Retirement,  Socio-Political

The Naked Truth about age pension entitlements

What is the naked truth about age pension entitlements? The current rhetoric from the Federal Government is that the age pension should be a “safety net” not an “entitlement”. So, what has changed? To find out I briefly examined the history of social welfare in Australia.

After the Commonwealth of Australia was formed on 1 January 1901, amongst other things, the Commonwealth Parliament was authorised to legislate in respect of age and invalid pensions. A Royal Commission was held in 1905-06 on Old-Age Pensions. Although, it was not until June 1908 that the Commonwealth Parliament passed the Invalid and Old-Age Pensions Act and this came into operation in July, 1909, superseding all state pensions.

In the 1940’s under the leadership of Prime Minister Ben Chifley, the Federal Government set up a National Welfare Fund (NWF). The plan had bi-partisan support as Robert Menzies (opposition leader) supported the NWF.  Menzies agreed that the money should be held in a Trust Account, separate from general revenue. The compulsory contribution or levy (7.5%) commenced on 1 January, 1946.

During the period 1946-1950 the levy was shown separately on personal Income Tax Assessments. The levy money went directly into the NWF and any welfare claims, including the age pension were paid out of the fund. There are reports that by 1950 there was £100,000,000.00 in the fund.

One of the intentions behind the NWF was to give all older Australians an age pension that was not means tested. As the money in the NWF increased it seems it became an attractive “pot of honey”. Were the politicians just like Winnie the Pooh? They could not resist putting their paws into the honey pot? Just like the Queensland Government when they dipped into the “honey pot” last year and borrowed $4bn from the public servant’s superannuation defined benefits fund.

It is GREAT FUN when the honey pot is full.

The first honey eater in the 1940’s was Prime Minister Robert Menzies. In 1949 he introduced Bills into Parliament to amend the Acts that governed the NWF. Firstly, the compulsory contribution (7.5% levy) was no longer shown separately on personal Income Tax Assessments. Secondly, all the taxation money collected by the government went directly into the Consolidated Revenue Fund (CRF) and spent as part of general revenue.

One by one, governments have made changes that see older Australians in the position they are today. In 1974-75 Prime Minister Gough Whitlam abolished the income test for the age pension for all Australians over 70 years. This was short-lived and repealed by the Fraser government in 1975.

By 1977 there was $470,000,000.00 in the NWF account (aka “honey pot”). But it was not long before the politicians got their sticky little fingers on the money and it was transferred into the CRF Account.

It took until 1985 for the National Welfare Fund Acts to be repealed. However, the 7.5% levy continued to be collected as a proportion of the income tax revenue. Then the Income and Assets test was introduced which excluded many from receiving the age pension, even though they had paid the “levy” and taxes for this purpose. It has been reported that since 1985 trillions of dollars that was meant for welfare needs went into the CRF account. Had the 7.5% levy continued to be held in a separate NWF account there would be enough money to pay a non-means tested pension to every retiree over 65 years of more than $500 per week. In addition, all other welfare needs such as unemployment could be met from the fund. But there is no NWF today and something had to be done to refill the Commonwealth’s “honey pot”. The best course of action the government could up come with was to take it from the older Australians “honey pot”.

For the rationale we need look no further than the view of Prime Minister Turnbull. He said “Australians will have to accept policies that create short-term ‘winners and losers’ in the interest of strengthening the economy for all”. Yes, those older people who are or were on a part age pension, are the losers and are the target for “strengthening the economy for all”. Such an attitude and approach to me seems unjust and immoral, particularly targetting older Australians. The irony is that this cohort of older people are the ones who saved more and contributed more through taxation in their working life. In countries like USA and UK the pensions of retirees are higher if they paid more tax, not lower. So, what is happening here in Australia?

All tax paying Australians hope that politicians will abide by political ethics and meet their responsibilities through fair and appropriate policies and laws. That is, that they will do the “right thing” by the people. No one wants to be told “the honey pot is empty”. But that is exactly what we are told. The “honey pot” is empty and to fill it more “worker bees” are required. The government would have everyone believe that older Australians, also known as “baby boomers”, are drawing on the goodwill of younger Australians (the “worker bees”) to pay for the age pension. This could not be further from the truth. The naked truth is that all older Australians paid for their age pension, through funds via the taxation system. That money ended up in CRF and then others dipped into the honey pot and little by little the honey disappeared! If we want to find the land of “milk” and “honey” we must go to another country, perhaps New Zealand?

When I was in my early 20’s I worked, and lived in New Zealand. Had I remained in New Zealand (at least resident there for 10 years before I retired) I would be “entitled” to a non-means tested pension for the rest of my life. As of 2015 in Australia 15% of Australians were aged 65+. In New Zealand, the percentage was 14.9%. The “fund” in New Zealand is called New Zealand Super. It is a government pension paid to everyone over 65 years of age. It is also available to people who are still working or getting other income, although it can affect the amount of taxation payable. If New Zealand can provide this generous level of support to older citizens what went wrong in Australia? The short answer is – LOTS!

To get around the impasse of excessive expenditure, budget debt and deficit, the Abbott Government in 2013 commissioned the National Commission of Audit (NCoA). One of the key terms of reference was to look at the efficiency and effectiveness of government expenditure. In other terms “what is happening with the honey pot”? The Commission chief and former head of the Business Council of Australia, Tony Shepherd, on tabling the report said that the best way forward was to “act now, act incrementally, act fairly”. Shepherd also advised against “sudden shocks” for people and asked that the government spend the tax payer’s money “carefully and frugally”. Had that approach been taken back in the 1950’s and had the NWF been maintained in the decades that followed it would be a very different story today for many older Australians.

The NCoA Report also stated “many Australians make significant decisions in the lead up to their retirement and it is essential that ample warning be provided to future retirees of any significant changes to age pension arrangements. The approach should be to phase in implementation of major changes to avoid significant impacts for those in retirement, or those nearing retirement”. There are hundreds and thousands of older Australians today who are coming to terms with the government’s interpretation of “ample”, that is, 18 months’ notice. Other Australians “the winners” may not care, but it has hurt many older Australians and that is not right.

If we look back at the history books of social services in Australia the mindset and culture has changed with the political imperatives of the day. Had all the little paws not dipped into the “honey pot” there would be plenty to meet the welfare needs of all. To achieve that, it required perspicacity of the highest order! Yes, that is the NAKED TRUTH.

Note: The 86 recommendations from the National Commission of Audit Report can be found here.

Winnie the Pooh image from: schoolofdisney.com

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