PM shifts on age pension time bomb

THE government has shifted on controversial pension reforms to consider the need for a sunset clause to ­soften the changes.

THE Abbott government has shifted position on its controversial pension reforms to consider the need for a sunset clause to ­soften the changes, as new figures show the original proposal will drive some older Australians into poverty over the next four decades.

Social Services Minister Scott Morrison will put the change on the agenda in talks with the Senate to legislate a sweeping change to pension rates for millions of ­recipients, one of the most divisive measures in last year’s federal budget.

In a new statement of policy ­intent, the government is admitting that its plan to index the pension to inflation from July 2017 cannot be made permanent and should be adjusted over time to prevent the incomes of older Australians from sinking far below those of ordinary workers.

Without action, the government’s original reform will see the value of the pension slump from 28 per cent of average weekly earnings today to just 16 per cent by 2055, triggering fears it would create an underclass of retirees.

Mr Morrison told The Weekend Australian that this aspect of the pension reform would be ­negotiated with crossbench senat­ors and Labor in a renewed ­attempt to achieve a major budget saving.

He argued that it was not the government’s intention to drive pensions down relative to wages over the four decades to 2055, and that either this government or a future government would adjust the indexation to ­ensure that didn’t happen.

“I don’t think that would be a viable outcome and, based on what we’ve said, we do not intend it to be the outcome,” he said of the 40-year decline in the pension. Australian National Univer­sity economist Peter Whiteford warned that the May budget meas­ure would see pensions fall further below wages, which have outstripped inflation for decades.

“If you only index the pension to prices from 2017 onwards, it falls to 16.3 per cent of future male total average weekly earnings,” Professor Whiteford said.

“The level of the age pension has not been below 20 per cent of average earnings since 1965.”

The need for a sunset clause or similar change was revealed in the government’s new Intergenerational Report, a long-range forecast that assumes this or a future government would soften the pension reforms in 2028, even though this has not been the stated policy.

“I’m signalling very clearly that I’m open to considering that and other options in the discussions — and not just the options that are confined to the IGR,” Mr Morrison said.

But he said the scale of the budget deficit meant the Senate could not reject every savings option to ensure that pensions, unemployment benefits and family tax benefits were sustainable.

“If they’ve got ways that they believe could be done to deal with the sustainability of the pension, I’m open to hearing them,” Mr Morrison said of Labor and the crossbench senators who control the balance of power.

“It’s time to draw the curtain on the politicking on the budget and it’s time to move on to the ­solutions phase with the crossbench and the opposition.”

IN DEPTH: Full coverage of the Intergenerational Report

INQUIRER: Judith Sloan

INQUIRER: Adam Creighton

Joe Hockey said the government was willing to revisit the pension reforms and other changes when a surplus was achieved. “We are consulting widely on all outstanding budget measures and are willing to work co-operatively with anyone who has alternatives that puts Australia back on a sustainable footing,” he told The Weekend Australian.

While the pension currently rises every six months in line with wages, that is meant to change in July 2017 to link the increases to inflation instead, although the Senate has not passed the bill.

While the government’s reform bill does not include a sunset clause, the IGR released on Thursday assumed that the ­indexation would be changed back in 2028 to link the pension to wages once more.

“This is not their policy so it is surprising it is being used,” said Professor Whiteford said.

Council on the Ageing chief executive Ian Yates said the government had not revealed this position over the past 10 months.

He said increasing the pension at the inflation rate would create a very different nation in 2055, when the IGR foresees a popul­ation of 40 million, with Australians living longer and therefore relying on the pension more.

“Full pensioners would be living well below the poverty line and people who have superannuation, thanks to government tax concessions, would be living very well,” Mr Yates said.