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One rule for parliamentary pensions, another for the aged and disabled

Michael Pascoe

A reader writes with a reminder about a precedent for pension changes: when Mark Latham shamed the Howard government into trimming excessively generous parliamentary pensions in 2004, politicians successfully argued (between themselves) that retrospective changes would financially disadvantage them in retirement, which would be unfair. The changes therefore only applied to newly-elected members.

Fast forward to January 1, 2017, and the pension rules for ordinary folk – the aged, the disabled and so on – are being changed. For some 171,500 pensioners, there should be a little more. For nearly a third of a million pensioners, there will be less.

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Those receiving less will do so because the upper limit on allowable assets is being rather sharply lowered. For example, a single homeowner this year was allowed to have other assets of $793,750 before losing the last of the pension. Next year that limit shrinks to $542,500.

Many of those having their pension lowered or scrapped altogether would have taken some care previously to "arrange their affairs" to qualify for the part pension. They might think the changes will financially disadvantage them in retirement, but according to the government, that is now fair.

The result is that many pensioners with the requisite means have been scrambling to rearrange their affairs to lower their measured assets – gifts up to the permitted limit to trusted family members and friends, increased holiday spending, renovations on the asset-test-exempt family home. That's what their financial advisors are often telling them to do.

There is strong incentive. Dixon Advisory chairman, Daryl Dixon, has shown that if a home-owning couple on the new maximum assets limit of $816,000 managed a high return of 5 per cent on their assets, they would only receive $6,000 more than the maximum age pension available for a couple. Considering the low-yield nature of our times and that the assets include such things as the family car, it's unlikely many people would achieve that notional five per cent.

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"The negative impact of the assets test on incentives to save or to retain assets could thus be considerable," said Dixon.

That criticism may miss some of the point – the government wants retirees to run down their savings. Now-Treasurer Morrison was Social Security Minister when these changes were first put before the parliament in 2015.

"The purpose of providing tax incentives to encourage people to build up their super is so they can draw down on it in their retirement, not maintain it as a capital pool to be passed on as an inheritance," he said at the time.

That could be considered a fair policy goal. Whether it is fair for the government to have one view of the retrospective nature of changes to politicians' pensions and another view for the rest, is a different question.

Opinion polls are indicating the pension changes are doing the government no favours with the over-50 demographic. It's the nature of people for those receiving the bit extra to think nothing of it while those losing a bit to take it personally, stressing that retrospectivity aspect that played so hard in the latest round of superannuation changes.

(It's bemusing that maverick government backbencher George Christensen threatened to cross the floor to vote against the allegedly retrospective nature of superannuation changes that would have touched a tiny and quite well-off proportion of his electorate, but has gone quiet with the pension changes that will impact more and the not so well-off.)

Meanwhile, the crop of retiring and defeated politicians at the last election was thick with those going out on six-figure pensions for life under the excessive "old" parliamentary scheme. And then there are the copious jobs for the boys and girls as defeated pollies are appointed to government boards and positions, never mind the double-dipping example of Joe Hockey's rich parliamentary pension as well as his rich Washington ambassadorship, plus perks.

The policy need to rationalise the interaction of superannuation, other savings and the pension on a strict needs basis is entirely reasonable. The Australian pension system is supposed to be a social welfare safety net. The optics would be better and would have more chance of being politically sellable if the governing weren't enjoying a double standard.