Boost pensions to save on aged costs – no, seriously

April 22, 2014, 12:59 pm Michael Pascoe Yahoo7

The outrageous suggestion not only makes sense, it also shows just how perverted our superannuation system has become.

Amidst all the talk of a budget crisis and the need to raise the pension age and cut welfare costs, it seems an utterly outrageous suggestion that we should instead give the pension to everyone and substantially increase it as well.

It sounds like the raving of some loony socialist determined to bankrupt the nation, but it actually makes hard, conservative economic sense and would save the budget billions. It’s just too bad that the federal government won’t have a bar of it – because the federal government is not the stuff of hard, conservative economics whatever their PR spinners might have you think.

The sting in the tail of the suggestion is that increasing the pension and removing any means test from it would come at the cost of scrapping the many tax breaks given to our superannuation system. It’s a brave, brave soul who would be game to take on the vested interests of a $1.5 trillion industry merely in the name of equity and protecting our longer-term budget outlook. And there really aren’t brave, brave souls in either side of parliament.

But even though a government of either colour won’t have the brains or the gonads to adopt this outrageous suggestion, it’s still worth studying as it shows just how perverted our superannuation system has become, how a good idea for saving for retirement has been twisted into a looming monster.

The suggestion has come from a left-of-centre think tank, the Australia Institute, but if you consider yourself right-wing, don’t let that description stop you from reading on. The institute’s Dr Richard Denniss uses Treasury numbers to show that it’s the superannuation tax expenditures rather than the aged pension costs that are the bigger problem. Writes Denniss:

“If the cost of the age pension really is ballooning, then the enormous and rapidly growing cost of tax concessions granted to superannuation contributions and earnings must surely be the Hindenburg.

“According to Treasury, the annual cost to taxpayers of so-called “self-funded retirement” is $35 billion. Treasury also estimates that about 30 per cent of the benefit of those tax concessions goes to the top 5 per cent of income earners.

“Indeed, the top 1 per cent of income earners gets three times as much benefit in the form of their superannuation tax concessions than they would have ever received from the age pension.

“It gets worse. Low-income earners who are forced to put 9 per cent of their meagre incomes into superannuation will, under legislation introduced by the Abbott government, pay 15 per cent tax on their compulsory superannuation contributions despite the fact that ordinary incomes of up to $18,000 per year are tax free. Although the phrase is overused, the Abbott government’s retirement income policy really will tax the poor to subsidise the wealthy.

“Tax concessions for superannuation are not just the most inequitable form of entitlement, they are the fastest-growing source of pressure on the budget bottom line. While in the last few weeks we have heard about the unsustainability of the age pension, its rate of growth is 10 per cent, compared to growth in the cost of tax concessions of about 12 per cent per year.

“The mantra of governments past and present is that the more we spend on tax concessions for super, the less we have to spend on the age pension. But the mathematics reveal what the mantra conceals. Every $1 billion extra we spend on tax concessions for super saves less than $200 million off the age pension budget. It’s a massive net loss and the combined cost of the age pension and tax concessions for super is forecast to rise rapidly. If tax concessions really took pressure off the age pension then the combined cost should be flatlining.

“The superannuation industry clips about $20 billion per year in fees from Australian workers and retirees, much of which funds the trailing commissions that the banks feel entitled to or is wasted on advertisements that drive up the cost of financial products while claiming to offer low fees.”

No, the system is not right, but the power of that $1.5 trillion industry means no major political party would be game to undertake serious change. They’re barely capable of even fiddling with it at the margin, as we’ve seen with the Abbott government moving to scrap the worthwhile, mild and reasonable superannuation changes proposed in the last Labor budget.

In an interview with ABC radio, Denniss says the combined costs of superannuation concessions and the aged pension are running at about $70 billion a year now and will reach $100 billion by 2020 with superannuation concessions becoming greater than pension payments. He suggests it would be cheaper to increase the current pension by 7.5 per cent to nearly $40,000 for couples and $26,000 for singles and paying it to everybody – leaving individuals to act for themselves without tax incentives to make whatever further savings and investments they can or want for extra money in retirement.

