POSITIVE POLICY

A Fair Pension System

Labor believes that pensioners deserve dignity in retirement.

We also believe that people with disability or carers who rely on the Disability Support Pension or the Carer Payment should not be forced to live their lives in poverty.

That is why, in 2009, Labor legislated a $30 per week increase to the to the pension - the largest in its 100-year history.

It is also why, in Opposition, we have fought the Liberals’ savage cuts to the pension.

A Shorten Labor Government will continue to stand up for pensioners and ensure we have a fair pension system that remains both adequate and sustainable.

Fair Pension Indexation

In 2009, Labor improved the way the pension is indexed so the base rate keeps pace with the cost of living. This has meant that pensioners’ living standards not fall behind the living standards of other Australians.

In 2014, the Liberals tried to cut the indexation arrangements for the pension. If they had got their way, this would have amounted to a cut of $80 per week within a decade. Labor fought this cut, and we won.

Labor remains very concerned about the Liberals’ plans if they get re-elected. Malcolm Turnbull has failed to rule out further cuts to pension indexation.

Under a Shorten Labor Government, the pension will continue to be indexed to the highest of either the Consumer Price Index, 27.7 per cent of Male Total Average Weekly Earnings or the Pensioner and Beneficiary Living Cost Index. Under Labor, the pension will continue to rise in line with the cost of living, meaning pensioners’ living standards will continue to improve and no pensioners will be left behind.

Reversal Of Cuts To Pension Portability

A Shorten Labor Government will scrap Malcolm Turnbull’s plans to reduce the period of time pensioners can spend overseas and keep their full pension. Under current rules, pensioners can spend 26 weeks overseas before their pension is reduced, at a rate depending on the length of time they have lived in Australia.p>

The Liberals want to reduce this period to six weeks.

That means 190,000 pensions who were born overseas will receive a reduced pension when they visit family or friends in their home country. Labor opposes this cut, and if we are elected we will reverse it.

Maintain The Current Pension Age

In 2014, the Liberals announced that they would increase the pension age to 70 – giving Australia the oldest pension age in the developed world. This change will hurt low income workers, blue collar workers and women.

It will push more people onto other forms of income support, including the Disability Support Pension and Newstart. Labor has steadfastly opposed this cut since it was introduced in 2014, and we will continue to do so. If elected, Labor will scrap the Government’s changes and maintain the current pension age. 

Protect The Pensioner Education Supplement And Education Entry Payment

The Pension Education Supplement and Education Entry Payment are both modest payments aimed at supporting pensioners including people on the DSP and Carer Payment, who are studying.

The Pension Education Supplement is a payment of $1,600 per year paid to people on the Disability Support Pension or Carer Payment. The Education Entry Payment is a payment of $208 a year.

In 2014, the Liberals tried to cut these payments – leaving vulnerable Australians without this extra support to help them get an education. Labor will not be proceeding with these cuts, meaning pensioners who want to go back and study will be supported to do so. 

Review Of The Pension Assets Test

Recent changes to the pension assets test introduced by the Liberals have increased the incentives within the pension system to draw down superannuation and other savings, and undermined the purpose of superannuation to encourage saving.

As a result of these changes, the assets test taper has increased from $1.50 to $3 per fortnight for every $1,000 over the thresholds.

We opposed this cut because we believe the policy is flawed. We believe these cuts will create disincentives to save, and strong incentives to spend down assets.

According to Professor Miranda Stewart, Director of the ANU’s Tax and Transfer Policy Institute,

“The proposed asset test taper effectively doubles the rate of the wealth tax on pensioners while simultaneously narrowing the tax base, contrary to generally accepted good principles of tax and transfer design.
“[The marginal rate of 7.8 per cent] is very high in a context where, with real returns of less than 5 per cent on many investments like superannuation, the effective wealth tax exceeds the whole of the real return.”

As a consequence of the Government's measure, some pensioners with more assets will be left with a lower retirement income than those with lower levels of assets.

For example, assuming a rate of return of 3 per cent, a couple with $1.1 million of assets would receive an annual income of $33,000, whereas a couple with $200,000 of savings in the bank and access to the full government age pension would receive $40,900 a year.

Assuming a 5 per cent rate of return, a home owning couple with $1 million of assets and no access to any pension stand to earn $50,000 a year, while a couple with $400,000 of savings and a part pension of $33,000 will receive $53,000 annually.

This provides a strong incentive to spend down retirement savings, or invest in assets that are exempt from the assets test. Over time, these changes put at risk the sustainability of the retirement incomes system as a whole. This is not in the best interests of pensioners, or the sustainability of the system as a whole.

But we cannot fix all of the Abbott-Turnbull Government’s problems overnight.

They have tripled the deficit. The Budget Labor will inherit when we come to government is fragile. It would be irresponsible to commit to reversing this change from opposition.

Labor wants to ensure that Australia’s pension system continues to provide strong incentives to save, so it remains affordable whilst at the same time providing an adequate income to those pensioners who rely on it. Labor also wants to ensure the pension means test encourages senior Australians to continue to work, should they choose to, and live in housing that suits their needs.

That is why Labor will commission a comprehensive review of the pension assets test to make sure that it is as well designed as it can be to meet its aims.

Labor’s Record

In 2009, Labor commissioned a comprehensive review into the adequacy of the pension. As a result of this review, Labor increased the pension base rate by the largest amount in its 100-year history.

Labor’s reforms increased the base rate of the pension by more than $30 per week, and reformed the way the pension is indexed, to ensure that the pension keeps pace with the cost of living, now and into the future.

As a result of these changes, full-rate pensioners now have an adequate standard of living in retirement.  

Labor also introduced a pension work bonus, to assist pensioners who want to work beyond retirement age, as well as the Housing Help for Seniors program, to help seniors who want to downsize to housing that better suits their needs.

The Liberals’ Record

Since coming to Government in 2013, the Liberal Government has launched an unprecedented attack on the living standards of Australian pensioners.

In their first Budget, the Liberals tried to cut the indexation arrangements for the pension, a cut that would have seen pensioners left $80 per week worse off within a decade.

They also tried to cut deeming thresholds, so pensioners would get a lower pension.

Labor fought these cuts, and fortunately we forced the Government to abandon them.

Unfortunately, we were not able to prevent the Liberals from ripping $1.3 billion from pensioner concessions – a cut that risks driving up the cost of things like rates, utilities and care registration for pensioners.

They also want to increase the pension age to 70, a change that would give Australia the oldest pension age in the developed world.

In their second Budget the Liberals cut the pension assets test – a cut that will leave 330,000 pensioners worse off when it comes into effect in 2017. Independent analysis indicates that half of all new retirees will be affected by these changes over the next 10 years.

Because of a deal done between the Liberals and the Greens, this cut will come into effect in 2017.

For more information, please visit: A Fair Pension System Fact Sheet