Bills Digest no. 179 2008–09
Social Security and Other Legislation Amendment (Pension
Reform and Other 2009 Budget Measures) Bill 2009
WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.
CONTENTS
Passage history
Purpose
Background
Financial implications
Main provisions
Contact officer & copyright details
Abbreviation Definition
ACA Aged Care Act 1997
ABS Australian Bureau of Statistics
CSHC Commonwealth Seniors Health Card
CPI Consumer Price Index
DSP Disability Support Pension
FaHCSIA Department of Families, Housing, Community Services and
Indigenous Affairs
FAMT Family Actual Means Test
FTB A Family Tax Benefit Part A
GST Goods and Services Tax
HCC Health Care Card
MTAWE Male Total Average Weekly Earnings
NSA Newstart Allowance
PP Parenting Payment
PBS Pension Bonus Scheme
PBLCI Pensioner and Beneficiary Living Cost Index
PCC Pensioner Concession Card
PhA Pharmaceutical Allowance
PhBS Pharmaceutical Benefits Scheme
SSA Social Security Act 1991
TA Telephone Allowance
UA Utilities Allowance
VEA Veterans Entitlements Act 1986
Passage history
Date
introduced: 15
June 2009
House:
House of Representatives
Portfolio:
Families, Housing, Community
Services and Indigenous Affairs
Commencement:
various dates in 2009 and
2010. For full details see the table in Item 2 of the
Bill.
Links: The relevant
links to the Bill, Explanatory Memorandum and second reading
speech can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is
at http://www.comlaw.gov.au/.
To amend legislation required to
implement the “Secure and Sustainable Pension Reform”
package announced in the 2009-10 Budget. The main elements in the
Bill are:
- increased pension rates,
- indexation and benchmarking changes,
- pensioner and seniors supplements,
- changes to the pension income test,
- changes to the Age Pension age,
- changes to pension advance payments,
- changes to the proportion of the pension paid to aged care
providers, and
- changes to the benchmarking of family assistance payments.
The Government presented several
substantive reforms to the provision of income support to the
retired aged (the Age Pension) and most other pension payment
recipients in the 2009–10 Budget under the heading of
‘Secure and Sustainable Pensions’.[1] These proposed measures
are:
- a one-off increase in the single rate of pension of $30 a week.
The increase will apply to the Age Pension, Disability Support
Pension (DSP), Service Pension, Carer Payment, Wife Pension, Widow
B Pension and Income Support Supplement. The increase is not
to be provided to Parenting Payment – Single (PPS)
recipients,
- a new Pension Supplement which replaces the current Utilities
Allowance,[2]
Pharmaceutical Allowance (PhA),[3] Telephone Allowance[4] and the Goods and Services Tax (GST)
pension supplement.[5] The proposed new Pension Supplement is to also be
paid to recipients of Widow Allowance, Partner Allowance and other
income support payment recipients who are over Age Pension
age,
- an increase in the pension income test taper rate, for income
in excess of the income test free area, from 40 cents in the dollar
to 50 cents in the dollar,
- a new income test treatment of earned income from employment.
Only half of the first $500 of fortnightly employment income
will be included in the income test. Pensioners can get a
maximum benefit of $125 per fortnight under this Work Bonus,
- the closure of the Pension Bonus Scheme (PBS),
- the upgrading of the indexation requirements for the pension
from the current 25 per cent of Male Total Average Weekly Earnings
(MTAWE) to 27.7 per cent of MTAWE,
- an increase in the qualification age for the Age Pension from
age 65 to age 67 to be phased in from 2017 to 2023,
- revised pension lump-sum advance payment arrangements allowing
higher lump-sum payments amounts and more than one advance in a
year,
- a new seniors supplement payment for recipients of a
Commonwealth Seniors Health Card (CSHC)[6] or Gold Card combining both the current
Seniors Concession Allowance[7] and the Telephone Allowance, and
- the development of the Pensioner and Beneficiary Living Cost
Index (PBLCI).[8]
There has been public agitation for
increases in the rate of the pension, especially for age
pensioners, for some time. The Government announced a general
review of the tax system on 13 May 2008.[9] As part of the review, the
Minister for Families, Housing, Community Services and Indigenous
Affairs, Jenny Macklin, announced that the Secretary of her
portfolio department, Dr Jeff Harmer, would undertake a review of
the pension system. The Pension Review (Harmer Review)
undertook an investigation into measures to strengthen the
financial security of seniors, carers and people with
disabilities.
The Government released the findings
of the Harmer Review on 12 May 2009.[10] The key findings of the Harmer
Review addressed through the pension reforms announced in the
2009–10 Budget are:
- Single full rate pensioners should be a priority. The
existing single rate of pension does not adequately recognise the
costs for those wholly reliant on the pension to support
themselves,
- The relativity of the rate of pension for singles to that of
couples is too low and should be in the range of 64 to 67 per cent.
Currently the single rate is around 60 per cent of the
combined coupled rate,
- The payment of existing supplements and allowances could be
simplified by integrating them into either a pension supplement or
the base rate,
- Pension payments should be tied to changes in the actual cost
of living faced by pensioners, and
- There is scope to target pension increases to those who have
little or no private means.