It is one of the realities of our world that while the well-off get the most out of our superannuation system, they have the least need for extra incentives to look after themselves: they already have.

Follow Michael Pascoe on Twitter @michaelpascoe01

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  1. tubes10:44pm Friday 02nd May 2014 ESTReport Abuse

    This smirking idiot Hockey is the same bloke (treasurer) who will oversee the introduction of "bail in" legislation in Australia. This will enable his banking mates to take a percentage of depositors funds to prop them up if they look like going broke. The legislation is in place now...all he needs to do is slip it in with with reams of other proposals to get it passed. This will take place sometime after his lousy thieving budget, probably later in the year. We will be just another Cyprus.

  2. john03:12pm Friday 02nd May 2014 ESTReport Abuse

    No one is saying you have to work till you are 70, you just won't get a pension till then and for all you #$%$ out there who don't have a bit of money put aside by 65 must have spent it on the go

  3. Fred S05:47am Wednesday 30th April 2014 ESTReport Abuse

    The problem is we pensioners are not a cohesive enough group to be able to influence the pollies. When we stop voting for a party and start voting for what we want then we may get somewhere. This scheme makes too much sense for the pollies to actually implement it.

  4. mick07:25pm Tuesday 29th April 2014 ESTReport Abuse

    How about cutting the politicians pay for one , when they leave their jobs they shouldn't get any pension at all , go in the real world and work like everyone else , now how much money would that save each year and cut the pension of all the past pollies that are living off tax payers money, I think that alone would just about fix the budget, and increase the age pension so the pensioners can live a life, and Barry O on $165,000 a year of tax payer funded what a joke he should get nothing , he's corrupt like all of them, thieving dogs , give him and the rest of the pollies jobs hoeing grass on a farm 12 hours a day and see what real work is , all you pollies are sending this country broke , you want us to work till we are 70 now , why to pay for you ridiculous pensions , thieving dogs.

    1 Reply
  5. Robert06:49pm Tuesday 29th April 2014 ESTReport Abuse

    why should a pensioner pay the price of a politison lie. All the do is back-bite and snuall at each other then layout then put new tax out and we get told to foot the bill [ I THINK IT STINKS ] A pENSIONER HAS TO LIVE ON $560.00 A FORTNIGHT WILL THEY GET $2000 PER WEEK now there going to start cuts to the pension

  6. Peter H06:47pm Tuesday 29th April 2014 ESTReport Abuse

    Why don't the Government just stop funding waste with our increasing tax payments. Do an analysis of the waste and cut it out. Then we can have tax reductions and boosted super fund balances. At present people who do well are capped on how much they can pay into super so creating a future dependent class who could fund their own retirement without this interference. Not only that but a new rule schedule 200 and something, takes pro-rata money out of your capped funds from the money already paid into super - thus restricting even more how much is in there - The Government want you on the welfare so they can control your vote - many people could fund their own retirement but the Government prevent you from doing it. What a selfish bunch of losers. Don't vote for any of them - pure self interest.

  7. Peter05:57pm Tuesday 29th April 2014 ESTReport Abuse

    First these poly's get a pay rise then they want us to pay, how fair is this ????

  8. Peter05:12pm Tuesday 29th April 2014 ESTReport Abuse

    Here we go again! Let's tax the poor and rob the pensioners to give it to the rich that spend more on on aftershave than my total fortnightly shop. Stop taxing super, let it be a tax deduction like it was in the past and maybe there will be then less dependence on welfare when our kids retire. Well - that WAS the idea of compulsory super in the first place. As for us already there, some of whom have sacrificed most for this nation STOP KICKING US IN THE GUT ABBOT! I'd like to see you and some of your cronies give up your perks before telling us that that we can get by on sweet F.A!

  9. Peter04:51pm Tuesday 29th April 2014 ESTReport Abuse

    This man is a genius, no pension for the rich, they have more then enough to see out their late years, pension only for low income earners ?????

  10. Observer10:53am Thursday 24th April 2014 ESTReport Abuse

    Why not do both - cut out the super concessions as well as tighten the means test on old-age pensions? Double the savings! should be plenty of gonads in the cabinet - only one female.


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