Pension Review Background Paper

JENNY MACKLIN: Thanks very much and thanks for all being here this very cold Melbourne morning.

I’m very pleased to be here with Dr Jeff Harmer, the Secretary of the Department of Families, Housing, Community Services and Indigenous Affairs.

Dr Harmer has been asked to both participate in the broad review of the tax and transfer system that Dr Ken Henry is conducting for the Government, and he’s particularly been asked by the Government to look at the pensions.

The reason for this is that you’d be aware that last year we had a major report from the Senate setting out the pressures that are facing older Australians in particular, but also those Australians who are dependent on the Disability Support Pension and the carer payment.

That report recommended that the government of the day conduct a major review into the adequacy of the pension, which is what we are doing.

As a new government, we recognised that there was a need to act immediately on the cost of living pressures facing older Australians and those dependent on the Disability Support Pension and carer payment.

The first piece of legislation I put into the Parliament increased the utilities allowance from the previous level of around $107 a year to $500 a year, and that payment is being paid quarterly and started in March, the first quarterly payment was made in March. The second quarterly payment was made in June.

The Government in the budget also decided to make sure that we gave increased support and paid bonuses to both people on the Age Pension and people receiving carer payments and carer allowances.

We have wanted to make sure that while this review is under way, we did act to address what we do recognise are cost of living pressures on older Australians, cost of living pressures on people who are reliant on the Disability Support Pension, and on the carer payment.

What we’re releasing today is the first discussion paper for this pension review, and this is a very important and useful piece of work that really sets out the nature of the system that we have here in Australia and also the pressures that face those Australians who are dependent on the pension system.

The background paper really begins to address the important terms of reference that Dr Harmer has been given, and that’s to look at the appropriate levels of income support and related allowances, the frequency of payments, and the structure of the concessions and other entitlements that are attached to the pension.

This is a very complex job. It’s a very complex system that we have in Australia, and it’s very important that, as we do this review, we get the results right because we have so many people who are dependent on the system.

If I can just let you know a couple of the critical issues that the paper addresses and also give you a sense of just how many Australians are going to be affected by this review.

There are more than two million older Australians, almost 80 per cent of the population aged over 65 are either dependent on the Age Pension completely or are on a part Age Pension. More than half of those have very, very low incomes in addition to their pension of less than $20 a week. So the vast majority of older Australians are on the pension, and a very, very significant number of those people have very small additional amounts of private income as well as their pension.

Most pensioners also have very low levels of assets. In fact, 30 per cent report having bank balances of less than $1000.

Just one other very important finding from this background paper shows that many, many pensioners are either on the Disability Support Pension or the carer payment or the Age Pension for an extended period of time. So not only are many, many Australians on low levels of income, they are on these low levels for a long period of time.

Just to give you the figures. For those on the Age Pension, the length of time that people are on, the average length of time that people are on the Age Pension is just over 13 years. It’s almost 11 years for people dependent on the Disability Support Pension, and just over 7.5 years for those on the carer payment.

I think this indicates that for these people, they are on these low income support payments for a very long period of time.

What this demonstrates to us is that it’s very important that we get the maximum rate of income support at a level that enables people to have a reasonable standard of living. What it also says is for those who are under the retirement age, we need to get the system right to both encourage and support people to work where it is possible that they can.

This is a very important review for the Government, a very large number of Australians, older Australians, people with a disability, and those who are responsible for caring for many of our most frail, aged and disabled people need our help, and that’s why we’ve decided to undertake this review.

I’ll just ask Dr Harmer to go through the nature of the review, the timing, the nature of the consultations that we’re undertaking.

Thank you, Jeff.

JEFF HARMER: Thank you, Minister.

The Minister and the Treasurer have asked me to report against the terms of reference by the end of February next year. And to do that, there’s a team, a specialised team set up in the Department of Families, Housing, Community Services and Indigenous Affairs, working closely with the Treasury team working on the tax review which we’ll report at the end of next year.

The Minister has also asked me to set up a reference group to consult on this, and we have set that group up already. We’ve met once and we’ll be meeting again regularly. The reference group contains people from the disability sector, the carer sector and pensioners as well as some academics.

FACSIA as a department is well placed to undertake this review. We’ve got very good connections with the university sector with research bodies, and we’ll be drawing on that as well as our connections with the OECD and international information.

We will be having a consultation around the country in each of the state capitals as well as three regional centres in Rockhampton, Wangaratta and Newcastle, and we’ll be also calling for written submissions against the background of the background paper we’ve just – the Minister has just released.

The submissions will be due by the end of September and the consultations around the country will be completed by the end of September.

Thank you.

JENNY MACKLIN: Thanks Jeff.

