the age old problem of old age: fixing the pension

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  1. 1. T30.12 The Age Old Problem of Old Age: Fixing the Pension Simon Cowan & Matt Taylor
  2. 2. CIS TARGET30 Publications TARGET30 T30.11 Matthew Taylor, Fairer Paid Parental Leave (2014) T30.10 Alexander Philipatos, Withholding Dividends: Better ways to make the public sector efficient (2014) T30.09 Jennifer Buckingham, School Funding on a Budget (2014) T30.08 Simon Cowan (ed.), Submission to the National Commission of Audit (2014) T30.07 Robert Carling, States of Debt (2014) T30.06 Stephen Kirchner, Strengthening Australias Fiscal Institutions (2013) T30.05 Simon Cowan (ed.), Emergency Budget Repair Kit (2013) T30.04 Robert Carling, Shrink Taxation by Shrinking Government! (2013) T30.03 Jeremy Sammut, Saving Medicare But NOT As We Know It (2013) T30.02 Andrew Baker, Tax-Welfare Churn and the Australian Welfare State (2013) T30.01 Simon Cowan (ed.), Towards Smaller Government and Future Prosperity (2013)
  3. 3. List of Tables Table 1: Maximum pension rates for singles and couples................................................... Table 2: Means testing rates for full and part-rate pensions .............................................. Table 3: Henderson Poverty Lines..................................................................................... Table 4: Summary of reverse mortgage products.............................................................. Table 5: Government Pension Loan Scheme...................................................................... Table 6: Estimated reverse mortgages take-up rates private market............................. Table 7: New rent assistance parameters.......................................................................... Table 8: Proposed key parameters for the default reverse mortgage annuity..................... Table 9: New asset means testing rates for full and part-rate pensions ............................. Table 10: New pension rates for singles and couples......................................................... Table 11: Winners and losers under our reforms ............................................................... Table 12: Simulated Commonwealth Government Outlays on the Age Pension .................. Table 13: Winners and Losers current cohort ................................................................. List of Figures Figure 1: Average lifetime taxes paid and benefits received............................................... Figure 2: Impact of deeming on Asset test (Single)........................................................... Figure 3: Maviss income .................................................................................................. Figure 4: Impact of deeming on Asset test (Couple).......................................................... Figure 5: Nancy and Geralds income ................................................................................ Figure 6: Leonards income............................................................................................... Figure 7: Seemas income................................................................................................. Figure 8: Number of pensioners male and female.......................................................... Figure 9:Pension breakdown full-rate and part-rate........................................................ Figure 10: ACOSS Poverty line calculations ....................................................................... Figure 11: UNSW Social Policy Research Centre measure .................................................. Figure 12: ASFA Retirement Standard............................................................................... Figure 13: Income benchmark for singles minimums..................................................... Figure 14: Income benchmark for couples minimums.................................................... Figure 15: Income means test thresholds singles.......................................................... Figure 16: Income means test thresholds couples......................................................... Figure 17: Commonwealth budget expenditure on Assistance to the Aged (nominal) ......... Figure 18: Productivity Commission demographic profiles ................................................. Figure 19: Estimates of the proportion of the population 65+ receiving a pension.............. Figure 20: Indexation arrangements for the (weekly) maximum rate of the pension for singles and couples ............................................................................................ Figure 21: Home ownership rates ..................................................................................... Figure 22: Home value statistics 201112......................................................................... Figure 23: Pensioner housing wealth HILDA 2010 ............................................................. Figure 24: Capital city median house prices ...................................................................... Figure 25: Differences in median house prices between capital cities and rest of state....... Figure 26: Average weekly housing costs by age group..................................................... Figure 27: Average weekly housing costs singles vs couples.......................................... Figure 28: Rent assistance................................................................................................ Figure 29: Reverse mortgages in Australia by number and value....................................... Figure 30: Average wealth for full-rate pension recipients, 2010 ....................................... Figure 31: Average wealth for part-rate pension recipients, 2010...................................... Figure 32: Single pensioners wealth composition and distribution by population quintiles of household net worth (including home equity), 2010........................................
  4. 4. Figure 33: Couple pensionerswealth composition and distribution by population quintiles of household net worth (including home equity), 2010........................................ Figure 34: Distribution of home equity for single pensioners.............................................. Figure 35: Distribution of home equity for couple pensioners............................................. Figure 36: Age Pension payments for singles by assessable income and assessable assets Figure 37: Pension payments for singles by private income and total housing net worth .... Figure 38: Age Pension payments for couples by assessable income and assessable assets Figure 39: Pension payments for couples by private income and household net worth ....... Figure 40: Rent assistance reforms................................................................................... Figure 41: Median house prices 199495 to 201112........................................................ Figure 42: Mavis under our reforms .................................................................................. Figure 43: Seema under our reforms................................................................................ Figure 44: Nancy and Gerald under our reforms................................................................ Figure 45: Leonard under our reforms .............................................................................. Figure 46: Total income (annuity plus pension) for singles by housing equity .................... Figure 47: Total income (annuity plus pension) for couples by housing equity ................... Figure 48: Simulated annual income at age 65 by quintile of net worth current............. Figure 49: Comparison of simulated annual income by quintile of net worth singles....... Figure 50 Comparison of simulated annual income by quintile of net worth - couples....... Figure 51: Mavis aggregate pension payments and income age 65 to 100 ......................... Figure 52: Leonard aggregate pension payments and income age 65 to 100 ..................... Figure 53: Seema aggregate pension payments and income age 65 to 100 ....................... Figure 54: Nancy and Gerald aggregate pension payments and income age 65 to 100....... Figure 55: Change in income by net worth including reverse mortgage annuity income ..... Figure 56: Cumulative distribution of assessable assets for single pensioners .................... Figure 57: Cumulative distribution of assessable assets for couple pensioners ................... Figure 58: Winners and losers by current age ................................................................... Figure 59: Current single pensioners income by quintile ................................................... Figure 60: Current couple pensioners income by quintile ..................................................
  5. 5. 5 C IS Research Report At $42 billion this year, the Age Pension is the largest single payment made by the federal government, exceeded only by combined grants to state governments. Annual expenditure is predicted to rise to nearly $50 billion by 201718. Age Pension expenditure is large, growing and not sufficiently targeted. The cost of the Age Pension has increased in real terms by 35% between 200708 and 201415 due to the fact that most people of retirement age (80%) receive some form of pension. The Australian Treasurys Intergenerational Reports raise real questions about the affordability and sustainability of the nations retirement incomes system as the population ages. The 2015 Intergenerational Report predicts age-related pensions would increase from 2.9% of GDP in 201415 to 3.6% in 205455. Other predictions suggest that growth in Age Pension expenditure could be even higher. The cost of assistance to the aged (the Age Pension, aged care and home support and care) has risen by more than 50% in the decade to 201314, outstripping real GDP growth. The maturation of the su