Michael Klapdor
The 2014–15 Budget cuts funding or restricts eligibility for a range of programs that provide assistance to pensioners and self-funded retirees, including: increasing the Age Pension age to 70 by 1 July 2035; terminating the National Partnership Agreement on Certain Concessions for Pensioner Concession Card and Seniors Card Holders from 1 July 2014; abolishing the Seniors Supplement from 20 September 2014; and including untaxed superannuation income in the income test for the Commonwealth Seniors Health Card (CSHC) from 1 January 2015.
Increasing the Age Pension age to 70
The 2014–15 Budget confirmed speculation that the qualifying age for the Age Pension will be raised to 70 by 2035. The current qualifying age is 65. The Labor Government introduced measures in 2009 to increase the pension age to 67 through gradual increases during the period July 2017 to July 2023.[1] The proposal contained in the 2014–15 Budget is to continue to increase the pension age by six months every two years from 1 July 2025 until it reaches 70. The measure does not affect this Budget and is intended to help address the impact an ageing population will have on government finances in the long term.
An ageing population increases demand on the Budget through increased expenditure on pensions as well as services such as health and aged care. Another issue is the projected decline in the number of potential workers—taxpayers—in proportion to the number of aged people needing support from government. In 2010, there were five people of working age for every person over the current pension age; it is estimated that this number will fall to 2.7 by 2050.[2]
Options to address these budget pressures include: increasing revenue, reducing expenditure on the aged, and ensuring more people can provide for their own retirement (via superannuation). The Government has included a number of these options in this Budget: increasing the qualifying age to both increase revenue (taxpayers will contribute for longer periods) and limit expenditure (by reducing the number of people eligible for pensions); slowing the growth of pension rates by changing indexation; and tightening eligibility through freezes on current means test limits.[3]
Raising the pension age is one of the most controversial of these measures as many people, particularly those undertaking physically demanding work, are concerned they will not be able to continue working until they are 70. There are also concerns as to the fairness of an increase in the pension age and its impact on more disadvantaged groups in the community.[4] The effectiveness of the measure in terms of reducing budget pressures will depend in large part on whether access to superannuation is also delayed (the preservation age is currently legislated to increase to 60 by 2024), the capacity of older Australians to remain in the workforce, as well as the extent to which those over 65 move to other income support payments such as the Disability Support Pension.
Terminating funding for concessions
The Pensioner Concession Card (PCC) entitles holders to a range of benefits including cheaper medicines under the Pharmaceutical Benefits Scheme as well as a wide range of discounts and services provided by state, territory and local governments. Most important among the concessions provided by state and territory governments are discounts on rates, utility bills, motor vehicle registration charges and public transport fares. For example, in New South Wales, PCC holders can receive a $225 rebate on their yearly electricity bills and are exempt from fees for licences, registration and the motor vehicle tax.[5]
Under the National Partnership Agreement on Certain Concessions for Pensioner Concession Card and Seniors Card Holders, the Commonwealth provides financial assistance to the states and territories for the provision of these concessions to PCC holders.[6] The most recent Agreement commenced in January 2013 and is set to expire on 30 June 2016. The Commonwealth intends to terminate this agreement from 1 July 2014, and will no longer provide financial assistance to the states and territories for the provision of concessions, providing savings of $1.3 billion over four years.[7]
The states and territories are yet to issue a response to this measure but it is likely that, without this financial assistance, many concessions currently available will be withdrawn or reduced. Any changes will raise the cost of living for pensioners and retirees, particularly in terms of energy bills and transport costs.
Abolishing the Seniors Supplement and improving the income test for the CSHC
The 2014–15 Budget also proposes abolishing the Seniors Supplement payment from 20 September 2014, paid to CSHC holders and eligible Veteran Gold Card holders, and tightening eligibility for the CSHC by including untaxed superannuation income in the income test from 1 January 2015.
The CSHC assists certain seniors with the cost of prescription medicines and other health services. The card is targeted at self-funded retirees of Age Pension age who do not qualify for Age Pension because of their level of income or assets. To be eligible for the card, seniors must have an adjusted taxable income of less than: $50,000 for singles; $80,000 for couples (combined income); and $100,000 combined for couples separated by illness, respite care or prison. An amount of $639.60 per year is added to the allowable income amount for each dependent child. There is no assets test for the CSHC.
Since July 2007, persons aged 60 or more with income from private taxed superannuation sources (lump sums or periodic payments) have had their superannuation income treated as being tax free. As the CSHC income test uses adjusted taxable income it does not currently include non-taxed private superannuation as income, even though it is one of the main sources of income for retirees. In the 2008–09 Budget, the Labor Government proposed including tax-free superannuation income in the income test but the measure was later dropped.[8] The National Commission of Audit took issue with the exclusion of this source of income in its recent report and recommended that it be added to the definition of adjusted taxable income for the purposes of determining eligibility for the card.[9]
Including tax-free superannuation in the income test will mean an improvement in the targeting of the CSHC, ensuring it is provided to those who need it most. While many self-funded retirees will miss out on the card in the future, current holders of the card will have any existing account-based superannuation income treated under the current rules. These grandfathering arrangements will reduce the overall saving from the measure which is expected to achieve savings of only $20.9 million over five years.
Abolishing the Seniors Supplement, a payment worth $876.20 a year for singles or $660.40 a year for a member of a couple and paid to CSHC holder and eligible Veterans’ Gold Card holders, will achieve savings of $1.1 billion over five years. The loss of the payment will affect more than 280,000 CSHC holders The Clean Energy Supplement, paid in addition to the Seniors Supplement, will still be paid in line with the Coalition’s election commitment to keep carbon tax compensation measures. It is worth around $361 per year for singles and $273 per year for members of a couple.
[3]. The latter two measures will take effect in 2017–18. For details on these measures see the accompanying article in this Budget Review: ‘Changed indexation of pensions and tightened eligibility for all benefits’.
[5]. NSW Roads and Maritime Services, ‘Registration costs’, Roads and Maritime Services website, accessed 15 May 2014.
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