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Re-moralising the pension

Jeremy Sammut | 11 April 2014

sammut-jeremy The old age pension used to be about the morality of self-reliance. But the contemporary culture of entitlement means that the pension today is about the immorality of encouraging dependence on government hand-outs and permitting the elderly to help themselves to younger people's income.

Treasury Secretary Martin Parkinson issued another warning this week about the fiscal burden that ageing-related spending will impose on the budget in coming years.

Parkinson repeated the central message of the Intergenerational Reports: unless government spending is contained, future generations face higher taxes and lower living standards than enjoyed by current generations.

It is therefore timely to recall the original purpose of the pension and contrast how far we have strayed from this.

When introduced in 1908, the pension was designed to operate as a safety net payment for those who were too improvident to provide for their own retirement.

Until the 1970s, the pension carried the stigma of 'charity.' Recipients were reluctant to publically admit they were on the pension because this was considered to be not quite respectable. This started to change when the Whitlam government abolished the means test for the pension for those aged over 70 in 1973.

Whitlam planted the corrosive and pervasive ideas of a 'right' to welfare in the Australian psyche, and initiated the perpetual political contest for the support of the increasingly important 'grey vote.' This has led both sides of politics to seek to buy the votes of the elderly by doling out increasingly valuable entitlements to the aged.

The current pension arrangements encourage retirees to blow their superannuation on overseas holidays, and/or gift their children large home deposits, and/or purchase an expensive means-test exempt family home in order to get on the pension. Financial planners market investment schemes yielding income streams that will beat the means-test and qualify for a part-pension and associated pensioner concessions including the valuable Seniors Health Card.

Ordinary taxpayers - including the archetypal 'battlers' and 'working families' - are being forced to subsidise the lifestyles of wealthy retirees and the inheritances of their children.

If we want to contain ageing-related government spending we need to put the morality back into the pension by implementing the TARGET30 campaign pension tips.

Alternative policies include using superannuation to purchase an annuity to pay for retirement living expenses. And the family home - the principal asset most Australians use to save over the course of their lives - could also be included in the pension means test.

Dr Jeremy Sammut is a research fellow at The Centre for Independent Studies.