, an increasing gap of this magnitude is not
sustainable. Even before the proposed changes were announced in the Budget, it
was estimated that in 30 years, Newstart Allowance will be just half the
pension rate.[48]
1.44
The ACTU in raising concerns regarding the exclusion of PPS recipients,
promoted longer term reform to the income support system which:
...sets a standard minimum income for all income recipients
regardless of the reason for support based on budget standards. This would then
be supplemented by specific allowances tailored to the needs of the recipient,
eg job search, parenting, etc.[49]
1.45
Whilst the PPS has been paid at the pension rate of payment and using
pension means testing arrangements, the Bill in not including the PPS with
other pension payments in relation to the $30 pension increase and the
increased income test taper rate, will indirectly create a new tier of income
support:
The PPS will be paid at a higher rate than the other
allowance payments (such as Newstart Allowance) but at a lower rate than the
other pension rate payments.[50]
1.46
The department responded to comments from National Welfare Rights that
suggested that sole parents would lose access to the income free area for
children under the income test.[51]
The department responded:
They are not making any changes to income tests for parenting
payment (single) recipients, so they will continue to be assessed on exactly
the same rules as they are now and there will not be any change to their means
testing, so there should not be any change to their entitlements if they are on
parenting payment (single).[52]
1.47
The department stated that in relation to Newstart, sickness allowance and
other allowances:
...they will continue to be indexed twice yearly in the March
and September dates for increases in the consumer price index, so there is no
change in relation to them. There is also no change in relation to parenting
payment (single). It will continue as now to be indexed to the consumer price
index and then benchmarked against male total average weekly earnings to ensure
that the maximum base rate equals 25 per cent. They are the same arrangements
as exist at the moment.[53]
1.48
In response to concerns that the different models will lead to increases
in the gaps between the different payments, the department commented that:
It would be fair to say that the predominant factor that
adjusts pension rates is male total average weekly earnings. The CPI and the
new pension beneficiary living cost index will mainly have the affect of
ensuring that if prices are higher than wages in the short run pensioners will
get the benefit of a full increase to reflect increases in prices, but in the
long run that tends to be overtaken by male total average weekly earnings
adjustments.[54]
Tapering rates and income thresholds
1.49
CSMC held that whilst the Bill imposes increases in the pension rate for
some classes of recipients, it also imposes harsher taper rates and income
thresholds for these payments, arguing that:
The taper rate is being raised from 40 to 50 per cent, so for
every dollar of private earnings a recipient receives, they will now loose 50c
of their payment rather than 40c. For recipients who are in the paid workforce,
this will result in a reduced level of financial return from their work.[55]
1.50
S.A. Superannuants also raised concerns regarding the increase in the
taper rate, describing the proposal as both 'inequitable and punitive' to its
members who derive their income principally from defined benefit superannuation
pensions.[56]
According to the body, the income test taper rate change will see couples with
combined private incomes above about $11,700 per annum worse off if their
pension commences after the reforms are in place. S.A Superannuants continued:
In other words the effect of the taper rate change will not
be that if just prevents a flow on, it will roll back age pension entitlement
for many couples with very modest private incomes and a heavy reliance on the
age pension. All these people will be part age pensioner couples with
entitlements determined by the income test. On the other hand the fact that the
asset test tape rate is to remain unchanged will ensure that the entire amount
of the improvement in the base rate flows on undiminished to every asset-tested
part age pensioner.[57]
1.51
The Association of Independent Retirees Ltd (A.I.R) held that increasing
the taper rate reduces part-age pension and detailed the consequences:
- they have to run down their personal
assets more quickly,
- they will move to a higher level
of part age pension more quickly offsetting any financial gain to government
made by the proposed change, and
- their standard of living will be
reduced towards that of the full age pension (recognised as a safety net level
providing a minimum standard of living).[58]
1.52
COTA Over 50s Ltd stated of the taper rate:
COTA would prefer that the tape not increase but recognises
the political/fiscal realities of the long term budget tradeoffs that were
necessary to achieve this reform. We prefer a higher pension increase with the
50c taper rather than a lower increase with the 40c taper.[59]
1.53
Similarly, ACOSS supported the restoration of the former taper rate in
the pension income test and took the view that it was not likely that the
proposed taper rate 'will substantially reduce workforce participation among
mature age people, especially in light of the proposed higher 'free area' for
earned income'.[60]
1.54
The Brotherhood of St Laurence maintained that the Government should
introduce a second taper rate for those with 'high private incomes' – from 40
to 60 per cent at twice the current threshold, using a threshold of $480 for
both couples and singles.[61]
1.55