Since the early 1970s, the single rate of pension has been
maintained at about 25 per cent of MTAWE. This was achieved until
1997 by occasional increases in the rate above the usual indexation
to movements in the Consumer Price Index (CPI). From 1997 the 25
per cent benchmark has been included in the indexation provisions
of the Social Security Act 1991 (SSA).
In 2000 the single pension rate was maintained at the 25 per
cent benchmark, but a Goods and Services Tax (GST) supplement was
introduced to compensate for the impact of the GST on the
purchasing power of the pension. Since that time the single pension
rate (including the GST supplement) has generally been around 25.5
per cent of MTAWE. The GST supplement was relatively invisible to
pensioners as part of the pension rate they received.
The Bill will increase the rate of the single pension by $30 per
week. This will result in the rate being equivalent to 27.7 per
cent of MTAWE. The GST supplement will still be paid over and above
that new rate but will form part of a new Pension Supplement that
will consolidate a number of other small payments provided to
pensioners (see Schedule 4 below).
At present, the rate of pension is indexed twice a year to
movements in the Consumer Price Index (CPI) and also to 25 per cent
of MTAWE. Whichever indexation factor realises the greater
increase is the factor used. This indexation occurs twice a
year – 20 March and 20 September. Virtually all of the
increases in the rate of the pension since it was legislated for
from September 1997, have been due to the 25 per cent of MTAWE
factor, not the CPI factor. This has not been the case more
recently when it has been the CPI factor that has realised the rate
increase.
There have been concerns expressed over many years that the
indexation to the CPI does not reflect the real cost increases
experienced by pensioners, especially age pensioners. The
current policy of the Australian Pensioners and Superannuants
Federation includes:
1.1.6 The Consumer Price Index should be
monitored to ensure that its use for the purposes of indexing the
pension remains the most accurate measure of the cost of
living.
1.1.7 APSF calls on the Federal Government to
ensure that older people are not disadvantaged financially by
changes to the compilation of the Consumer Price Index.[11]
The establishment of a new and extra indexation factor for the
pension rates, the PBLCI, was announced in the Budget.[12] The origins of
this is the long-standing claim that the basket of goods used for
the CPI is not representative of the cost incurred by aged
pensioners.
It will be interesting to see whether such a
pensioner/beneficiary specific price index will realise a different
factor for indexation. The Australian Bureau of Statistics
(ABS) has in the past constructed and comparatively tested several
population sub-group specific indices, the earliest going back to
1981 and latest covering the period 1998 to 2005.[13] All of this work has shown
that these specific indices (and there is one for aged pensioners)
are changing at virtually the same rate as the overall CPI.
Using the latest example, over the period June 1998 to June 2005,
the ABS’ aged pension household specific index rose by 23 per
cent while the All Groups CPI rose by 22.6 per cent. What
this means is that the basket of goods and services that aged
pensioners are buying rises in price (inflates) at around the same
rate as the basket of goods used to calculate the All Groups
CPI.
The establishment of an extra indexation factor, the proposed
PBLCI, implies that the concerns that pensioners have been
disadvantaged by the current indexation rates have some
validity. Set out below is a table which shows the single
rate of pension increases compared to the CPI alone and CPI and
MTAWE alone against the actual rate increases from March 2003 to
March 2008.
Increases to the
single pension rate under actual and alternative scenarios, March
2003 to March 2008
Note: From July 2000, to compensate pensioners
for the impact of the Goods and Services Tax, the maximum rate of
pension increased by four per cent (half of which was a payment in
advance of the normal March 2001 indexation increase). This
increase is known as the Pension Supplement. It increases in line
with CPI and is paid in addition to the base rate of pension that
is set to at least 25 per cent of MTAWE.[14]
As stated above, virtually all of the increases in the rate of
the pension, since it was legislated for from September 1997, have
been due to the 25 per cent of MTAWE factor, rather than the CPI
factor. The ABS experience suggests that the adoption of a
PBLCI may not realise any indexation increases than would otherwise
be provided by the current arrangements.
The current pension rate adequacy benchmark of 25 per cent of
MTAWE has been included in the indexation provisions of the SSA
since 1997. Now that the single rate of the pension is to be
increased by $30 per week and the relativities between the single
and partnered rates are to change, the adequacy benchmark must also
change. The benchmark for the combined payment for a couple will be
41.76 per cent of MTAWE and for a single person it will be 27.7 per
cent. These new benchmarks ensure that the single rate will be
66.33 per cent of the combined couple rate. This new relationship
between the single and couple rates reflects the recommendation of
the Harmer Review.
Currently pensioners receive a range of add on payments on top
of the basic pension rate. These add ons have slowly accumulated
over the last few decades to the point where they now jointly
provide a significant part of the package of assistance for
pensioners. They are:
- Telephone Allowance (TA) was introduced in July 1992 as a
quarterly cash payment for pensioners with a telephone account. It
replaced an earlier rebate on telephone rental charges introduced
in October 1964. By 2009 TA was worth $92 per annum or $138.40 per
annum for those with an internet connection. It has also been paid
to self-funded retirees who hold a CSHC from September 2001.
- Pharmaceutical Allowance (PhA) was introduced in October 1990
when access to free pharmaceuticals for Pensioner Concession Card
holders was replaced by pharmaceuticals at a concessional rate.
