Has the Age Pension evolved from being a safety net to a supplementary benefit to superannuation?
According to Rice Warner principal, Michael Rice that is precisely what has happened, giving rise to the need for better targeting of the Age Pension including the need for a national objective to sit alongside the objective already devised for superannuation.
In a paper delivered to the Actuaries Institute’s Financial Services Forum yesterday, Rice said that as a result of tightening means testing, later retirement ages and further growth in superannuation balances, the cost of continuing the Age Pension in its current form was projected to reduce as a percentage of gross domestic product (GDP), from around 2.7 per cent of GDP in 2017 to around 2.5 per cent of GDP in 2038.
In doing so, he said that, on this basis, some of the matters which could be considered for future policy initiatives included subjecting the family home to means testing as a fixed value of average earnings, significantly increasing rental assistance for age pensions and enhancing incentives for part-time work in retirement.
Rice also suggested the setting of a target for combined Age Pension and age care costs as a percentage of GDP.
Elsewhere in the paper, Rice said that while many younger members of the community might be concerned that the Age Pension may not exist in future, his firm’s projections modelling clearly showed that, whilst the proportion of the eligible population receiving the Age Pension would fall over the coming decades, a reasonably significant proportion would still receive the benefit.
“… the proportion of the eligible population receiving the Age Pension will fall from around 69 per cent in 2017 to around 56.6 per cent in 2038,” it said. “By 2060, the proportion of the eligible population receiving the Age Pension will fall to 45.1 per cent. At these levels, it will remain a supplementary benefit as well as a safety net, in line with the Objective of Superannuation.”
“Given the overall wealth of retirees when including the family home, it is valid to question whether we should be targeting higher superannuation balances with a goal of the Age Pension becoming a safety net in time.”