Are the aged, about 3.3 million in number, and representing about 14% of the population, a financial drag on the country, or are they an under-used asset?
Here in Australia the rising cost of health and aged care has been a hot issue in the past week or two, heading into the May 13 budget, as the Treasurer and his advisers have canvassed the issues they faced on the public forum. Options being considered include more stringent eligibility requirements by including the family home in the assets test, and lifting the pension age further above the age of 67 proposed in 2023, to 70. Also being considered is cutting the tax concessions for superannuation.
This post is a contribution to the debate, written from the perspective of a consumer. It suggests that the ageing population is a positive, not a negative. They do not wish to be thought to be a drain on the economy. Nor do they wish to see their claims for support shirked by the government, when they have contributed so much. They too would prefer to stay independent, both financially and physically, for as long as possible. Is the government willing to offer inducements, instead of trying to coerce compliance contrary to their working capacity, and offer only wages that fail to meet the cost of living?
The addendum at the end suggests measures that would encourage further self-reliance to lighten the government burden. They suggest a direction for our planners to explore, and are not informed recommendations.
The public’s perspective of the aged
The couples featured in those glossy advertisements resemble more closely the Greek gods Adonis and Aphrodite than most couples of retirement age. How many couples by then are still together and real companions for each other? More likely if they are still together, they will be found well covered to hide their bulging parts, sitting in the shade, and keeping a watchful eye on the grandchildren. Listen in to their conversation and you may discover what pills they are on, what happened at their last visit to the GP or the specialist, and how they are coping or not with their various aches and pains.
Perception, reality seen through glasses of prejudice and supposition, do matter. Perceptions mould public opinion, influence relationships, and determine our standing in society. The working majority is schizophrenically envious of their leisure and their assets accumulated over the years, whilst at the same time being condescending and talking down to them. The elderly are grateful for help by those with keener minds, and stronger hands. But they value their independence and do not necessarily wish to be objects of charity.
Retirees become nervous when the economists start preaching the need for the government to cut their spending on welfare, knowing that sooner or later their benefits will be reduced. Governments view the ageing population and the spiraling cost of aged-care with concern. Worst case demographic projections of economists and statisticians are not predictions to be relied upon, may be used to justify radical budgetary change.
Government’s perspective – Aged care is an unacceptable burden. We want more of your assets and more of your labour too.
The cost of the aged pension is forecast to grow from $39.5 billion this year to $72.3 billion p.a. in the coming decade. Mr Hockey has also questioned the value of the now $30 billion taxation concessions for superannuation when 4 out of 5 retirees end up on the pension anyway. It is proposed to reduce pay-outs by lifting the pension age from 65, to 70 some-time down the track. (David Crowe, The Australian, 24/04/2014)
A century ago after federation when the pension age was set at 60, the life expectancy for men was under 55. It was a provision for which most men would never qualify. It did however aid the widows of the deceased with a pension.
Now that the life expectancy at 65 is likely to extend beyond 20 years, they consider it time to reduce the span of eligibility.
A retiree’s perspective – We’ve already done our bit. We are still pulling our weight by providing services to the community without pay.
Our work defines us. With it we established our standard of living, and provided for our family. We expected reward commensurate with our responsibilities and our living costs. We worked not just for our own wealth. We nurtured and supported the next generation, and the one after that because they needed us. Now we must step aside for their growth. The provider will soon become the one provided for. We comfort ourselves over our diminished role by thinking that soon we can please ourselves what we do, and when. Now we work for our grandchildren, and the pleasure of the job.
It would seem that little if any of our taxes were set aside for our future benefit and that now we must depend on the workforce of today to pay for our leisure.
Our generation has saved assiduously to provide as much as they could to support an acceptable standard of living in retirement. Would you believe that we have put aside more than one and a half trillion dollars in superannuation funds under our trusted managers set to grow to $3 trillion in the next decade?