Once expenditure per family reached a safety net amount per annum
there was no charge for additional items. PhA was introduced
as a fortnightly payment to compensate pensioners for their reduced
entitlements to free pharmaceuticals. PhA is currently worth $156
per annum for single pensioners and $78 per annum for a partnered
pensioner.
- Pension supplement (often referred to recently as the GST
supplement) was introduced in July 2000 to compensate for the
impact of the Goods and Services Tax (GST) on the purchasing power
of the pension. It was structured as a supplement so as to ensure
that the value of the compensation for the GST was always preserved
as an amount additional to the pension rate which was benchmarked
to 25 per cent of MTAWE.
- Utilities Allowance (UA) was introduced in December 2004 as a
twice yearly payment to assist with utility bills. UA was matched
by another payment for self-funded retirees called Senior
Concession Allowance. UA is now worth $518.80 per annum for a
single person and $259.40 for a partnered person.
Separate to the one-off increase of $30 per week to the single
rate of pension, the proposed Pension Supplement will increase the
single rate by $2.49 per week and $10.14 per week for couples
(combined). The Pension Supplement will be worth about
$1,462.70 per annum for a single person and about $2,199.60 per
annum for a couple depending on the exact amount of the indexation
increase in September 2009. It will be paid fortnightly with an
option for part to be paid quarterly from July 2010 if pensioners
choose.
Self-funded retirees will also receive a Seniors Supplement
which combines their existing entitlement to Telephone Allowance
and Seniors Concession Allowance. The single rate will be increased
to bring it to 66.33 per cent of the couple rate. The supplement
will be worth about $790.40 per annum for a single person and about
$1,190.80 per annum for a couple, depending on the exact amount of
the indexation increase in September 2009.
The basic structure of the pension income test in broadly its
present form has been in place since 1976. The assets test was
added in 1985 and deeming was introduced in 1996. However the
current taper rate of 40 per cent was only introduced in 2000 as
part of a package of measures to compensate for the impact of the
GST on the purchasing power of the pension. Prior to that a 50 per
cent taper rate had been in place since 1969 when the Gorton
Government introduced the “tapered means test”. Before
then, pensioners lost pension on a dollar for dollar basis when
their assessed means exceeded $520 per annum. Assessed means
included a deemed income from assets. So effectively the taper was
100 per cent.
The shift to a 40 per cent taper in 2000 had the effect of
diluting the safety net aspect of the pension. Currently, a single
person can receive a part-rate pension with a private income of up
to around $41 000 per annum. For couples this figure is about $68
500 per annum. The estimated pension cut off points in September
2009 with a 40 per cent taper would have been $47 444 for single
people and $72 423 for couples. With a 50 per cent taper these
levels will drop to $38 693 for a single person and $59 228 for a
couple.[15]
The stated objective behind the change to a 50 per cent taper in
this Bill in the second reading speech is:
As part of the secure and sustainable pension
reform package, the pension income test will be tightened. This
will help ensure the pension system is sustainable in the longer
term, and that increases can be targeted to those most in
need.[16]
The taper change, combined with the rate increase ensures that
most assistance is directed to those pensioners with the least
private income.
Currently less than 5 per cent of age pensioners have earnings
from employment.[17] The work bonus is a measure to encourage continued
workforce attachment in the early years of retirement. With the
closure of the PBS and the move from a 40 per cent to a 50 per cent
taper rate under the income test, a measure such as this to improve
return from employment is necessary to counteract the reduction of
the incentives for continued employment brought about by those
changes.
The proposal to close the PBS was announced in the 2009-10
Budget.[18]
The closure of the PBS is estimated to cost $7.1 million in
2009-10 and $5.1 million in 20010-11 and then realise savings of
$15.6 million in 2011-12 and $54.5 million in 20012-13.[19] This is net
savings of $57.9 million over four years.
The PBS was announced in the 1997-98 Budget.[20] It was then estimated an
average of 35 000 people a year would participate in the
scheme during its first 3 years of operation.
The purpose of the PBS was to offer a positive incentive to
persons to extend their working life, to encourage greater
self-provision, to promote continued participation in the workforce
and also to achieve some Budget savings.[21]
When a person turns
Age Pension age, they can claim to defer receiving payment of the
Age Pension and later on be paid a bonus if they:
- continue to work past the date they meet age and residence
requirements for Age Pension,
- have registered as a member of the PBS, and
- meet a flexible work test with a minimum of 960 hours for at
least one year after registration.
Once a member of the PBS, a person can 'accrue' bonus periods
until they reach age 75, as long as they:
- continue to meet the work test, and
- do not meet any non-accruing membership criteria.
The bonus is a multiple of 9.4 per cent of the claimant’s
basic Age Pension for each 'accruing' bonus period. The bonus
is paid as a non-taxable lump-sum once the claimant claims payment
of their Age Pension.
|
Bonus
years
|
Single
|
Partnered
(each)
|
|
1 year
|
$1,392.60
|
$1,163.10
|
|
2 years
|
$5,570.40
|
$4,652.40
|
|
3 years
|
$12,533.30
|
$10,467.90
|
|
4 years
|
$22,281.50
|
$18,609.60
|
|
5 years
|
$34,814.80
|
$29,077.50
|
Payment rates appear as a
guide only and are effective from 20 March 2009.
