Raising retirement age no solution to old problem

Treasurer Joe Hockey may be rejecting the Productivity Commission's proposal to increase the pension eligibility age from 67 to 70 for mainly political reasons. But as presented, the commission's recommendation is a half-baked proposal that ignores fundamental inequities in the system and the increasing difficulties older Australians have in retaining and obtaining jobs.

Already a large percentage of the population aged less than 65 are claiming social security benefits including Newstart, Disability Support and parenting payments for extended periods. With uncompetitive Australian wage rates and the prevailing exchange rate, outsourcing and labour-shedding technology will increase the difficulties of older workers to retain and find employment.

The only sensible response to these pressures with an ageing population is for a more flexible income support system that integrates the assistance provided by the superannuation and social security systems. Instead of wielding the stick and compelling people to forgo assets to age 70 as now proposed, the government should be offering carrots to encourage workforce participation for as long as possible, including by allowing access, as at present, to superannuation pensions
while still working.

Increasing the pension age, and the superannuation preservation age as proposed, ignores alternative viable options to fund our ageing population. How many more people will, for example, be added to the ranks of Disability Support and Newstart recipients by rules that ignore both the family home and superannuation assets until pension age.

After pension age, the family home of unlimited value is exempt but non- homeowners are only allowed additional assets of $142,500 before being subject to the assets test. This forces older Australians to retain their home much longer than they would otherwise prefer. Selling the home in many cases results in the loss of a large part or all of the age pension.

The Productivity Commission wants to access part of the equity in the home to help fund health and care outlays, but without changes to the assets test exemption of the family home, this will lead to inequities. People with very valuable homes and few other assets will still continue to get the age pension and only be subject to the new health charges if and when they need care much later in life.

Existing arrangements penalise retirees who use assets to generate an income, encourage over-investment in asset-test- exempt homes and the dissipation of capital to trusts and families to gain access to the pension. A more rational basis for controlling access to government benefits would offer a superior alternative to raising the pension age even further to help fund the needs of our ageing population.

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Daryl Dixon

Executive Chairman

Daryl Dixon is one of Australia’s foremost investment experts and a well known writer and consultant. He has provided trusted advice to thousands of personal clients over more than 25 years and is an acknowledged expert in the areas of tax, superannuation (including public sector superannuation), social security and investments.

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