How one tweak could transform our ‘broken’ retirement system

The Age Pension is meant to be a financial backup and the superannuation system was designed to support us in a comfortable retirement. Still, increasingly older Australians are falling into poverty, so what’s going wrong?

It’s estimated one in five older Australians live in poverty. At the September 2024 indexation, the Age Pension single payments rose by $28.10 per fortnight, while combined payments for couples increased by $21.20 per person. That’s an increase of less than 3 per cent, which in no way covers the rising costs of basics such as energy, food and insurance, some of which have increased by double digits.

World Bank data has revealed that Australians pay up to 41 per cent more for meat, up to 45 per cent more for dairy and as much as 46 per cent more for fruit than other countries.

Add to that the increasing number of Australians heading into retirement with a mortgage or renting in unstable private markets with ever-increasing rents. Far from a comfortable retirement, many older Australians are facing a grim future.

So what’s the answer?

A recent report by The Australia Institute claims there is one simple tweak that could easily alleviate the problem.

The institute wants to remove the massive concessions to those retiring with millions of dollars and use that money to increase the Age Pension.

New research by The Australia Institute has found that Australia spends almost as much giving tax breaks to wealthy retirees as it does providing a safety net, the Age Pension, to those with little or no retirement savings.

“This report highlights the broken nature of Australia’s retirement system that leaves many people living in poverty,” said Greg Jericho, chief economist at The Australia Institute.

“Rather than ensure people are able to retire with dignity, Australia’s superannuation system is geared towards reducing tax for the wealthiest in society. Sweden and Norway show that there are better ways of doing things.”

Australia vs. Sweden and Norway

The institute compared Sweden and Norway’s retirement systems to our own and found:

• 22.6 per cent of Australian retirees end their working lives in poverty, compared to 11.1 per cent in Sweden and 3.8 per cent in Norway.
• Australia spends 5.29 per cent of GDP on the Age Pension, Sweden spends 9.09 per cent and Norway spends 9.30 per cent.
• The Australian government forgoes nearly $38 billion a year in superannuation tax concessions.
• If this money was redirected into the Age Pension, significantly fewer Australians would be poor at the end of their working lives.
• 10 per cent of Australians reach the age of 65 with a super balance of $1 million. These people hold 51 per cent of the nation’s overall super.

“A large number of Australian retirees still rely on the pension as their main source of income, yet we spend less on public pensions than countries like Sweden and Norway,” Mr Jericho said.

“At the same time, our super system offers massive tax concessions that mostly benefit the wealthy. These concessions cost us nearly as much as spending on the Age Pension. We should be supporting retirees who are truly struggling.

“Living in poverty is always hard, but the current cost-of-living crisis makes it even more difficult for retirees to meet their basic needs.

“If we reduce the inequitable superannuation tax breaks given to high-income earners we can reduce poverty among retirees. It’s time to take action and give them the support they deserve.”

Right to income

It also wants older Australians to be able to earn income to supplement the Age Pension without the onerous tax burden.

Currently, under the Work Bonus scheme Australians can earn up to $11,800 a year before it affects their Age Pension payments. After that, they can be taxed up to 50c in the dollar.

Lobby group National Seniors Australia (NSA) also wants to see more targeted support. For example, the group says all pensioners are eligible for concessions via the Pensioners Concession Card (PCC) regardless of wealth and income. 

They give the example that a homeowning couple can have up to $1,003,000 in assets (not including the principal place of residence) and receive the same concessions associated with a PCC as a couple with no assets and no home. 

“If governments want to provide additional support to pensioners experiencing higher cost-of-living pressures, they cannot do this under the current system, where they can only deliver additional support to all pensioners – even when there may be a need to deliver additional support to those most in need,” NSA claims.

“This approach makes the cost of providing additional targeted concessions or supports prohibitively expensive, resulting in a lack of action from the government.”

Pensioner plus card

NSA believes this could be solved by the federal government creating a Pensioner Concession Card+ (PCC+), to make it easier for all governments, local, state and federal to target additional concessions and supports to eligible pensioners. 

The targeted PCC+ would enable the government to better support eligible pensioners with higher concession rates, dental subsidies, cheaper medicines or healthcare rebates. 

The Commonwealth would use existing customer data to tailor eligibility to those most in need. A person’s income and assets are already used to determine the amount of Age Pension they receive and could be used to determine eligibility for a PCC+ based on an appropriate criterion. 

For example, if 20 per cent of pensioners (500,000) were assessed by Treasury as living in poverty, the government could use the PCC+ to: 

• Administer a targeted Seniors Dental Benefits Scheme (SDBS). If under an SDBS, a recipient was eligible for $500 per year for dental, this would cost $250 million per year to cover 500,000 pensioners holding a PCC+. Providing a SDBS to all pensioners would cost $1.25 billion. 
• Administer additional relief for those most in need. Under the recent Energy Bill Relief Fund, all pensioners were eligible for up to $500 to offset energy bills at a cost of $1.25 billion. Under a PCC+ card, the government could have provided additional relief to 500,000 pensioners in need. For example, an additional $250 rebate for PCC+ holders would cost only $125 million compared to $625 million for all pensioners. 

Do you think these proposals have merit? Why not share your opinion in the comments section below?

Also read: Calls to scrap compulsory super in favour of US-style retirement accounts