The amount of bonus a person gets depends on:
- the amount of basic Age Pension the claimant is entitled to
when they claim it after they leave the workforce,
- the length of time the claimant has been an accruing member of
the PBS, and
- whether they are single or have a partner during the time they
deferred their Age Pension.
About 8000 to 9000 Age Pension claimants were registered for the
PBS in 2006. The PBS bonuses paid have been 1365 in 1999-00,
3007 in 2000-01, 4535 in 2001-02, 5646 in 2002-03, 7407 in 2003-04
and 5689 in 2004-05.[22] This is certainly not the anticipated 35 000
a year originally envisioned when the PBS was introduced.
Certainly the numbers of persons accessing the PBS have not been
as originally anticipated. Those able to access the PBS are
those with significant on-going work capability past Age Pension
age and therefore those with greater access to other income sources
than many other Age Pension claimants who are not able to access
employment income. The other measure in Schedule 7 of the
Bill – the Work Bonus, which is to apply a new and different
income test in respect of employment income, will still encourage
employment and self-support beyond Age Pension age. The Work
Bonus will allow half of employment income earned up to $500 a
fortnight to be disregarded under the income test.
The increase in the income test taper rate from 40 per cent to
50 per cent necessitates the inclusion in the Bill of arrangements
to ensure that existing part-rate pensioners do not suffer a rate
reduction. Part-rate pensioners will only be subjected to the new
taper rate (50 per cent) only when their pension rate is higher
than their rate under the current 40 per cent taper. This is
achieved by the fact that with indexation, over time the pension
rate increases and eventually the increased rate overcomes the
proposed new higher taper rate (50 per cent). The proposed
new 50 per cent taper rate on the income test will not be applied
to a person until their pension calculated under the current
arrangements (40 oper cent taper) and the current maximum rates
exceeds the new pension rate calculation (50 per cent taper) plus
$10.10 per fortnight for a single person and $5.05 per fortnight
for a partnered person.
This is quite generous and probably included so part-rate
pensioners are not disadvantaged by the increased 50 per cent taper
rate.
In the 2009-10 Budget, the government announced its intention to
increase the qualifying age for the age pension for men and women
from age 65 to age 67, to be phased in from 2017 to 2023.
The Minister for Families, Housing, Community Services and
Indigenous Affairs, Jenny Macklin, has described this change as
ensuring that the age pension age reflects ‘the significant
improvements in life expectancy that have occurred since the age
pension was first introduced in 1909’.[23] The age pension qualifying age has
been 65 since its inception in 1909.[24] Life expectancy at birth in
1901–10 for males was 55.2 years; and for females, 58.8
years.[25] Life
expectancy at birth in 2005–07 was for males, 79 years; and
for females, 83.7 years.[26]
Table 1 below outlines how the proposed Australian changes will
affect different age groups.Table 1:
Proposed increase in the age pension age in Australia: who will be
affected[27]
|
Date
|
New age pension age
|
Affects people born
|
When group reaches new age pension age
|
|
1 July 2017
|
65 years & 6
months
|
1 July 1952 to 31
December 1953
|
1 January 2018 to 30
June 2019
|
|
1 July 2019
|
66 years
|
1 January 1954 to 30
June 1955
|
1 January 2020 to 30
June 2021
|
|
1 July 2021
|
66 years & 6
months
|
1 July 1955 to 31
December 1956
|
1 January 2022 to 30
June 2023
|
|
1 July 2023
|
67 years
|
From 1 January 1957
|
From 1 January 2024
|
The main rationale for this change appears to relate to the
objective of securing the long-term sustainability of the age
pension.[28]
According to the Minister, it ‘will allow the government to
respond to the long-term cost of our demographic
challenges’.[29]
As can be seen from the following table (based on ABS
projections), the percentage of the population aged 65 years and
over will increase substantially over the next century, almost
doubling by 2056.[30]
Table 2: projected Australian population aged 65 years
and over, 2007 to 2101
|
Year
|
Total
population aged over 65
|
Proportion of
population over 65
|
|
2007
|
2.8 million
|
13 per cent
|
|
2026
|
5.1 to 5.3 million
|
18 to 20 per cent
|
|
2056
|
7.8 to 10.4 million
|
23 to 25 per cent
|
|
2101
|
9.3 to 17.1 million
|
25 to 28 per cent
|
As noted by the ABS, ‘among other considerations such as
health and housing services, growth in this age group has
particular implications for retirement income
planning’.[31]
In response to similar demographic pressures, other countries
have recently announced increases in their age pension qualifying
age. In the United Kingdom (UK), the Parliament is currently
debating pension reforms presented in a 2006 White Paper. Reforms
include taking into account increasing longevity and encouraging
extended working lives. It is proposed that the State Pension age
will rise gradually from age 65 (men and women) to age 68 by 2044.
In the United States the qualifying age is being incrementally
raised to age 67 by 2027. In Germany, between 2012 and 2029, the
normal pensionable age will rise from age 65 to age 67 with
eligibility requiring at least 5 years contributions from
employment income into their personal pension fund amount. In
Germany for persons born after 1964, the pensionable age is 67.
From 2012, the full pension is payable at 65 with at least 45 years
contributions to the individual’s pension fund amount.
