Is it time for a universal pension?

Post COVID-19, new ideas are needed. Chief Advocate Ian Henschke reflects on beneficial economic reform.

  • Winter 2020
  • Advocacy

This is not just a global health crisis, it’s a global wealth crisis. And when a system is under stress, cracks appear. Faults have a habit of revealing themselves.

People used to say when Wall Street sneezes we get the flu. Have we replaced Wall Street with the Great Wall? Along with the rest of the world we’ve caught the flu and been admitted to economic ICU. The world has discovered global capitalism dominated by China has a downside. There’s a big yin to their yang.

Jobless focus

Our Parliament passed a bill to keep people employed. It is called JobKeeper. The government pays employers either $1,100 or $1,500 a fortnight and they pass that to the worker. That way they’re not unemployed, or at least they are not an unemployment statistic.

But if you’ve lost your job due to COVID-19 or were already unemployed, you fall under JobSeeker, formerly Newstart. Thanks to the Federal Government’s stimulus package, this payment is now twice what the unemployed were getting before COVID-19 —up from $550 a fortnight to $1,115.70, or a bit more than $29,000 per year. There was also a top-up payment of $750 in March and another is due in July.

Why is it they’ve decided the basic income needed to survive is now around $30,000 per year? That must be frustrating for people unable to get by on the old dole rate of $15,000 per year.

Before the current crisis, if you were under 66 and lost your job, you got about $15,000 a year. Under the new arrangement you’ll get paid almost
$30,000 a year (until the stimulus package ends). But when you turn 66 and if you are eligible for the full pension, your income will drop to $24,554!

The problem has been so bad for so long the over 60s who have been out of work for nine months can volunteer to meet their job search requirements and get an extra $1,200 a year. This is tacit admission that government recognises the scale of the problem.

But what about retirees?

What about pensioners struggling to get by on $24,554 a year? Yes, they also get the two $750 support payments but that is still less than the $30,000 for everyone else.

And what of the self-funded and part funded retirees whose incomes have been savaged by COVID-19? Some of these people have experienced significant drops in their income. In some cases they now earn less than a person on a full pension.

Retirees tell us they are facing an overloaded Centrelink, managing an unresponsive system.

Think, for example, of a retiree owning a rental property. Their rent income has dropped yet the value of their asset has fallen little, to date. And yet under pension means testing rules, it is the value of their assets that usually determines their pension, or if they get one at all. Their income is likely to have been savaged but their eligibility for the Age Pension is determined by the value of their rental property, a non-liquid asset.

Or think about the investor with shares who had these valued by Centrelink in February before the crash but can’t contact Centrelink to have these revalued to their true worth, effectively reducing their income.

These are but a couple of examples of the problems of the system.

Our submission

In our submission to the Retirement Income Review in February we argued Australia has a clumsy, complex retirement income system. It is one where people on pensions and benefits spend an inordinate amount of time and energy reporting their income or lack of it to authorities.

Means testing is costly to administer and leads to perverse outcomes, which have become more apparent in the current crisis. Asset taper rates unfairly penalise those who save more for their retirement. Income tests undermine ongoing workforce participation and lead to ongoing anger over deeming rates.

All of these problems exist because of means testing. Why not get rid of it? Why not give people a decent income that is uniform, fair and permanent and adjusted for cost of living twice a year by an independent ‘tribunal’?

This would go a long way to fixing pension poverty and the poverty caused by unemployment once and for all.

Universal pension— the costs and benefits

Let there be no mistake, implementing a universal pension will require us to fix the tax system to recover costs and make the system fair.

We are a wealthy country with too much poverty and too much tax avoidance. We should focus on collecting taxes fairly and ensure multinational companies pay their fair share too.

For most retirees, the benefits of a universal pension would outweigh the costs. It would get rid of the assets and income tests, doing away with unfair taper rates, deeming rates, work restrictions, and the need to engage with Centrelink on a fortnightly basis. Imagine that?

If everyone of pension age received a pension, retirees could just add this to any of their other income and pay tax. This happens in
New Zealand and other countries. Of course, economic modelling needs to be done. But now is the time for new ideas.

If the government is serious about reform, and keeping the economy alive, it should consider a universal pension and a fairer payment for the unemployed so that no one lives in poverty.