In the discussion about costs of an ageing population and intergenerational inequality an important point has been lost. People need to secure an adequate retirement income, for a very long time.
While some of us will have enough superannuation savings and will retire at the "right time" by choice, there are many people who have struggled financially throughout their working lives and are forced into retirement without enough behind them. These are people who have had long periods out of the paid workforce or have been in low-paid or modest-income jobs. Those who haven't paid off their homes and women are particularly at risk.
Australia has a relatively low level of workforce participation among older people compared with other OECD nations, including low rates of participation for those not yet of pension age. Analysis by the Grattan Institute shows that increasing the workforce participation of older people in Australia would result in an increase to GDP of about $25 billion by 2022. Yet the people who are most at risk in later life from currently mooted proposals -- lifting the age for receiving the pension and reducing indexation to CPI -- are those who are forced into retirement, with little behind them, not people who make a retirement choice based on good financial advice.
About 40 per cent of all men and more than 50 per cent of women aged 55 to 64 fall into the at-risk category: they can't get paid work or can't work any more because of sickness or disability, caring responsibilities, or other reasons beyond their control. These are the people who will be hit hardest.
ACOSS acknowledges the government faces a challenge to reduce the deficit, but it must not be done at the expense of people struggling to survive on the lowest incomes. The pension is a vital shield against poverty for some older people, and it is modest by international standards. ACOSS has long argued that the pension should be better targeted to those who need it. But the rate of the pension must be high enough to lead a decent, dignified life.
There is of course the other world: those able to structure their lives around choices in the lead-up to retirement. They can use the transition phase of their super, their investment assets and income streams to maximise their benefits out of the system. For many this means reducing their tax bill while still claiming a part pension.
Changes to the age pension and superannuation should be aimed at reducing the financial incentives for people in this world to retire early and draw down their super. Changes are also needed to ensure that people in later life continue to pay their fair share of tax in light of their accumulated wealth and investment income. Currently less than 20 per cent of individuals over 65 years pay any income tax at all.
The maximum rate of the age pension should not be cut. The inadequacy of the Newstart Allowance shows what happens when we only index payments to the Consumer Price Index. The Newstart Allowance has not been increased above price movements since 1994, which means people who are unemployed have had their living standards frozen at 1994 levels, falling well behind the rest of the community. Raising the pension age would mainly affect people at the very bottom on the lowest incomes, as those unable to find work would be stuck on the Newstart Allowance, $166 a week less than the pension.
Before we can consider raising the pension age any further, two things must happen in tandem: income support payments, especially Newstart Allowance, must be raised to an adequate level, and the preservation age for superannuation should be increased so that it is the same as the pension age.
While pressure mounts to increase the access age for the age pension, the superannuation preservation age is only 55 years, a full 10 years before the existing pension age, and from 60 years pension benefits are tax free. This early access to super mainly benefits people on high incomes with large super account balances, who can either retire early or avoid income tax on their earnings by churning their wages though their super accounts.
ACOSS argues that, in the budget, the government should tighten the assets test for a part pension, close down the churning of income through superannuation, phase in taxation on earnings during the pension phase and reduce the cap on concessionally taxed voluntary contributions. It should also abolish the Seniors Supplement currently paid to people who already have too much to qualify for even a part pension. These changes would generate savings of about $3 billion in 2015-16. They would also affect people on higher incomes with significant assets rather than people struggling to get any security in later life.
The core purpose of superannuation should be to secure adequate retirement incomes for individuals and families. Properly structured, our superannuation system can protect people from poverty and ease pressure on the age pension.
The government has a stark choice in this coming budget: it must target payments to people who really need them, not force people at the bottom of the income scale struggling to survive day to day to even less income in retirement, either because they can't get paid work or can't work any longer. These are the people that need more government support, not less.
smh.com.au, Cassandra Goldie is CEO of ACOSS.