There are mixed views on the idea of increasing the age pension
qualifying age. On the one hand, both the Harmer Pension Review and
the Henry review of Australia’s future tax system
recommended gradually increasing the Age Pension (respectively, by
2 to 4 years and 2 years).[32] Both the Harmer and Henry reviews also recommended
bringing the preservation age for superannuation into alignment
with the Age Pension age.[33] (Note that the government has since ruled out this
option.)[34]
The opposition has indicated that they support the change, with
the Shadow Minister for Families, Housing, Community Services and
Indigenous Affairs, Tony Abbott, stating that ‘a strong case
can be made for raising the pension age’.[35] A range of other interest groups
and commentators have also indicated that there is a reasonably
strong rationale for increasing the age pension qualifying age.
This includes National Seniors Australia, an organisation
representing Australians aged 50 years and over, who has previously
argued for the pension age to be raised gradually, potentially to
75 years by 2020.[36]
On the other hand, some other interest groups and commentators
have raised concerns in relation to increasing the qualifying age
for the pension age. These have included unions representing
workers in physically demanding industries. The main concern raised
in relation to the change is that some people are less able to
continue working than others—either through incapacity
(particularly those in manual occupations), caring responsibilities
or lack of jobs for mature workers.[37] While some will be able to access DSP
(paid at the same rate as the age pension), others may be forced to
access Newstart (paid at a substantially lower rate than the
pension).[38]
Further, it has been argued that forcing people to work longer
before accessing the pension will actually add to the costs faced
by governments and employers as a result of increased injuries and
illness.[39]
Other arguments that have been raised against increased the age
pension qualifying age both in Australia and overseas include:
- higher-income workers have a greater life expectancy than lower
income workers, yet an increase in the retirement age would
adversely affect low-income workers—that is, those who rely
on the age pension the most[40]
- other options exist for addressing pressures on the retirement
income associated with demographic change, including:
- tailoring work and retirement policies to specific occupational
groups—allowing manual workers to retire when they physically
need to, while encouraging white collar professionals in areas of
needed skills to remain in the workforce longer[41]
- ensuring that there is a sufficient revenue source to meet the
costs of an ageing population (through, for example, a redesigned
Medicare Levy)[42]
- as suggested by the Harmer and Henry reviews, bringing the
preservation age for superannuation into alignment with the age
pension age,[43]
- increased life expectancy should not be viewed in
isolation—other factors have worked to offset the ageing of
the population, such as increased labour force participation by
women, longer working hours and the tendency towards later
retirement.[44]
Notwithstanding the merits of some or all of the concerns raised
above, it may be that the significant increase in life expectancy
over the previous century means there remains a reasonably strong
case to increase the qualifying age for the Age Pension.
Nevertheless, concerns raised by critics of the change highlight a
number of important issues, including the fairness of retirement
policy (including retirement incomes policy), broader income
support policy and issues related to mature age employment. Indeed,
as COTA over 50s, an organisation representing Australia’s
seniors, argued in its submission to the Community Affairs
Legislation Committee inquiry into this bill, ‘COTA support
for increasing the pension age depends on government redoubling
efforts to address mature age unemployment and age discrimination
in the workforce, and introducing measures to address unemployment
among mature age workers’.[45]
The Government announced a modification to the proposals to
amend the income test applied for the CSHC in the 2009-10
Budget.[46]
This proposal is a modification of an original proposal to modify
the CSHC income test presented in the 2008-09 Budget.[47] In the 2008-09
Budget proposal, the Government proposed to modify the CSHC income
test by adding two new elements to the definition of adjusted
taxable income.
The two extra elements then proposed to be added back into
adjusted taxable income were:
- employment income salary sacrificed into superannuation,
and
- superannuation amounts received from a private taxed
superannuation source.
The legislation that presented this amendment to the SSA was the
Social Security and Veterans' Entitlements Amendment
(Commonwealth Seniors Health Card) Bill 2009.[48] This Bill was passed by
the House of Representatives on 17 March 2009. The Bill was
debated in the Senate, with the last day of the second reading
debate on 20 March 2003. However, the Bill was discharged
from the Senate notice paper on 17 June 2009.
The modified proposal to the definition of income for the CSHC
income test presented in Schedule 13 of this Bill is to only add
back into adjusted taxable income amounts of employment income
salary sacrificed into superannuation. Perhaps the Government
considers this ‘watered down’ modification to the CSHC
adjusted taxable income test will be more palatable to the
non-government parties in the Parliament?
The estimated savings for Schedule 13 presented with this Bill
are $9.6 million in 2009-10, $11.4 million in 2010-11 and $13.3
million in 2011-12 and $14.2 million in 2012-13. This is a
total of $48.5 million over four years.[49]
The CSHC is available to persons over Age Pension (AP)
age[50] who are not
in receipt of an income support payment and whose adjusted taxable
income is below certain limits. The main income support
payments for persons over Age Pension age are the Age Pension, Age
Service Pension and Partner Service Pension. Persons over Age
Pension age may also be in receipt of DSP or Special Benefit, in
cases where they do not meet the 10 year residence requirement for
the Age Pension.
The current yearly income test limits for the CSHC are:
-
Single
$50 000
- Partnered
(combined)
$80 000
The income limits for the CSHC are not indexed in any way and
are only increased when a government sees the need to do so.
