Is it fair to expect Age Pension payments while refusing to draw on your assets in retirement so you can leave a nest egg for the kids?
It’s a tough question for the Starts at 60 community, that drew many thoughtful responses when we asked you.
“I certainly don’t see my assets as my children’s rightful bequest and luckily, neither do they,” Jay Walker wrote on Natter at 60, while Robin Henry said: “Our intention is not to go without so the kids can reap a heap of cash.”
“We have worked and paid taxes for most of our lives, paid for our ‘assets’ so why be penalised for it,” Anne Parkinson commented on Starts at 60’s Facebook page. “Surely what you have paid for should be yours.”
“You worked hard and saved and you probably went without to do that,” Christine Williams agreed. “So why should you be refused the pension when others just spend their money and didn’t save.”
But Kerrie An Shee wrote: “If you have assets you should spend them before accessing welfare including the Old Age Pension. OAP is welfare and should only be given to those who have no other means of support.”
The big question
Professor Kevin Davis kicked off the debate this week with a policy paper for the Australian Centre for Financial Studies about the new Age Pension taper test introduced on January 1.
Davis’ paper argued that people who used their assets to make up for the lower pension payments they received under the new rules would feel little pain from the changes.
But he also posed a larger philosophical question.
“Is the age pension an entitlement which enables people to obtain government support in retirement despite having private assets which they do not draw down but instead leave as a bequest for their heirs?” the ACFS’s research director asked in his paper.
“Or is it a safety net, which supplements draw down of private savings to enable some adequate level of retirement consumption?”
In an interview with the Australian Financial Review about his paper, he suggested the government should put the family home into the broader asset test for the Age Pension and increase the amount of assets a pensioner could hold and still receive payments.
“One of the big problems with our whole approach is that a lot of retirees with part pensions have got $600,000 of assets, as well as the family home, and that doesn’t count towards the assets test,” he told the AFR.
A big change
On January 1, the government changed the value of assets a person could hold and receive either a full or part-pension, cutting the value of assets homeowners could hold in additional to their main dwelling and still draw a part Age Pension.
The rules also hiked the taper rate for the assets test, which meant that pension payments were cut by $3 a fortnight for every $1,000 of assets a pensioner held above a certain amount, so their pension was now ‘tapered’ more quickly than it was at the old rate of $1.50. More information on the rules is available from the Department of Human Services.
According to AMP, about 300,000 part-pensioners had their entitlements cut under the new rules and 100,000 lost their payments entirely. But more than 50,000 people who weren’t previously eligible for a full Age Pension became eligible under the new rules.
A big response
So we asked the Starts at 60 community: Is it okay to keep your assets as a bequest and claim the Age Pension? Has the original purpose of the Age Pension been altered so that it’s now seen as a universal right rather than a safety net for the poorest workers? Are you happy to use the assets accrued over a lifetime’s work to fund or part-fund your retirement?
More than 140 people (and counting) told us what they thought.
Many pointed out that Australians had been encouraged to see the Age Pension as an entitlement as far back as the 1940s, when then-treasurer Ben Chifley cut the lowest tax threshold for and said the extra money raised would be put into a National Welfare Fund to cover social benefits such as pensions. The fund was later melded with the government’s Consolidated Revenue Fund.
“People’s assets have got nothing to do with the pension. If they had a full working life and paid the 7.5 percent Old Aged Pension tax/levy, then it’s their money they are getting paid. It’s not the tax payers’ or the government’s money,” Warwick Lynch wrote on Facebook.
“Let’s just forget this falsehood that nothing was put aside from our taxes during our working life,” Lee-Ellen Crispin said. “Chifley’s government set up a 7.5 percent tax component specifically as a pension fund – successive governments have since raised this and pulled it into general consolidated revenue so we are no longer aware of it on our tax returns.”
“The government took the money set aside many years ago to fund the Age Pension and put it into general revenue in order to balance their books … They robbed Peter to pay Paul and now are panicking because so many are eligible and claiming their entitled pension,” Marianne Cox said.
Ron Saunders noted that the original intention was, in fact, that today’s Age Pension was a universal right rather than a safety net, recalling that prime minister Robert Menzies had said “the stigma of charity should be removed from the age pension. It should be an entitlement earned by the person’s personal contribution to the fund.”
Many readers were furious that Age Pensions were being trimmed, while politicians’ pensions remained largely untouched. The Parliamentary Contributory Superannuation Scheme, which is now only available to politicians elected before 2004, allows members to retire on pensions worth hundreds of thousands of dollars.
“I have so far worked for 54 years, am almost 70 and very proud of that,” Karen Hellmech commented on Facebook. “Let the government take money from the pollies, see how they like it. Half of them haven’t worked 10 years and look what they end up with.”
Val Kirby said: “They can take our assets when they stop paying themselves when they are thrown out of government and have to repay all the lurks and perks they have had on the way. Also, they should repay their pensions.”
“If the pollies can keep their assets, buy homes with their living away allowances and still keep their pensions, what’s the difference between the Aussie that has worked all their lives for their retirement?” Willow Breeze added, while Fay Dixon said: “The politicians have no shame when they collect their pension which we ‘donate’ part of our taxes to.”
Some readers said that if a pensioner’s only substantial asset was a modest family home, it was fair that it should remain exempt from the asset test and be seen as a possible bequest.
Vicki Wallace commented: “As long as you only have one house and not millions in the bank, yes. I want to leave my house to my children and I only have a small super fund but I would expect to get a full pension!”.
“House assets YES, large amounts of money assets NO. Some people are extremely rich and still claiming the pension and free medical – this should be stopped,” June Ann Fox added.
Some community members said Australia should take some tips from countries that separate tax payments made by workers for the purpose of pension-saving from other tax payments.
Elda Mulrine Quinton said: “We should do it the way it’s done in the UK and Scandinavia. Why should all our taxes go into general revenue? In the UK they don’t pay any more than us in the combination of tax and National Insurance.”
Others, however, were in favour of aiming for total self-sufficiency.
“I guess it depends on how many [assets] you have,” Jo Bain commented on Facebook. “If they are sufficient to generate a decent income, why claim a pension? Time was we were proud to be able to support ourselves if we were able and would have considered those who ‘work the system’ to be pretty contemptible.”
Nell Elizabeth Hamilton-Schulz agreed: “It’s for those who need it most. We should not prop up people who can look after themselves,” while Jacqueline Mordaunt said: “I don’t think you should be able to keep your assets (apart from your home) and claim the pension.”
“The best advice anyone can give is to set yourself up so you don’t need a pension,” Robin Henry summed up on Natter at 60. “Relying on others, including governments, is never a sound option.”
Do you have thoughts on this big issue for retirees and people planning their retirement? Are you confident the Age Pension won’t be further reduced or more heavily means tested? Does Australia need to rethink its attitude to the Age Pension for future generations?