Universal pension for all: Retirees call for tax and income reform
This is a very different proposal from Universal Basic Income. There is no effect on job readiness because pensioners are already out of the fulltime workforce. And if the pension is taxable any perversity in the payments would be substantially reduced
The existing system is very unfair to savers and investors as the lockdown knocks their income substantially without compensation. A universal pension would in part compensate for that
We live in a time of great government activism and economic involvement, much of which is neither wise nor benign so it is merely balance to suggest that governments should take responsibility for the ill results of their policies and do things to compensate for the burdens they create
Every retiree would get at least a part pension under a plan being considered by seniors' groups amid concerns the coronavirus pandemic's effect on key income streams is leaving many older Australians cash poor and increasing the number living in poverty.
Seniors organisations are pressing the Morrison government to look at a massive overhaul to the pension system that would also take into account possible changes to tax concessions, such as franking credits, as a way to pay for any reforms.
The federal government is reviewing the retirement income system although its reporting date has been pushed back to July 24 due to the pandemic's impact on agencies.
The COVID-19 crisis, and measures to stop its spread, has created havoc with equity and investment markets while also leading to a huge fall in global interest rates. Economic shutdowns have hit jobs and seen a sharp increase in the number of renters - private and commercial - unable to pay rent.
Analysis by JPMorgan suggests the huge scope of the income hit facing those dependent on interest, dividends and rents.
It estimates dividend income will drop by $68 billion in the 12 months to the end of June, property income will slump by $59 billion while interest payments will be $8 billion down.
National Seniors Australia spokesman Ian Henschke said the crisis had highlighted key shortcomings in a retirement income system he said was clumsy and complex.
He said many retirees had suffered a sharp fall in their income yet the value of their assets had barely changed. Under existing pension testing rules, it's the value of those assets that determined any pension income.
Axing the means test system and replacing it with a universal pension, paid for by an overhaul of the tax system, would improve retirement outcomes and incentives for savers, Mr Henschke said.
"It would get rid of the pension assets and income tests, doing away with the need for unfair taper rates, deeming rates and work restrictions, and end the need to engage with Centrelink," he said.
"If everyone of pension age received a pension, retirees could just add this to their other income and pay tax. Means testing is costly to administer and leads to perverse outcomes, which are more apparent in the current crisis.
"Asset taper rates unfairly penalise those who save more for their retirement. Income tests undermine ongoing workforce participation and lead to ongoing anger over deeming rates."
David Knox, actuary and senior partner with consulting firm Mercer, said the system of means testing made it difficult for many people to plan retirement.
He said there was scope to adopt a model used in Denmark where all retirees were paid a part pension that maintained some elements of means testing but also guaranteed income for all.
"The advantage is the universal part pension gives everybody a base to build on while the means-tested pension ensures that no-one lives in poverty," he said.
"Another advantage is that the means testing will cease at a lower level of assets or income than currently, as it would only apply to half the pension.
"This means that many retired Australian households would not be subject to any means testing and there would be a much clearer incentive to make some extra savings for your retirement."