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March 16th 2015 print

Peter Smith

No Fools Like Old Age Pension Fools

Those cheering Abbott & Co's intention to fiddle with pensions have never had to live on one.  Quite apart from being callous, only a government bent on consigning itself to the Opposition benches could contemplate such a suicidal move

cat food gourmetScott Morrison’s new pension plan is not a spoof invented by the government’s opponents. Nor is it material for a new Monty Python skit. Let’s be clear about that. I saw Morrison in person talking about it.

Under the new plan, pensions will still be indexed against the CPI from 2017, instead of against Male Total Average Weekly Earnings (MTAWE), as they are now. You might recall this as Joe Hockey’s original electoral-suicide plan. But, wait for it: now a review by an independent panel will be undertaken every three years “to ensure pensions keep up with community living standards”.

At this point you may be confused. After all, indexing pensions against average earnings is designed to maintain them against community standards. So, if the independent panel acted properly and the Parliament accepted its recommendations, guess what? Pensions would rise by as much as average earnings to keep up with community standards.

There is no material difference. There are no budget savings to speak of arising out of this ‘cunningly crafted’ variation on Hockey’s plan. Unless, of course, pensioners are being sold a pup.

“Don’t worry they’re too old to notice. Aren’t they?”

Unfortunately, for the government, oldies can spot a pup when they see it. And it probably doesn’t matter anyway, the new plan will likely fall foul of the crossbenches and go the way of the Medicare co-payment. All electoral pain for no gain.

Can somebody, anybody, please tell this government that the base pension for singles of $20,000 a year and the base pension for couples of $30,000 a year are not overly generous. I am, ahem, in my retiring years. I am single now and self-funded. I don’t live high on the hog but, I tell you what, $20,000 doesn’t come close to what I spend. From where they are now, it is quite simply unfair and untenable to contemplate pruning pensions against community standards.

The government has to find ways other than by cutting benefits to contain the growth in pension payments. Simpletons can come up with saving money by cutting benefits to those living barely who have no opportunity or capacity to find other sources of income. We pay government ministers to do better than the simple-minded.

It would be sensible and, on past experience, save a little money in future, to move from the anachronism of indexing pensions against male earnings to indexing them against AWE, as recommended by the National Commission of Audit. Provided the transition arrangements protected pensioners’ positions, it should not be too controversial. By that I mean that it should get cross-bench support and would not lose votes. Bill Shorten would probably find some pretext to oppose it. But nothing much can be done about that.

If the government sticks to indexing pensions by the CPI, with or without the device of an independent panel, it will deserve to lose the next election. And, it will lose the next election.

Talk about a tin ear. This government with a record of achievement (stopping the boats, getting rid of the carbon and mining taxes, completing three important free trade agreements) seems exasperatingly incapable of learning that elements of the budget brought down by Hockey were monumentally inept, unfair and electorally poisonous; and that the pension changes took the cake.

As a postscript: What a pathetic performance it’s been from most conservative commentators – who don’t, let me guess, live on the pension. Leaving aside questions of fairness, they appear to have been totally disengaged from realpolitik. There they’ve been, on the sidelines, cheering on the government towards electoral oblivion.

 

Peter Smith, a frequent Quadrant Online contributor, is the author of Bad Economics

Comments [3]

  1. Jody says:

    I didn’t think anything was yet set in concrete about pensions. Let’s wait and see what happens; perhaps Morrison is putting it out there to see the community response. One thing is clear – pensioners are NEVER happy with any government, ever. You say $30,000 isn’t a lot of money for a married couple but don’t forget pensioners get lots of concessions on health, pharmaceutical, public transport, energy costs and so forth. If you build those concessions into the ‘package’ it doesn’t seem nearly as bad. I’m also self-funded as a retiree and I pay $4,500 per year for the ‘privilege’ of being able belong to a private health fund and when I need a major operation I’ve got to get into the public system anyway. On top of that I pay the full amount going to a doctor and on my other bills.

    If you are a self-funded retiree with a minimal pension top-up you are reasonably well off, but it’s clear that those who have saved their whole lives for their retirement and delayed ‘gratification’ are those who now have a retirement sans economic concerns. That doesn’t mean a life of luxury; it means not having to worry about every penny but HAVING to worry about the share market’s every move, current low interest rates and the general economic trends. In short, nobody is without concerns in retirement (not to mention declining health).

  2. Ross Stevens says:

    Thank you Mr Smith for pointing out the obvious election losing policy on pensions that this Government has burdened itself. They are trying to make a simple solution to a complex issue, and in so doing, are creating an environment of fear with distrust that will cost the Government support among many of their traditional voters. However with both the spectral socialist left, together with the unfettered free marketeers, forming an unholy block demanding that all assets, including the family home, be used up before Government pension support can be awarded, a very uncertain future for the elderly is created. The pensioners represent a relatively easy target without the support of high profile aggressive lobby groups. However, conservative politicians will be punished for any pain inflicted on the vulnerable elderly, thus exposing all of society to the alternate political mob of economically naive vandals. The Government needs to do the hard innovative work and not seek easy simplistic solutions.

  3. As I understand it, the Commonwealth Superannuation Scheme (CSS) for retired public servants (and Defence?) has always been indexed to the CPI. Not so the indexation for parliamentarians who hitched their scheme to the faster rising Average Weekly Wage rate.