Secure and Sustainable Pension Reform: Better targeting of the pension

The Australian Government’s Secure and Sustainable Pensions Reform includes measures to better target the largest pension payments to those who most need support.

From 20 September 2009, payments to pensioners will be reduced by 50 cents for each extra dollar of private income above the income test ‘free area’.

Pensioners with private income above the ‘free area’ currently have their pension payments reduced by 40 cents for each extra dollar of private income.

The pension income ‘free area’ is currently $138 per fortnight for singles, and $240 for couples combined. Pensioners with private income below these amounts will not be affected by these changes.

The Harmer Review of Pensions found that it was appropriate to “limit the flow on of the increase to pensioners with low to moderate reliance on the pension”.

Changing the income test taper will mean the full benefit of the pension increase will flow to those with no or little private income, while ensuring those with higher incomes receive proportional increases.

Under the new rules, the pension will be paid to new pensioners with private income of up to $38,693 for singles, and $59,228 for couples combined, down from $47,444 for singles and $72,423 for couples combined under current income test rules.

Transitional arrangements will apply for existing part pensioners affected by the movement of the income test withdrawal rate from 40 cents to 50 cents.

For existing pensioners who would otherwise face a payment reduction because of the new income test, a transitional safety net will apply.

The transitional safety net will ensure that current payment rates for part pensioners are maintained in real terms, and that they benefit from an increase of $10.14 per week for singles or couples combined. They will continue to receive these existing entitlements, including the increase, until they are better off under the new pension rules, including the new 50 cent income test withdrawal rate.

Around 70 per cent of all existing pensioners will be immediately better off following the reforms and will move to the new system immediately. This includes around 93 per cent of all single pensioners.

A new ‘work bonus’ will be introduced for those assessed under the new rules to allow those age and service pensioners who want to work to keep more of the money they earn. Carer Payment recipients and Disability Support Pensioners already have access to a Working Credit.

The current additional income test ‘free area’ for dependent children will also be removed, bringing the pension into line with other social security payments, including allowances and family assistance.

These changes will result in net savings of $1.2 billion over the forward estimates.

These changes are designed to make the pension system fairer and more sustainable.

The changes are part of the Government’s Secure and Sustainable Pension Reforms delivering a stronger and fairer pension system and providing security and sustainability into the future.