The cost of continuing the government-funded Age Pension in its current form is projected to reduce as a percentage of GDP, from around 2.7% of GDP in 2017 to around 2.5% of GDP in 2038. This reflects recent tightening of means testing, later retirement ages and further growth in superannuation balances, says a research paper from Michael Rice, CEO of Rice Warner, a management consulting and actuarial advice firm.
The paper, presented at the Actuaries Institute’s Financial Services Forum in Sydney yesterday, is titled “The Age Pension in the 21st Century”. It reviews the major changes to the Age Pension over the last 20 years and shows how the benefit has evolved largely from being a safety net for many Australians to becoming a supplementary benefit to superannuation income for the majority.
The paper says that some of the matters which could be considered for future policy initiatives are:
- There should be a national objective for the Age Pension, in much the same way as there will be one for superannuation.
- Including the family home in the Means Test at a fixed value of average earnings (threshold to be decided). Adding a multiple of six times average earnings to the asset test thresholds would shift the pension to becoming a safety net; a multiple of 10 times would provide the benefit to 40% or more of the population.
- Significantly increase rental assistance for age pensioners.
- Enhance incentives for part time work in retirement.
- Set a target for combined Age Pension and Aged Care costs as a percentage (say, 4% to 4.5%) of GDP.
The means-tested government Age Pension provides retirees with a minimum standard of living in retirement. It is both a safety net for those who haven’t saved enough for retirement and a supplementary benefit for those who have not saved enough to be comfortable in retirement. The benefit is paid from consolidated revenue and is not pre-funded.