The current income test for the CSHC uses ‘adjusted
taxable income’, which refers to net taxable income with
three additional elements:
- foreign income,
- certain employer-provided fringe benefits, and
- the value of net rental property losses.
The CSHC provides access to concessional pharmaceuticals under
the Pharmaceutical Benefits Scheme (PhBS). The CSHC may also
provide:
- Bulk-billed GP appointments. This is at the discretion of
the general practitioner but the Commonwealth government provides
financial incentives for doctors to bulk-bill concession card
holders,
- A reduction in the cost of out-of-hospital medical expenses
above a concessional threshold, through the
Medicare Safety Net, and
- In some instances, additional health, household, transport,
education and recreation concessions which may be offered by a
State or Territory and local governments and private
providers. These providers offer these concessions at their
own discretion, and the availability of these concessions may vary
from state to state.
Retired aged persons on a government income support payment are
issued with a Pensioner Concession Card (PCC) or a Health Care Card
(HCC), which also provide access to concessional pharmaceuticals
under the PhBS.
The CSHC also provides access to the:
-
Seniors Concession Allowance - a non-taxable payment of $128.50
made every three months to help with regular bills such as energy,
rates and motor vehicle registration fees that are not available at
a concessional rate.
-
Telephone Allowance - a non-taxable payment of $23 made every
three months if the CSHC holder has a telephone connected in
Australia. A higher rate of $34.60 is paid every three months
where the person has an Internet connection.
As at June 2008 there were 278 378 CSHC holders.[51]
The original proposal presented in the 2008-09 Budget to amend
the CSHC income test was aimed at:
ensuring that, in applying the existing income
test, all income received by seniors — whether from
superannuation or another source such as a managed fund or interest
from a bank account, is treated in the same way.[52]
The group of retired aged persons who do not get any benefit
from this revised CSHC income test proposal are those self-funded
retirees aged over Age Pension age who are working and are also
salary sacrificing employment income into superannuation.
This group would be smaller than the group who do gain a benefit
from this modified proposal, that is, self-funded retirees with
superannuation income from a private taxed superannuation
source.
This later group is larger than the first group. This is
indicated by the projected savings of the original proposal and the
modified proposal. The Explanatory Memorandum attached to the
first Bill provided detail that the combined estimated expenditure
and savings on the income test changes would result in net
expenditure of $12.3 million in 2008-09. However, over the
following three years the estimated net savings were $30.2 million
in 2009-10, $32.3 million in 2010-11 and $34.6 million in
2011-12. This was a net saving of $84.8 million over the four
years.[53]
This contrasts with the estimated savings for the modified CSHC
income test presented with this Bill of $48.5 million over four
years.[54]
The original intent of the CSHC when introduced was to allow
some self-funded retirees access to concessional
pharmaceuticals. The income test cut-off limits for the CSHC
were raised twice during the years of the Howard government to the
current $50 000 single and $80 000 partnered (combined).
However, the fact there are still income limits indicates that the
current government still wants some targeting of access to the
CSHC, otherwise there would be no income limits and all persons of
Age Pension age not on an income support payment would be provided
with a CSHC. To not include the income from private taxed
superannuation sources will see some self-funded retirees with
large amounts of such superannuation income able to access a
CSHC. This will contrast with like self-funded retirees, with
superannuation income from a non-taxed source (like government
superannuation) and with lesser amounts of income not being able to
access a CSHC.
Indexation for family payments to
movements in the Consumer Price Index (CPI) was introduced on 1
January 1990. Rates were also benchmarked to a proportion of
the pension rate. The rate for a child aged 0 to 12 years was
benchmarked to 15 per cent of the combined couple rate of the
pension. The benchmark for 13 to 15 year olds was set at 20 per
cent of the combined couple rate of the pension. These benchmarks
were part of the Hawke Government policy announced in July 1987 to
ensure that no child need live in poverty by 1990.[55]
This move ensured that ad hoc
increases above normal indexation to the CPI in the pension rate
provided by the Labor Government in 1990 and 1993 flowed through to
family payments. These increases were delivered to keep the pension
rate up with the 25 per cent of average weekly earnings benchmark
originally announced by the Whitlam Government.
Under the Howard Government, pension
indexation was changed from 1998 so that this 25 per cent benchmark
for pensions was included in the SSA. The decade after this change
saw accelerated growth in average earnings and a lower rate of
increase for the CPI. Pension rates more often than not increased
in line with movements in average earnings rather than the growth
in the CPI. By 2008, the annual pension rate had increased by
around $1500 more than would have been the case if indexed to
movements in the CPI alone.[56]
Family payment rates also increased
ahead of the growth in the CPI as a consequence of the benchmarks
introduced in 1990. The benchmarks were updated with the
introduction of the Family Tax Benefit (FTB) in 2000. The
benchmarks for 0 to 12 year olds and the 13 to 15 year olds
increased to 16.6 per cent and 21.6 per cent of average earnings
respectively. This ensured that the higher rates that came with
Family Tax Benefit were maintained.
Breaking the link with the pension is
estimated to save over one billion dollars over the next four
years. This estimate is based on the assumption that the CPI will
grow less than average earnings. While this is probably a
reasonable assumption in the short term, the history of these two
measures by no means suggests that it will always be the case.
