Means test key to preventing ‘grey underclass’

THE Abbott government faces calls to tighten the rules for the Age Pension means test rather than pegging payments to inflation.

THE Abbott government faces renewed calls to tighten the rules for the Age Pension means test rather than pegging payments to inflation, after conceding its planned reforms would erode living standards for low-income retirees.

The government’s Intergenerational Report revealed an effective “sunset clause” had been factored in to forecasts by assum­ing that, in 2028, a future parliament would soften the government's pension reforms due to take effect from mid-2017.

Instead of pegging pensions to average male weekly earnings, the government wants to index the pension to the Consumer Price Index, although the changes face stiff opposition in the upper house.

Analysis by Australian National University economist Peter Whiteford, revealed in The Weekend Australian, shows indexing the pension to CPI from 2017 means payments would fall from 28 per cent of average male weekly earnings to 16 per cent by 2055.

The opposition’s spokeswoman for families and payments, Jenny Macklin, accused the government of driving millions of pensioners into hardship and poverty, creating a greying underclass.

“The only way to protect pensioners is to scrap the proposed cuts to indexation entirely. Labor will continue to oppose any cuts to the indexation of the pension by the Abbott government,” she said.

The IGR’s assumed softening of indexation arrangements in 2028 was unsatisfactory, as it left pensioners subject to 12 years of CPI indexation, she said.

Social Services Minister Scott Morrison told The Australian he would consider the available options but it was not the government’s intention to drive the pension down relative to wages to the lowest level since the mid-1960s. However, he said any pension reform would need to be ­negotiated with the crossbench.

Joe Hockey confirmed on Sky News’s Australian Agenda program yesterday that the government planned to revisit the pension once the budget had ­returned to surplus, a position ­outlined on page 32 of the most ­recent mid-year economic review.

The Treasurer said pension payments could be more generous because more Australians would be living off superannuation retirement income by the time the budget was back in surplus.

However, Grattan Institute head John Daley said the best way to find savings was to re-examine the means-test rules rather than impose an across-the-board index­ation reduction that would hurt low-income retirees the most.

“We can either reduce the rate of the full pension relative to average weekly earnings ... or choice two is that we need to rein in the pension by reducing the pensions of those who don’t really need it.”