From it we have generously supported the retirement property industry and the financial industry. We continue to support those who need us as volunteers, and we work as unpaid carers. But society has put our needs second to their own. They have regarded our super savings as more than we will need, and then not for many years.
We have been subjected to scams, invested in companies that end up bankrupt, and advised to place our money in venture capital reliant enterprises that soon failed. Some advisers have ripped us off in their charges for their own wealth, not for our well-being.
The government is looking to fund needed infrastructure development from our super funds. Such investments are unlikely to pay much in the short-term and perhaps in the long-term too.
We cannot access our own money when we may need it, and when we do get it, its value has been eroded by inflation. Now our savings are insufficient to fund our care, and we end up on the pension anyway.
Finally when it is ours, we look on with dismay as events such as the global financial crisis (GFC) reduce our capital.
A way to help meet the growing cost of aged care – Part-time employment, according to fitness and aptitude, for as long as possible, without coercion.
Many retirees already devote a significant proportion of their time to working for others without pay. If offered remuneration for their efforts, why wouldn’t they agree to continue working if they could.
Part-time work might well suit their declining work capacity whilst enabling them to enjoy more leisure. Access to a part-pension with part-work should be an option they can negotiate with their current employer before they sever their contact. The full pension could then be phased-in from the pension age as work salary diminishes. It would be means tested.
Why would government agree to increase the pension burden by providing a part-pension you might ask? The pay-off for the government would be less reliance on government subsidies, and increased revenue from income tax and the GST.
Measures that would improve government revenue and still provide incentives for retirees wishing to be as independent as possible
There are of course two streams of provision for retirement, one funded from the public purse, the other self-funded through private enterprise at no cost to the tax-payer apart from the tax concession of contributions.
1. The government funded aged pension was never intended to be more than a safety net. The full pension pays 28% of average weekly earnings (at present it is $21,913), but the pensioner is entitled to a raft of concessions which enhances its value. Retirees (not unreasonably) believe they have already funded their pension with the taxes they have paid. And they have a valid point.
• A prudent government should ensure that pensions are at least part-funded with investment income, perhaps through a dedicated welfare tax.
• Those prepared to work on longer after the pension age could be rewarded with a slightly higher pension, and those needing to take earlier retirement for legitimate reasons perhaps should do so with a slightly lower pension.
• At present lower income workers are not entitled to a tax deduction for their super contributions. Paying less tax, the benefit to them would be less than for higher income earners, but it would encourage them to contribute more, and retire with a more adequate pension. An option could be for Australia Post to market such super contributions.
• The value of employee contributions would be enhanced if it were possible for workers under 40 years of age to borrow from the fund for expenses such as education, and home acquisition.
• Investment earnings should be tax-free to offset the effects of inflation.
• After reaching pension age, employees should be encouraged to negotiate part-time employment before they retire recognizing how difficult it is to obtain work once one has retired.
• Continuing employment beyond the pension age could be encouraged by a part pension with the full pension phased in as paid remuneration declines.
2. Despite shortcomings in the provision and delivery of superannuation benefits it is still the best structure for individuals to save for their retirement. But with the increasing restrictions on access to benefits, and the likelihood that the present taxation concessions will be withdrawn, investment for retirement should not be exclusively in super.
Changes which could increase government revenue whilst preserving investment advantages if it is considered that the more affluent superannuation sector should be targeted, could include:
• Requiring superannuants who have received a tax concession on their contributions, to pay the tax in the distribution phase on withdrawal
• Allow those who forego a tax concession for their contributions to be entitled to tax free withdrawals.
• Earnings within a super-fund should be tax-free in order to compensate for inflation.
• Capping the super-fund balance.
• The phasing –in of pension benefits subject to an asset test which includes home equity above a threshold value.
• Any balance left in the kitty after both husband and wife have passed away, could be taxed at 15% before passing to the estate with contributions not receiving a tax concession exempt from such a tax.