The government announced changes in the 2009-10 Budget to the
way persons in aged care are funded and the share of the pension
rate that aged care providers can access to fund the daily care
cost of aged care residents.[57] The proposal involves changes to the amount
of the maximum single rate of pension aged care providers can
charge residents for their daily care fee.
Under section 58-4A of the Aged Care Act 1997 (ACA),
the maximum fee an aged care provider can charge a resident in
nursing home care is 85 per cent of the maximum single rate of
pension.
Section 58-4A The
standard resident contribution for a care
recipient who is a post‑2008 reform resident is the amount
obtained by rounding down to the nearest cent an amount equal to
85% of the * basic age pension amount (worked out on a per day
basis).
Concerns have been expressed that for increase in the rate of
the pension, most of the increase would not be seen by individual
pensioners but be passed on to nursing home care providers, due to
this legislative link between the pension rate and the maximum
daily care fee rate.[58] The one-off $30 per week increase in the single
rate of pension would have seen $25.50 of this increase potentially
passed on the nursing home providers under the current section
58-4A of the ACA. Schedule 17 of the Bill proposes to amend
section 58-4A to ensure a greater proportion of the pension rate
increase and also the proposed Pension Supplement end up in the
hands of the pension recipient. This is partially achieved by
reducing the 85 per cent fee, as set out in section 58-4A, down to
84 per cent of the single rate of pension. The government
claim is that of the $32.49 per week increase in the single age
pension, pensioners in residential aged care will receive a net
benefit of $10.49 per week.[59]
The other aim of the Schedule is to increase the amount of
financial assistance provided to residential aged care
providers. An additional $22.40 per week will go to
residential aged care providers per person. This is an
additional $713.2 million over the next four years to assist with
the costs of food and cleaning.[60] It may also indirectly go some way towards
addressing some of the concerns of the aged care industry,
especially about the need for more funds for capital
expenditure.[61]
Residents of residential nursing homes who are either
self-funded retirees or part-rate pensioners will have their daily
care fee saved at the current rate to protect them from any
increase in the fees as a result of these changes. With the
proposed $30 per week increase to the single pension rate, even
with the reduced daily care fee rate of 84 per cent, it would still
be more than 85 per cent of the current pension rate.
Newly entering residents after 20 September 2009 who are
self-funded retirees or part-rate pensioners will also be partially
saved. Their daily care fee will start off at the pre-20
September 2009 rate (that is $33.41 per day) and their rate will be
increased every six months over four years until their daily care
fee reaches 84 per cent of the basic single pension rate.
Schedule 18 presents amendments to the Veterans’
Entitlements Act 1986 (VEA). It proposes to add to the
definition of an ‘operational area’ in Schedule 2 of
the VEA, which describes operational areas as provided for under
section 5B of the VEA. Section 5B refers to war and
operational area terms and definitions. Schedule 2 of the VEA
describes service that is classified as operational service.
Service in an operational area generally refers to service that
is classified as war service or warlike service. Such war or
warlike service allows access to some of the major assistance
arrangements in the VEA, like access to the age service
pension. It also can provide access to a Gold Card for older
aged service personnel with war or warlike service. For
example, all service personnel now aged 70 or more with post World
War Two operational service now qualify for a Gold Card.
Schedule 18 proposes to add to the definition of an operational
area service in Schedule 2 of the VEA, service in the area of the
Red Sea north of parallel 20 degrees in the period 13 January to 19
January 1993. This is the period of Australia’s
involvement in what is now known as the first Gulf War.
The Bill has been referred
to the Senate Community Affairs Committee for inquiry and report by
23 June 2009. Details of the inquiry are at
http://www.aph.gov.au/senate/committee/clac_ctte/social_security_pension_reform_09/index.htm
Detailed tables of the
financial impact of measures in the Bill are provided at the
beginning of the Explanatory Memorandum at:
http://parlinfo.aph.gov.au/parlInfo/download/legislation/ems/r4155_ems_741e6245-292e-4299-8ffa-01cca6ba17ec/upload_pdf/330671.pdf;fileType=application%2Fpdf
Item 1 provides for an increase to the basic
rate of the single pension of $1 560 per annum for pension rate
payments except for Parenting Payment Single and DSP for people
aged under 21 years. The increase is to take effect from 20
September 2009.
The DSP rate paid to persons aged under 21 years has a Youth
Disability Supplement paid in addition to their basic pension
rate.[62]
This raises the rate of DSP paid recognising the extra costs often
faced by a person with a disability and for persons with sufficient
level of work incapacity to qualify for DSP at such a young age
they may be paid DSP for a prolonged period. Items 2
to 24 refer to the rate paid to DSP recipients aged less
than 21 years with a dependant child.
Item 8 replaces subsection 1195(2) with
new subsections 1195(2), (2A) and
(2B). They provide for Parenting Payment Single to
continue to be benchmarked to 25 per cent of MTAWE and the couple
pension rate to be benchmarked to 41.76 per cent of MTAWE.
Item 9 inserts new section
1198A which benchmarks the single rate of pension to 66.33
per cent of the combined couple of pension.
Item 1 of Part 1 inserts new section
20A which provides for the definitions relating to the
pension supplement.
