Monday, May 25, 2009

Work Till You Drop

There appears to be a growing backlash against the government’s plan to increase the pension age to 67, which was announced in the federal budget earlier this month. On the night, when Wayne Swan made the announcement, it seemed to take people by surprise. Certainly there had been no indication beforehand that this would be introduced. Instead all of the discussion had been about the need to increase the amount of the pension payment. Perhaps that’s why it seems to have taken a few weeks for a response to be formed.

While there was no doubt that the increase to the pension was well deserved and long overdue, the difficulty was always going to be how to pay for it, especially given that over time, more and more people will be living longer and longer. The aging population means that even if the budget can afford the payment today it would become increasingly unaffordable as years go by until it may not be viable at all. Putting aside the supposedly temporary deficit, savings had to be found somewhere to pay for the pension on a sustainable long term basis.

While unexpected, the proposal to increase the pension age is a sensible rational and logical step to find those long term savings. It is true that when the pension age was originally set at 65 almost 100 years ago the average life expectancy considerably less than it is now, meaning that significant numbers of people simply didn’t live long enough to qualify in the first place. Today, we confront the possibility of reaching a point where there are not enough people in the workforce to pay the taxes needed to provide a pension.

But just because it is logical doesn’t mean that we have to like it, or even that we have to accept it. Many people feel cheated that they will now have to work an extra two years before qualifying for the pension. They feel as if the goalposts have been shifted halfway through the game. The unions have raised a more specific and in fact a more practical concern. They say that for blue collar workers, two more years is a physical imposition which will be injurious to the health of workers. After a life time of hard labour, two more years of physically demanding work could well be too much for many people. It is a legitimate concern, and one which deserves to be taken seriously.

Even so, simply raising the pension age ignores what should be the real solution. When age pensions were first introduced a specific tax was levied for the purpose. It was later incorporated into income tax, and was swallowed up in consolidated revenue, but many people still hold the view that having paid their taxes all their working lives it is not just an entitlement, it is something they have paid for. It is ironic that when it became apparent that pensions would not be sustainable, because of the rising life expectancy and the falling fertility rate, Paul Keating introduced the compulsory superannuation guarantee to achieve exactly the same thing as the original pension system. That is a retirement income system which will pay for itself.

Ultimately, as I have said many times before, this has to be where the answer is to be found. The superannuation system must be allowed to develop to its full potential to provide adequate incomes in retirement for the vast majority of Australians. That means doing more to encourage contributions, more to shelter funds from punitive taxes, and more to protect funds from excessive fees. If the bulk of Australians can be paid a suitable retirement income from their own superannuation then the age pension can be left as what it should be, that is a safety net for the few who are failed by the main system. Superannuation is the answer, but it won’t be in a position to deliver the goods for some time yet, so until then people should be entitled to expect to be looked after by the pension, without being frightening with the prospect of working until they drop.

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