Budget 2015: Tighter pension assets test

Labor has lashed out at a new government plan to overhaul the age pension as the debate over next week’s budget turns into a dispute over whether older Australians should accept tax hikes or welfare cuts in order to balance the budget.

Bill Shorten urged the government to “drop the pension cuts” and keep its election promise to leave the age pension alone, hardening the political barriers in the Senate to any new changes.

But the government has a chance to secure support from the Greens for a compromise that would scale back the part-pension for wealthier retirees with more than $820,000 in private assets apart from their family homes, leaving millions of full-rate pensioners alone.

Greens leader Christine Milne has offered qualified support for changes to the age pension assets test but is yet to see any of the new details, while Labor has already attacked the Greens for being open to the ideas.

“Tony Abbott’s treatment of pensioners in the last 12 months has been nothing short of a national disgrace,” Mr Shorten said this morning after The Australian revealed the cabinet decision to tighten the pension assets test.

“They just need to come clean: drop the cuts to the pension.”

Mr Shorten side-stepped questions about whether Labor could accept a tighter assets test, however, by saying he could not respond to media leaks and would wait for the government to reveal its full plan.

The moves clear the way for a fight over who has the better plan for older Australians, with Labor proposing higher taxes on superannuation while the Coalition proposes smaller payments of the part-pension — with both sides targeting their changes at wealthier retirees.

While Labor will target those who earn $75,000 or more from their super funds in retirement, the Coalition will target those who hold more than $820,000 in private assets in addition to their family home. Each side is seeking to avoid any impact on those with low incomes.

Social Services Minister Scott Morrison attacked Labor for proposing a tax hike instead of a spending cut, arguing that this would be a fundamental difference between the two parties.

“What is not fair is if you save for your retirement and you create yourself a superannuation nest egg and the government then comes alone and taxes that income, which is what Labor is proposing to do,’’ Mr Morrison said.

“And it’s not fair where you’ve got yourself involved in providing for your future with negative gearing, or you want to do that to get yourself ahead, that Labor comes and pulls the rug away from you on that, which is what they’re proposing to do.”

Mr Morrison said if the government was to tighten the eligibility of the pension then it should not ask them to pay more taxes on their superannuation as well, and he contrasted spending cuts with tax increases.

“Someone holding on to their own money, that they have worked hard to provide a nest egg for, is an entitlement to your own money,” the minister told Sky News.

“Labor equates taxing that with someone’s perceived entitlement for a government welfare payment.

“Now I think they’re two very different things and I think this is a real difference between Labor and the Coalition.

“We believe that people should be rewarded, through the tax system, through superannuation, for providing for their future.

“But the pension is not a reward, it’s a safety net.”

Pensioners face tighter assets test

Federal cabinet has locked in the plans to tighten access to the age pension for wealthy retirees who have enough private assets to pay their own way, securing a major budget saving while leaving room to reward others on modest ­private incomes.

The new pension assets test will scale back payments to older ­Australians who have substantial private wealth in addition to their family homes, but the changes will be balanced so there will be ­winners as well as losers from the changes.

Cabinet ministers have ­decided the details of a new policy that dumps last year’s proposal to adjust the indexation of the pension in favour of tighter rules on the value of the assets people can hold while still qualifying for a part-pension.

The changes to the pension assets test taper rate will mean that couples will lose access to the part-pension when their cash and investments reach about $820,000 on top of the family home.

Single pensioners will lose the part-pension if their private assets are worth about $550,000 on top of the family home.

This reverses a decision made in 2006, when the budget was in a healthy surplus, to ease the rules amid increasing concern that the result has been the ability for couples with as much as $1.1 million in cash and investments, on top of their family homes, to keep getting pension payments.

The reforms will not touch the family home and will leave ­millions of pension recipients ­unscathed, but will trim the part-pension for an estimated 200,000 people who have enough private wealth to get by on their own ­income. Mr Morrison will take the plans to the parliament in the hope of ­securing a budget saving that could be worth $1 billion a year.

While The Australian has previously reported the intention to dump last year’s indexation changes, the details of the policy have been kept under wraps and the plan to reward some pensioners has never been disclosed.

About 80,000 people could lose access to the part-pension under some estimates but the government will be able to assure ­almost two million others that their age pension payments are secure because last year’s indexation changes will be dropped.

The exact number of those who see a change to the part-pension will depend on any grandfathering arrangements as well as the thresholds to be set in a revised “taper rate” that withdraws payments according to the value of a recipient’s private assets in addition to the family home.

Under current thresholds, a ­retired couple with assets worth up to $1.15 million on top of the family home can still claim a part-pension. A single pensioner can hold assets worth $775,500 on top of the family home before losing their part-pension.

Behind the government change is the belief that many retirees are seeing their private wealth increase – thanks to sharemarket investments and property prices – even as they claim welfare from the government in the form of the pension.

“We know that in the last five years of someone being on the pension, over 50 per cent of pensions either still have the same amount of assets or they’re increasing, they’re actually incr​​easing,” Mr Morrison said this morning.

“So modest changes here, if we were to do them along the lines of reversing what was done in 2007, that would mean that those who could be affected by that would have to draw down on their assets by less than 2 per cent.”

That statement appears to be based on a likely scenario where a couple with $820,000 in assets would lose a part-pension worth about $13,000 a year — just 2 per cent of their investments and therefore enough for them to pay for themselves.

The policy overhaul will neuter a fierce Labor campaign over the past year that has warned of an $80 cut to the fortnightly pension, a calculation based on a Coalition policy that will no longer exist.

Senator Milne told Sky News yesterday that she was willing to consider changes to the taper rate. South Australian independent Nick Xenophon backs the change.

Labor’s Matt Thistlethwaite said this morning the proposed change to the taper rate was “unfair” as it would affect “some of the most vulnerable in our community”.

“At this point in time, it’s still a leak. We haven’t seen the details and we’ll give all of these announcements proper consideration,” the opposition immigration and foreign affairs parliamentary secretary told Sky News.

“At the end of the day you’re targeting some of the most vulnerable in our community and you’re letting off many of those big businesses that have been shifting profits overseas, and we see that as unfair.”

Labor has previously attacked the “chaos” over the government’s policy changes but would have to find alternative savings if it rejected the new plan to adjust eligibility.

Greens senator Rachel Siewert also criticised the government’s “ad hoc” approach to pensions while “avoiding carrying out a retirement income review and looking at super”.

As economists warn of a $47bn blowout in the deficit over the next four years, the government will use the launch of a new childcare package this week to hammer home the message that its fiscal repair job will not hurt middle Australia.

The next phase of the childcare changes will include help for disadvantaged families — including subsidies for new mothers who need to put children in care while they search for work — ahead of the release of other parts of the package that help working parents.

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