Pension Review Background Paper—Executive Summary
The Minister for Families, Housing, Community Services and Indigenous Affairs has asked the Secretary of FaHCSIA, Dr Jeff Harmer, to complete an investigation into measures to strengthen the financial security of seniors, carers and people with disability, including a review of the Age Pension, Carer Payment and Disability Support Pension. This review is part of the Government’s wider inquiry into Australia’s Future Tax System, chaired by the Secretary to the Treasury, Dr Ken Henry.
Context
Many people who rely on the income support system for a basic acceptable standard of living say that they are finding it harder to make ends meet.
The Senate Standing Committee on Community Affairs has drawn attention to the financial circumstances of older Australians with few assets who do not own their own home, particularly singles, private renters, and those with a limited capacity to work and/or save for retirement. Many of these people have a long-term reliance on the income support system. The committee recommended the Government review the suitability of the base pension levels through economic analyses of amounts required to achieve at least a modest standard of living for retired Australians.
The Government recently introduced a number of changes including one off payments to seniors and carers and an increase in the Utilities Allowance from $107 to $500 and its extension to disability support pensioners and carers in recognition of some of the pressures identified in the Senate Committee report.
Terms of reference
The Pension Review Background Paper provides information to help people understand how well the income support system works for those who rely on it. It addresses the Review’s three key terms of reference
- the appropriate levels of income support and allowances;
- the frequency of payments; and
- the structure and payment of concessions or other entitlements.
Principles of the social security system
The social security system redistributes Government revenue collected in the tax system to individuals and families to increase the wellbeing of the Australian population. It is part of a broader social protection system that includes direct expenditure on services and infrastructure (such as health, education and community services), the superannuation system—which complements the Age Pension in Australia’s retirement income system—and payments, services and investment to promote the efficient and effective functioning of the Australian economy which underpins individual and national wellbeing.
To work effectively, in addition to supporting a basic acceptable standard of living, taking into account prevailing community standards, the income support system has to:
- give greater assistance to those with additional costs either through transfer payments or services;
- target payments to those not able to fully support themselves;
- promote participation and self-provision through services, incentives to work and save, and obligations; and
- be sustainable.
Key Facts
Around 4.6 million Australians receive an income support payment of some kind from the Australian Government in the form of a pension or allowance (27 per cent of the population aged 15 years and over):
- in 2006–07, Australian Government expenditure on the income support system was $71.6 billion, or around 6.8 per cent of GDP
- 77 per cent of Australians over the age of 65 receive income support, and 17 per cent of Australians aged 16–64 years
- 59 per cent of income support recipients are women, and 58 per cent are single.
Australia’s population is ageing: 13 per cent of Australians are over 65 years now, growing to 25 per cent by 2047.
Even with the maturing of the superannuation system the proportion of retired Australians who receive the Age Pension will only decline slightly although many more will receive a part-pension in addition to their private income rather than relying upon the pension alone.
Many pensioners rely on income support for long periods. The average total time on income support of current Age Pensioners is 13.1 years. For Disability Support Pensioners, it is 10.8 years and for Carer Payment recipients it is 7.6 years. In most cases, these pensioners have moved on to their current payment from another income support payment.
Pension rates have grown by more than 2 per cent a year above inflation over the last decade, which is slower than average households (3 per cent), but higher than low wage earners (1 per cent).
The single rate of pension is 60 per cent of the combined couple rate, lower than the average for major OECD countries (63 per cent).
Most pensioners have low incomes: over half have less than $20 a week of private income, but some have higher incomes; 5 per cent have private incomes of over $400 a week.
Most pensioners do not have substantial savings or other assets: over half have assessable assets (excluding the family home) under $30,000 and 30 per cent report having bank balances of less than $1,000, but some have higher assets with 5 per cent reporting assessable assets over $250,000. Pensioners are able to receive some pension with assets up to around $1,000,000.
The family home is a major form of savings for seniors: 61 per cent of Age Pensioners are homeowners; among Age Pensioner couples, 83 per cent are homeowners.
Few pensioners participate in work to supplement their payments: 4 per cent of Age Pensioners, 12 per cent of Disability Support Pensioners and 11 per cent of Carer Payment recipients.
Consultation
The Government has announced a public consultation process to ensure that individuals and community organisations can contribute to the work of the Pension Review. A series of public meetings in capital cities and major regional centres will commence in Darwin on 19 August. A written submission process has also been announced to allow the widest possible participation.