Morrison's pension reform is tinkering at the edges. There is another solution
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Version 0 of 1. This week Scott Morrison played a game of pre-budget peek-a-boo on plans for the aged pension, before revealing that the government will ditch its failed attempt to change indexation rates and instead tighten the assets test. Morrison is right to attempt reform of the aged pension. 70% of people of retirement age receive a pension, meaning it has ceased to be a safety net and is simply a reward for getting old. By 2017/18 the cost of the aged pension is expected to rise to over $50bn. Given our declining revenues, we can ill afford to keep handing out taxpayer money to those who can otherwise support themselves in their retirement years. “This is about ensuring the pension has fairer access and a more sustainable future for the pension,” the minister says. At the margins, that might be true. “But this announcement is not dealing with the core issue,” says Simon Cowan from the Centre for Independent Studies. “It’s tinkering at the edges. This year the government will pay out more than $42bn in age pensions to more than 2.4m Australians. Based on the figures released today, the government’s announcement will only move 90,000 people off the pension, and save only $500m a year.” Morrison’s hide and seek shenanigans this week allowed him to avoid serious and open discussion of the solution, sitting in plain view, to his pension problem: the family home. Australia’s pensioners hold $600bn in housing equity. More than 75% of pensioners own their own home, with the average housing wealth sitting at $400,000 for couples and $350,000 for singles. Why are Australians so fearful of using the equity in the family home to fund retirement? I asked this question when I was NSW minister for ageing. “You can’t eat bricks and mortar,” stakeholders told me. Technically that’s true, but you can unlock the equity in a home in order to pay for food or whatever else an older person needs in order to live more comfortably in their retirement years. As minister I grew frustrated at the challenge of keeping home care fees low enough to allow pensioners to live in their own home. It seemed ludicrous to have cash-poor struggling seniors living in half-million dollar homes and receiving heavily government subsidised services to keep them there. At the time I suggested offering home care clients options: to continue to pay a low cash fee for a government subsidised service, or be charged the full rate of the service “on credit” to be paid later from their estate – that is, once they died and the equity in their home could be accessed. “Ah, minister, that would be a very courageous move,” my department replied. Crazy-brave or not, Australia needs to face squarely the question of whether we can continue to ignore a lazy $600bn of equity just because we have an emotional obsession with the family home. Consider that right now the Abbott government is considering a range of new Commonwealth Home Support Package fees for in-home aged services like home care, respite and therapy. The fees are due to start 1 July, and in some cases may see a doubling or even tripling of what clients pay. Take Meals on Wheels as an example. In NSW, meals are provided at cost and the client pays between $4-$9 for a meal. Under the proposed Commonwealth fee structure, the cost would rise nationally so all full-rate pensioners will pay $9 plus the cost of the ingredients. Aged and Community Care Services Australia CEO, John Kelly, says that the proposed changes could mean that some won’t be able to afford Meals on Wheels. Or, put another way, we could have pensioners sitting alone and hungry in their $400,000 homes. We can go down this path, or we can consider proposals like the one put forward recently by the Centre for Independent Studies. In its report, “The age old problem of old age: fixing the pension”, the CIS recommends three policy changes: include the family home in the assets test, create a government-backed reverse mortgage annuity (one that ensures seniors cannot be forced to sell the family home) and include reverse mortgage payments in the assets test. “The CIS plan would save $58bn across the forward estimates and boost income by $56bn,” says Cowan. “By contrast, what the government announced today would only save $2.4bn across the forward estimates.” The CIS report makes a compelling case for how to truly make the pension more sustainable and fair. Consider that its recommended policy changes would see nearly 98% of pensioners gain $6,000 in income, the overall pool of pension income increase to $14bn a year, and government spending on the pension reduce by $14.5bn. Not only would home-owning seniors benefit, but the government would be able to redirect funds to those who need it most, such as increasing rent assistance to non-homeowner pensioners and increasing the base rate for those who are completely dependent on the pension. It is often said that charity begins at home. In this case, so too does good policy. Once the budget games are over, Morrison should begin to have an open, honest and rational discussion with the nation about the family home and the transformative role it could play in fixing the aged pension and improving the lives of older Australians. |