The recent Intergenerational Report, released along with the recent Federal Budget, tells us nothing new of any great consequence — we have known a prudent society should be planning to meet the challenges of an ageing population; that all things being equal, relatively fewer taxpayers funding relatively more people as aged pensioners will have a detrimental impact on the Federal Budget; that older people tend to spend more per capita on healthcare; that there are grave concerns that the investment in aged care infrastructure is insufficient to meet current needs, let alone the increased needs projected in future years; that technological advances are driving these costs through the roof; and that the real antidotes to the problem lie in keeping people at work longer and increasing the levels of private savings to reduce dependence on the aged pension.
The report also adds little to those already well explored by thinkers in the field. For instance, Vince Fitzgerald must be bemused to find the healthcare issues he has been expounding for three to four years emerging now as brilliant new ideas.
But what of the Government’s initial response? It appears to have two focuses — one is to reduce the availability of disability pensions and to force those deemed unable to work on to lesser unemployment benefits and to increase the cost of prescriptions, including for those same people and aged pensioners, as well as for the rest of the community.
The second response has been to introduce a raft of superannuation changes, which can really only benefit people or families on higher incomes. By definition, a reduction in the surcharge can only help the top group of wage and salary earners — it does not apply to lower income earners. Account balance splitting may have some universal application, but mainly for those with reasonable benefit limit problems and those seeking to benefit from two rather than one lump sum tax-free threshold.
The co-contribution (where have I heard that term before?) for low-income earners is a Clayton’s benefit for all except those with a partner on a substantially higher income. And, funds are not reporting that they have been mobbed by low-income earners wanting to make contributions on behalf of their kids. Anybody facing a struggle to make contributions to their own fund is unlikely to have the capacity to contribute for a child.
In one sense, you have to admire a government with the guts to stand up and say that the solution to the problems caused by the ageing of the population is a combination of a reduction in benefits for the poor, sick and disabled and an increase in middle/upper class welfare. In another sense, you have to despair. The truth is that we don’t need another round of reports and inquiries. We already know the contours of the demographic map of Australia in the next 40 to 50 years and we know the major solutions to the issues that it presents. What we need is action.
We need action to increase the financial independence in retirement of as many people as we can to minimise the strain on the public purse of the aged pension, but our problem in this regard is a fraction of the dimension of that confronting other countries. At its worst point, projections I have seen show Australia spending a much lesser share of the GDP on aged support than any other developed economy.
In addressing the adequacy issue, we need to be mindful of the interaction of private provision and the public pension: so long as the reward for long-term saving is to disqualify yourself from access to the aged pension, there will be widespread reluctance to save, such is the national affection for the aged pension.
Then there is the proposition that people should be persuaded to defer their retirement, to work and save longer to reduce dependence on the aged pension. This is a multi-sided issue. It presumes that people aged 55 and over who are not working have made a conscious decision to stop work, that there is a minimal level of involuntary retirement. There is plenty of evidence to the contrary. It also presumes that employers can be persuaded to value older workers — again, the evidence suggests that this is a major task.
No question, if this action can be successfully implemented it will provide substantial benefits on a number of fronts, not only in respect of retirement income. Eliminating the humiliation suffered by people dumped on the employment scrap-heap while they believe that they can still make a valuable contribution, is a worthwhile achievement in its own right.
But the retirement income benefits are important. Even among the voluntary early retirees the risk is that, as we live longer, their money will expire before they do. People who start their retirement as self-funded will become public pension dependant.
We need action to address the community need for aged care, especially in respect of the cost of healthcare and medicines. If it is true that we are 12,000 nursing home beds short of the community need now (and that the shortfall is increasing year by year), how big will the problem be in 20 years time if no action is taken now?
These are the matters the Government (and the community) should be acting on now. We don’t need petty political point scoring, we need a concentrated attack on the big issues while they are still of a manageable proportion.
— Sandy Grant is managing director of Industry Fund Services.