Okay, over to you.

QUESTION: Minister, does the ageing population mean that Australians will inevitably have to work longer?

JENNY MACKLIN: There’s no question that Australia is ageing, and that’s why this review is so critical at this time. Increasing numbers of Australians on projections that I think most of us are very familiar with do demonstrate why it’s important that we get this right.

We know that it is critical that before people reach retirement age, that where they are able to, they are participating in the workforce. That is critical because if people are on the Disability Support Pension or the carer payment for long periods before they reach retirement age, it makes it even more difficult for them to save and accumulate the sorts of assets that they may then have available to them once they retire.

QUESTION: Is there a case for the existing pension to be raised? There were reports today that Australia compares poorly with other major industrialised countries.

JENNY MACKLIN: Those figures that were in the media today are well known figures. They are figures that in fact the Senate inquiry highlighted as well. And in highlighting the difference between the single rate of the pension and the couple rate, what the Senate inquiry really highlighted was that those people who are fully dependent on the single maximum rate of the pension, and particularly those who don’t own their own homes, are the most vulnerable.

And today’s report that we’re also releasing makes that point again, that compared to other developed countries, we are below those countries when we’re looking at the maximum rate for single pensioners.

QUESTION: So is there something you can do for those people while [indistinct].

JENNY MACKLIN: We’re very conscious of the need to act immediately on coming to government, recognising the very significant pressures that older Australians and others dependent on the pension are under. That’s why we decided to increase the utilities allowance from $107 to $500 a year. We did that almost immediately after becoming elected. And we’ve also decided to pay the bonuses that have previously been paid, and they were paid in June this year.

So for most people that means at least $900 they’ll get this year, while we do this complex review. We knew that we had to act immediately and that’s what we did.

QUESTION: So how long could it be before they – there is an increase for pensioners?

JENNY MACKLIN: As Dr Harmer has just indicated, he’s been asked to report by the end of February. And we recognise that it will be important for the Government to respond swiftly to his recommendations.

QUESTION: That $5.2 billion that you’ve allocated over the next five years, when you subtract the utilities increase and the $500 bonus, how much does that leave?

JENNY MACKLIN: Well, that’s what that $5.2 billion was for. The $5.2 billion was to cover, or is to cover the increase in the utilities allowance and the bonus. They were the two major areas that the Government acted on, both before the Budget and in the Budget this year.

We know that if we’re to address these issues in addition to those measures, there will be an additional cost.

QUESTION: [Indistinct] cost out what say a $30 a week increase or anything like that would be over the years to come?

JENNY MACKLIN: It’s not at that point yet because this discussion paper today is really just setting out the nature of the issues that we face, the numbers of people who are dependent or partly dependent on each of the different pensions. It shows comparisons over a period of time. It shows how long people have been dependent or are dependent on these various pensions. It shows how we compare to overseas countries.

The task of the review now is to work through the various options and, of course, to cost those options.

QUESTION: So there will be – sorry, is it likely that there’ll be an increase from the single rate, or…

JENNY MACKLIN: That really is a matter that will be worked through in the first instance by the review if they make assessments about the best way forward.

One of the issues that we have to address – and I know both older Australians, people with disabilities and carers are very alert to this – is the frequency of any changes. What they want to have us consider is whether or not we should be looking at an increase in the fortnightly rate of the pension or whether or not we should continue to pay annual increases of a larger amount – larger lump-sum amount.

So different people have different views about that. That’s the purpose of Dr Harmer having a reference group, of doing the consultations, of actually making assessments of people’s – the pressures that people are under on a fortnightly basis. So we’re going through all of these issues in a careful way.

QUESTION: How likely is it that the Government will find new money to fund recommendations from this report?

JENNY MACKLIN: Well, we do understand just how important it is to make sure that we get this right. We have acted and spent a very substantial amount of money. Already in the s… in the first six months that we were in government, more than $5 billion have been allocated to the increase in the utilities allowance and the bonuses.

So we understand that money will need to be spent, but it’s important that we get this right, because such a significant number of people are dependent on these pensions.

QUESTION: What about the argument for increasing compulsory super?

JENNY MACKLIN: The issue of superannuation is being addressed by the broader tax review. What we’re releasing today is a discussion paper about the pension system.

Dr Harmer has been asked to specifically address these issues and report back to the Government by the end of February, because we do understand that people are under significant financial pressure. That will be done in that timeline. The Government will respond as quickly as possible.

The broader issues of superannuation and retirement incomes are also being examined as part of Dr Henry’s broader tax inquiry.

QUESTION: As quickly as possible, how long [indistinct].

JENNY MACKLIN: As quickly as possible.