Monday, August 11, 2008

Pensioners Condemned To Poverty

As the Federal Government considers its “root and branch” review of tax, welfare, and retirement incomes, it has emerged that the aged pension for singles is well behind international standards. The comparison is made of the ratio between single and couple rates of pension, which is about 59% in Australia as opposed to around 66% in other OECD countries. The sad reality is that this is only part of the story.

While it can be useful to make comparisons with overseas countries, it can also be a distraction from the simple reality that the aged pension in Australia is simply inadequate. There are many indicators available showing this to be the case. Let’s start with the poverty line.

The Henderson Poverty Line was instituted after an inquiry in the early seventies. It has been updated quarterly ever since, and shows a dollar amount for family groups in different circumstances. The most recent Henderson Poverty Line figure for a single person not in the workforce is $306.57 a week. For someone in the workforce it is $378.08, although why somebody without a job needs so much less money is not clear to me. Either way, the single rate of pension is well below water at $273.40 per week. In other words, our aged pension is designed to keep elderly Australians submerged in the depths of poverty.

Another useful benchmark is the Federal Minimum Wage, which is currently set at $543.78. This figure has been determined to be the minimum fair wage for a full time employee to provide for an adequate standard of living. Now if that’s the case, why should an aged pensioner be expected to survive on so much less?

The single pension is currently set at 25% of male average total weekly earnings, and while that means that as incomes increase so does the pension, the truth is that 25% is simply not enough. A more reasonable formula would be to make the couples’ pension equivalent to the minimum wage, and the single rate should be at least 66% of that, which on today’s figures would work out to $358.89 per week.

Of course, the cost of doing so would be several billions of dollars, which is all the more reason why the only real long term solution is to get serious about fixing superannuation policy.

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