Tapering Grandfathers

The Greens have announced they have struck a deal with the Government and agreed to a reduced age pension for most.

Over 4 years the $2.5 billion dollar saving will be the biggest single measure in the 2015 budget.

Most commentary has been focused on the impact of the assets test where some pensioners are to lose more than $13,000 pa. What must also be taken into account is that many pensioners may now have an income based assessed pension. You can not asses the impact via the assets test alone. There is a cumulative impact of the changes when the pension operates both on assets and income test to determine which generates the lowest entitlement. There will be far more age pensioners impacted than has been reported.

There must be a recognition of what all too many say about the age pension. Those currently applying still remember the days when their wage had a deduction for contributions to the age pension. Many have shown us their pay slips with that deduction. 

Now all that has changed, compulsory super was introduced and many adjusted their saving’s plans. They now find they are excluded from the age pension despite making contributions  to the pension for the majority of their working lives.

What should be considered is a period of tapering of entitlements in recognition of the many years of contributions. A similar concept exists when an age pensioner moves overseas and is paid in proportion to the number of years ‘worked’ in Australia - the Average Work Life Residence or AWLR.

To outline the concept, and in rough terms, someone now 65 and applying for the pension would have approximately 45 years under the old system and 20 years under the new compulsory super system. So they should be ‘grandfathered’ with an approx. 70% of their entitlement; recognising that the majority of their life was operating under the old  tax contributions to a pension. At least better than loosing the pension entirely. 

Now under the AWLR formulae the number of years start at the age of 16. If this rule was also applied to the proposal then the proportion of pension would be approx. 45%. Again at least better then nothing.

Over time the number of age pensioners receiving this proportional rate would reduce and eventually become redundant.

Many will often cry out when changes are proposed for the superannuation system or taxation, requesting grandfathering rules. Why has there been no discussion about grandfathering these changes or at least tapering these changes?

It’s probably too late to go back to the old system. But its not too late to go back to a system like in NZ where everyone gets the age pension - nearly all funded by the saving in bureaucracy costs.