03 March 2016
by Gareth Hutchens
Today's pensioners are demanding too much from taxpayers
Pensioners are demanding so much support from taxpayers that the generational "bargain" between retired and working Australians is becoming unbalanced, the Centre for Independent Studies says.
A new CIS report, called The Myths of the Generational Bargain, is warning an unrealistic expectation has been established in Australia that the real value of the pension should keep increasing over time.
It says such an expectation will ensure that the real cost of the pension per worker will nearly triple over the next few decades, putting greater stress on the Commonwealth budget and testing taxpayers' willingness to pay for the pension.
At the moment, the average Australian worker is expected to contribute $3500 a year to pensioners, and $6270 to their own future retirement, the report shows.
But by 2054, the average worker will be asked to contribute nearly as much to pensioners each year ($9424) as to their own retirement ($11,895).
That large increase in the proportion of a worker's salary going to the pension will increase pressure on the future retirement system, the report warns.
That higher pension cost will be driven largely by a relative increase in the number of retirees for every worker, coupled with real increases in the value of the pension.
"Today's retirees, who in their past working life, paid a smaller proportion of their salaries to support the retirees of that time, now demand a greater proportion of the salaries of those working today," the CIS report says.
"The effect of this growth of income transferred from those of working age to retirees has made the bargain between the generations unbalanced."
Simon Cowan, CIS research manager, says the super system has the potential to deliver a big benefit but at the moment a lot of that benefit is being lost.
He wants the Turnbull government to arrest the growth in pension costs by means testing the family home, because there should not be a situation where 70 per cent of pensioners have more than 75 per cent of their net worth tied up in the family home and they are not expected to use that wealth to support themselves.
He also says the government should start a substantial review of the super system, like promised, to find ways to encourage people to be more self-sufficient in retirement.
"There's this flawed understanding of the generational bargain that says: 'I paid taxes during my working years to support people in retirement, therefore I should get a return on those taxes in the form of a pension'," Mr Cowan said.
"The pension was always designed to be a safety net only . . . but as the real value of the pension has increased, and as the means tests have widened, it's given more credence to this idea that the pension is a right paid for through your taxes over your working life, and you shouldn't have to pay for yourself in retirement."
In 2012-13, social security and welfare was the largest component of government spending, totalling $132 billion, or 34 per cent of the total.
That included programs such as the Age Pension ($36 billion), the Disability Support Pension ($15 billion) and Family Tax Benefit ($19 billion), as well as assistance to the unemployed and sick and assistance to veterans and dependents, together totalling $15 billion.
The 2014/15 budget showed the cost of the age pension accounted for nearly a quarter of all income tax revenue.