Pension pressures: The future of Australia’s key seniors’ payment

A single age pension pays around $24,000 a year as changing demographics put pressure on federal budgets. We asked financial experts about what’s comes next.

Australia’s age pension appears under increasing pressure. Seniors are living for longer while the workforce that pays the taxes that help fund pensions is a shrinking proportion of the population.

It might worry people that the money tap will run dry, but finance specialists say the future of this vital government payment looks safe.

They say the growing size of superannuation nest eggs will continue to ease the strain on the public purse, and future governments still have plenty of options to tweak the pension system to ensure money goes to who really needs it.

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This tweaking has already started and could potentially lead to part of the family home being included in age pension assets tests.

Government data shows almost 80 per cent of retirees received a full or part age pension in 2016-17, with only 21 per cent fully self-funded.

Planning for Prosperity financial adviser Bob Budreika said fewer people had been able to access the age pension since the government tightened up the Centrelink assets test in 2017.

Seniors are living longer, richer lives, and money specialists say they will always have a pension safety net.

“A lot of people became self-funded retirees, not because they wanted to but because the government reduced the benefit,” he says.

“People will have to be more self-reliant. I believe that ultimately the government will assess a person’s home as an asset as they do for aged care. They will nibble away at the benefits — I think they will be forced to.”

Such a move would be unpopular but would stop people living in million-dollar homes from receiving a full age pension. “It does become ridiculous having someone with a substantial asset and relying on a source of income from the government so the kids end up with the house tax-free,” Mr Budreika said.

He said Australians would not allow seniors to be cut off entirely. “In this country we do have a social conscience.”

There could also be stricter super access rules — such as locking part of peoples’ nest eggs into an income stream paying regular instalments.

Mr Budreika said retirees were currently free to draw down all of their super, splurge it, then live off the pension. “It’s easy to say we will spend $30,000 or $40,000 on a cruise and then later say ‘oh shivers, we should have been more frugal’.”

The Government last tightened the age pension assets test in early 2017.

Financial strategist Theo Marinis said the age pension would always be available, but fewer people were forecast to be receiving it by 2050 “because the super system is working”.

But will retirees want more? The pension currently pays a single person $926.20 a fortnight including supplements, or $24,081 a year. A couple combined receives $1396.20 a fortnight, or $36,301 a year.

“The Depression generation was frugal,” Mr Marinis said. “Today’s generations were brought up in much more affluent times and our expectations are different. However, human beings are adaptable.”

A report last year by the Actuaries Institute says the cost to the government of continuing the age pension in its current form is projected to reduce as a percentage of the economy, from around 2.7 per cent of GDP in 2017 to around 2.5 per cent of GDP in 2038.

“This reflects recent tightening of means testing, later retirement ages and further growth in superannuation balances,” it says.

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Originally published as Pension pressures: The future of Australia’s key seniors’ payment