CSMC also recognised that the change had been justified on the grounds
that it will reduce the level of payments to the 'more well off recipients' on
the pension, but held that some categories of recipients including disability
would be required to seek paid employment. Of this, CSMC noted that under the
Bill, when such recipients enter paid employment, they will retain less of the
income for the effort.[62]
1.56
However, COTA Over 50s Ltd held that the new work bonus which 'creates
real financial incentives to continue working on a part-time basis' in which
half of earnings up to $250 per week will not be taken into account in the
income test is an 'excellent initiative'.[63]
Similarly, UnitingCare Australia supported the new work bonus on the grounds
that it will 'enable aged pensioners to keep more of the money they earn from
work, by reducing the effective marginal tax rates faced by age pensioners' but
argued that the same principle should apply to incomes earned by people on
other income support payments.[64]
1.57
The department commented that the proposed changes, on their own, would
mean that some pensioners might otherwise receive a lower rate than they are
presently receiving. However, the transitional provisions ensure that all
pensioners get an increase and that they cannot be worse off as a result of the
changes:
...the transitional provisions provide for everyone to get an
increase, $10.14 for singles or $10.14 combined for couples, and that those
payment amounts would be preserved in real terms, that is, they would be
indexed to the CPI so that the purchasing power for those pensioners is
maintained in real terms and does not reduce. There was some concern that
perhaps it would reduce in real terms, but that cannot happen.
The other misapprehension that arose was that there was some
time limit on the operation of the transitional provisions and there was some
reference to five years. Pensioners will remain on the transitional provisions
as long as they need to as long as they are better off on the transitional arrangements
compared to the new arrangements. People will not be moved off the transitional
arrangements after five years. They will be moved off them as and when they are
better off under the new arrangements. That change could occur as a result of a
change in circumstances where they are better off. For example, you could say
they have a drop in income. They could be better off under the new rules, in
which case they will transition to the new rules at that point. Or
alternatively, over the passage of time the payments under the new system will
be worth more because of the differences in the indexation arrangements and as
that occurs people will move across to the new rules.[65]
1.58
In relation to the work bonus and free area in the income test, the
department noted that when income exceeds the free area, a person's pension
will begin to be reduced. As outlined in the changes to come into effect on 20
September, that reduction will be 50c for every dollar that you earn. The work
bonus operates on top of that to reduce the amount of income that is assessed:
The way the work bonus will operate is that it changes the
amount of income that will be counted in your assessment. If you earn $500,
instead of counting $500 in your assessment, if you were say a single person it
would be $362 over the free area, because we are only going to count half of
that income, we will count only $250 in their assessable income which means
they will be only $112 over the free area.
1.59
The department went on to comment that many people, particularly people
with low levels of savings, looked to work as a way of supplementing their
pension and 'if they do want to work we wanted to make sure that they were able
to get a return on that and to supplement their pension'. Proportionately it
will be greatest for the people earning the lower amounts.[66]
Age Pension age increase
1.60
The Government held that the proposed increase in the Age Pension age is
required to meet the challenge of an ageing population:
It is projected that by 2047 around a quarter of the
Australian population, or 7.2 million Australians, will be over the age of 65.
This is almost double the current proportion of 13 per cent.[67]
1.61
It was noted that the pension age was originally set at 65 years in 1909
when a man retiring at 65 years of age would have been expected to spend an
average of 11 years in retirement. However, by 2017, an average period of
retirement is expected to reach 19.5 years for men and 23.5 years for women.[68]
COTA Over 50s Ltd acknowledged such evidence, maintaining that the 'demographic
argument' for it was clear.[69]
1.62
However, ACOSS argued that the proposed increase in the pension age be
opposed 'in the absence of an increase in the superannuation preservation age'
and that the preservation age for superannuation should be rapidly increased to
equal the current pension age.[70]
Whilst supporting the intention behind the proposed age increase, ACOSS argued
that the focus should be given in the first instance to encouraging people not
to retire before 65 years of age as:
Currently, only half of people aged 60-65 is employed and
only one fifth is employed full time. One of the reasons for this is that
people can access their superannuation at 55 years. Although the Henry and
Harmer Reviews recommended that the preservation age be raised more rapidly to
the pension age, this has not been decided so far.[71]
1.63
Similarly, the Australian Council of Trade Unions (ACTU) maintained that
as many workers are unable to continue working until retirement age and access
income support prior to receiving the Age Pension whilst others are working
longer and seek to mix income sources from work, superannuation and/or pension