Part 2 provides for the rate calculation for
the pension supplement.
Part 3 provides for the rate calculation of the
seniors supplement.
Schedule 5 adjusts the amendments to be made to
the Social Security Law by the Carbon Pollution Reduction
Scheme (Household Assistance) Act 2009 to take account of
changes to pension and supplement rates made in this Bill.
Part 1 changes the pension income test taper
rate from 40 per cent to 50 per cent.
Part 2 removes the additional income test free
area for dependent children from the pension income test.
Item 4 inserts new Division
1AAA which provides for the work bonus.
Schedule 8 provides for the assessment of
employment income for the purposes of the work bonus.
Item 1 inserts a new sections (1A) and (1B)
into section 92J(1) to detail that a person cannot be registered
for the PBS after 20 September 2009. Item 2
details that the amendments in Item 1 refer to
applications for the PBS lodged on or after 20 September
2009. The net effect of these two items is to no longer allow
the acceptance of any applications for the PBS lodged on or after
20 September 2009.
Schedule 10 provides for transitional
arrangements to ensure that people potentially adversely affected
by changes to the income test do not suffer a rate reduction as a
result of the changes.
Items 1
and 2 repeal subsections 23(5A)
and 23(5D) and substitutes new subsections (5A and
5D) to change the qualifying age for the age pension for
men and women such that:
|
A
man born during the period:
|
a
woman born during the period:
|
will turn pension age at:
|
|
On or
before 30 June 1952
|
1 January
1949 to 30 June 1952
|
65
years[63]
|
|
1 July
1952 to 31 December 1953
|
1 July
1952 to 31 December 1953
|
65 years
and 6 months
|
|
1 January
1954 to 30 June 1955
|
1 January
1954 to 30 June 1955
|
66
years
|
|
1 July
1955 to 31 December 1956
|
1 July
1955 to 31 December 1956
|
66 years
and 6 months
|
|
On or
after 1 January 1957
|
On or
after 1 January 1957
|
67
years
|
Schedule 12 provides for increased flexibility
in the operation of pension advances. The maximum and minimum
amounts that can be advanced and the number of advances that can be
made in a year are proposed to be adjusted.
Items 1, 2 and 5 repeals provisions of the
Family Assistance Act 1999 that provide for FTB-A rates to
be benchmarked to the combined pension rate.
Item 3 changes the timing of indexation of the
Maternity Immunisation Allowance from twice yearly in March and
September to once yearly in July.
Schedule 15 extends the overseas portability to
allow students receiving a range of income support payments to
receive payment while studying overseas for the duration of their
overseas study.
Schedule 16 excludes from the definition of
income used in the Social Security and Veterans’ Affairs
income tests, payment made under the Western Australian Cost of
Living Rebate Scheme and the value of the Western Australian
Country Age Pension Fuel Card.
Members, Senators and Parliamentary staff can obtain further
information from the Parliamentary Library on (02) 6277 2410.
[2].
Utilities Allowance is paid
quarterly to a person on a qualifying income support payment being
Age Pension, Disability Support Pension, Carer Payment, Partner
Allowance, Wife Pension, Widow B Pension, Bereavement Allowance or
Widow Allowance. From March 2009 Utilities Allowance is $259.40 per
member of a couple and $518.80 for a single annually.
[13].
Australian Bureau of Statistics (ABS),
Analytical Living Cost Indexes for Selected Australian
Household Types: Update to June 2005, cat. no. 1350.0, ABS,
Canberra, 31 August 2005.
[27]. Source: J
Macklin, (Minister for Families Housing, Community Services and
Indigenous Affairs), Secure and sustainable pension reform: Age
Pension age, media release, Canberra, 12 May 2009, viewed on
21 May 2009,
http://www.jennymacklin.fahcsia.gov.au/internet/jennymacklin.nsf/content/age_pension_12may2009.htm
[48].
P Yeend, Social Security and Veterans'
Entitlements Amendment (Commonwealth Seniors Health Card) Bill
2009, Bills digest, no. 99, 2008-09, Parliamentary Library,
Canberra, 24 February 2009, viewed 19 June 2009,
http://www.aph.gov.au/library/pubs/bd/2008-09/09bd099.htm#Contact
[50].
The age pension age for males is age 65. Pension
age for females is being raised by six months every two years so
that by 1 January 2014, female and male pension ages will be age
65. The table below show when females qualify.
Date of Birth
Qualifying age
Before 30 June
1944
63 yrs
Between 1 July 1944 to 31 Dec
1945
63.5 yrs
Between 1 Jan 1946 to 30 June
1947
64 yrs
Between 1 July 1947 to 31 Dec
1948
64.5 yrs
After 1 Jan
1949
65 yrs
[53]. Social Security
and Veterans’ Entitlements Amendment (Commonwealth Seniors
Health Card) Bill 2009, Explanatory memorandum,
http://parlinfo/parlInfo/search/display/display.w3p;adv=yes;db=;group=;holdingType=;id=;orderBy=customrank;page=0;query=Content%3Aseniors%20Dataset%3AbillsCurBef,billsCurNotBef;querytype=;rec=0;resCount=Default
Dale Daniels
Luke Buckmaster
Peter Yeend
23 June 2009
Bills Digest Service
Parliamentary Library
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