support. For this reason, the ACTU opposed the increase in the Age Pension age
and called for a consultation on transition to retirement to ensure flexible
arrangements to accommodate the needs of all employee groups approaching
retirement.[72]
1.64
UnitingCare Australia argued that the age increase will
'disproportionately disadvantage people who have experienced barriers to
employment during their working lives' and proposed more flexible arrangements
for accessing advances on payments.[73]
Whilst arguing that long term reliance on advance payments and emergency relief
made people on income support extremely economically vulnerable, UnitingCare
Australia called on the Government to monitor and report on advance payments,
'as one way to access the adequacy of income support payments'.[74]
1.65
National Seniors commented that perhaps the most critical matter in
relation to increasing the age would be the availability of jobs. Mr Michael
O'Neill stated:
Also, some of the existing ageism and discrimination that
exists in the workplace needs to be dealt with. It is no good getting to 2017
and 2023 and changing the rules and there being no jobs. From our perspective,
that really needs to be a critical area of activity over the next five to six
years, as the case may be.[75]
1.66
A number of witnesses including the St Vincent de Paul Society raised
concerns that the increase in the pension age will 'disadvantage lower income
mature age people with limited job prospects, who will have to remain on lower
income support payments for longer'.[76]
COTA commented similarly and noted that:
...those who are longterm unemployed in their 60s who will be
on Newstart allowance for another two years. I would remind the committee that,
of people going on to a full age pension in recent years without other income
streams, 50 per cent have been coming off another Commonwealth benefit,
predominantly either Newstart or disability.[77]
1.67
However, the Harmer Review stated that an increase in the Age Pension
age 'needs to be considered as a response to the rapid increase in the life
expectancy of Australians and the growing duration of retirement'.[78]
It supported an increase in the Age Pension age of two to four years in light
of the evidence before it, noting:
On balance, the Review considers that the force of argument
is clearly in favour of a modest rise in the age of eligibility for the Age
Pension. In considering the magnitude of any increase the Review noted that
taking account of the increase of some five to seven years in both male and
female life expectancy between the 1970s and the early 2000s, and projected
increases on a further three to seven years by 2050, suggests a total increase
over this period of some nine to fifteen years. In this context the Review
considered that an increase in the Age Pension age of some two to four years
would represent a reasonable balance in the distribution of this between work
and retirement.[79]
1.68
In terms of the timeframe for introducing the changes, Finding 30 of the
Harmer Review recommended a phased increase in the Age Pension age:
The Review finds that there is a case for a phased increase
in the Age Pension age starting from 2014, when the Age Pension age for women
will be the same as for men. Such a policy would improve retirement outcomes
and support Australia’s capacity to address the impact of population ageing. It
would reflect the strong increases in life expectancy the nation has experienced,
which are expected to continue. Any reform would need to be part of a
coordinated approach to retirement, including bringing the settings of the
superannuation system into line with the Age Pension age.[80]
1.69
The department stated that the age increase was a government decision
and that it is broadly consistent with moves in some other countries as well as
being 'broadly consistent with movements in life expectancy that we might
expect to see over the period that we are talking about'.[81]
In response to concerns about availability of jobs for older workers and
stated:
In relation to employment of older workers, a lot of these
policies relate to the work of other portfolios. I know that there is a range
of measures within the Department of Education, Employment and Workplace
Relations looking at assistance for older workers. They and FaHCSIA are also
responsible for some measures in relation to employment for people with
disabilities, which includes a lot of older workers. There is consideration of
these things...The changes are coming in progressively from 2017, which is eight
years away, so there will be an opportunity to consider how those programs are
operating and what else might need to be done in relation to that.[82]
1.70
The department also noted that since 1995 employment amongst the
pre-retirement age is increasing rather than reducing.[83]
Indexation and benchmarking
arrangements
1.71
COTA Over 50s Ltd supported the new PBLCI as realisation of arguments of
the need to consider living costs of pensioners and other low income earners.[84]
1.72
According to UnitingCare Australia, it was unclear how indexation will
work under the proposed changes and asked whether income support recipients
benefit from the indexation changes. UnitingCare Australia held that:
If there are benefits to these indexation changes then they
need also to be applied to people on other income support payments.[85]
1.73
The Harmer Review found that automatic indexation of pensions and a
two-part approach to benchmarking should continue. The review also noted in
Findings 8 and 9 respectively:
...Benchmarking pensions relative to community standards should
be the primary indexation factor, with indexation for changes in prices acting
as a safety net over periods where price change would otherwise reduce the real
value of the pension.
Finding 9: The Review finds that pension indexation for price
change would be better undertaken through an index that more specifically
reflected cost of living changes for pensioners and other income support
recipient households.[86]
1.74
The department provided an overview of the indexation process:
...there are three factors we look at when we are considering
adjustments to the pension. Adjustments to the pension are made twice yearly in
March and September. We look at movements in the consumer price index over the
six months to June and calculate an adjustment to the pension based on
movements in the consumer price index. We then look at movements in the new
pensioner and beneficiary living cost index and make an adjustment to the
previous pension rate based on the pensioner and beneficiary living cost
index...We compare those two numbers and whichever of those two numbers is the
better number becomes the index number that we work with. We then compare the
index number to the MTAWE benchmark and if the MTAWE benchmark is above the
index number we increase the index number to the MTAWE benchmark and that is
the number they get...
The way it is going to work for pensioners is that we make
these adjustments for a combined couple rate. So, we index the combined couple
rate to the pensioner and beneficiary living cost index and compare those two
numbers. We then compare the result with 41.76 per cent of male total average
weekly earnings. Whichever is the higher of those two is the one that we pay to
pensioners. We then pay the single pensioners 66.33 per cent of what we are
paying to the couples.[87]
1.75
The department went on to indicate that the beneficiary living cost
index is being developed by the Australian Bureau of Statistics. On 30 June,
ABS is proposed to publish an information paper on how they will develop the
index, which will include some times series and some information on how the
index will be refined over time.
1.76
The index is being developed for two reasons: first that the index will
not just bee applied to age pensions, it includes age pensioners, but it also
includes a range of working age pensioners as well, mainly DSP but a few
others. The index need to be broader than just age pensioners because people at
different ages have different baskets of goods. However, low-income people have
some similarities in their patterns of consumption compared with higher income
people.
1.77
The second reason is that the ABS does not believe that the analytical
living cost indexes are robust enough to use for this purpose. ABS believes
that to produce an index that would be robust enough to be used to adjust
pensions, further work is required on refining and developing an index.[88]
1.78
The department concluded that age pensioners and other low-income
households may be more susceptible to price rises in relation to particular
goods than other goods, so they might be more vulnerable to increases in the
price of food, for example, rather than reductions in the price of electrical
goods. So that 'in the short run an index which is more responsive to their
basket of goods ensures that they maintain the purchasing power of their
payments in relation to the kinds of goods that they buy. In the long run it
might not make that much difference because in the long run things tend to even
out.'[89]
Family payment indexation changes
1.79
The St Vincent de Paul Society voiced concerns regarding the Family Tax
Benefit indexation:
We are also concerned that Family Tax Benefit for low income
families will no longer be linked to average earnings – only CPI. Family
assistance will over time fall behind advances in average living standards. The
Family Tax Benefit indexation changes will result in a reduction in assistance
for families. Support for raising children alone will no longer increase as
wages rise in the future. Additionally, because single parents miss out on the
$32 a week increase, in future, pension indexation increases for single parent
pensioners will be less than that for other pensioners.[90]
1.80
ACOSS argued against the proposed freeze in the real value of Family Tax
Benefit for low income families.[91]
ACOSS held that the proposed removal of the link between the maximum rate of
Family Tax Benefit Part A and the partnered rate of pension would 'bring to a
close the previous Labor Government's efforts to reduce child poverty by
setting benchmarks for the adequacy of family payments'.[92]
ACOSS maintained that:
The maximum rate of payment extends to low income families on
around $43,000 or less. These are the families affected by the legislation.
Most are jobless though a substantial minority is employed on low pay. Most are
sole parent families.[93]
1.81
ACOSS concluded:
It is inevitable if family payments are frozen in real terms
that child poverty will increase; that is if you understand poverty as a living
standard that is relative to living standards in the community, that is,
poverty that falls behind the living standards of the rest of the community and
not having what the rest of the community regards as essential goods and
services.[94]
1.82
The Brotherhood of St Laurence was also opposed to the changing
indexation arrangements and their proposed linkage to the CPI rather than
MTAWE, arguing that such a change will 'erode the value of benefits to low
income families over time' and risking an increase over time of the number of
children living in poverty.[95]
CONCLUSIONS
AND RECOMMENDATION
1.83
The Bill proposes to introduce significant reforms of the pension system
which will benefit many older Australians including an increase in pension
payments. The new Pensioner and Beneficiary Living Cost Index will be more
responsive to changes experienced by pensioner households than the present
arrangements and the introduction of the new work bonus will allow those
pensioners who choose to work to retain more of the money they earn from work.
Recommendation
1.84
The committee recommends that the bill be passed.
Senator Claire
Moore
Chair
June 2009
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