The aged pension is in the political spot light – again. Arguable its never been out of the spotlight. Fewer issues are more emotive or shrouded in more hysterical dialogue.
Last year Joe Hockey caused a ruckus when he attempted to increase the eligibility age from 65 to 70 by 2035. The the government also provoked outrage when it proposed changes to the way the pension is indexed. It is currently adjusted in line with average wages. The government wants change it so its linked to inflation instead, which they assume will be lower. This means the aged pension will increase at a slower rate leaving recipients worse off. The government claims it has not ‘cut’ the pension but its all semantics and weasel words.
Recently Fairfax got a bit cheeky. The Financial Review ran a story proposing that the family home be included in the asset test for pension eligibility. Currently it is not, leading to the absurd situation where a couple living in a $2m house can still receive a part pension if their other assets are below $1,145,500. As you can imagine this ruffled a few feathers and caused the Social Services Minister Scott Morrison to issue an unequivocal denial. We all know that when the Governments says they it going to do something it wont. As the GST, carbon tax and just about everything TA promised leading up to the last election clearly demonstrates.
Our pension system is like a byzantine labyrinth. Its subject to both income and asset tests and rates vary for homeowners and non homeowners. It also varies according to your family situation. Valuing assets is whole other circle of hell.
Basically a home owning couple is eligible for the full pension if their other assets are below $286,500. Couples with combined assets valued between $286,500 and $1,145,500 can receive a part pension which reduces as the value of the assets increases.
The full pension rate is $1,288.00 per couple per fortnight including an energy supplement. That’s an annual income of $30,912. If there’s anything we can agree on its that its not a princely sum.
I conducted a thought experiment to see how Dadabs and I would go living on the pension. Mind you its a moot point. Barring a major catastrophe we wont be eligible.
Anyhow I’ve donned my analyst hat and guessimated our yearly expenses at Chez Abulous. This was a tricky task in itself. I’ve assumed that the kids are off our hands (not a safe assumption) and that we’ve consolidated down the one car.
I’ve reduced our actual water rates by 20% because of the absence of kids. The electricity figure is based on average usage for a 2 person household as indicated on our electricity bills. Our actual electricity bill is unusually low because Dadabs installed solar panels.
After these expenses we’re left with $21,298 or $409 per week between the two of us.
Could we live on this? Its amazing what you can do when you have to. I’d imagine we probably could. It would not be a lavish existence. We would have to keep a track of every cent. My $30 per week coffee habit would have to die as would those indulgent $14 bento lunches. The repair jobs that occasionally whack you around the head could wreak havoc. Holidays would be a rare indulgence. However they are now – mainly because Dadabs can’t afford the time away from the business.
I would be waving Sayonara to my gym membership and buying my clothes from (shudder)Target. A night out at the movies followed by a cheap and cheery meal at the local Thai would have to be meticulously planned and accounted for.
My weekly shop at Colesworth would be an exercise in restraint rather than the party it is now. Most sadly of all I’d have to swap out my NZ Pinot Noir for goon. It would be like going back to University.
This exercise has taught me two things;
1) My lifestyle is far more lavish and indulgent than I had imagined. Just because we don’t dine out at Quay every week or take ski holidays in Aspen doesn’t make us frugal.
2) The pension issue is one of the most difficult problems Australia faces. Whilst we are not experiencing a budget crisis, the country has some long term issues that need addressing. Revenues are falling and the aging population is putting increasing strain on the public purse. Something has to give.
This year the total spend on the aged pension is estimated at $42b – which is 9% of the total budget. Discouraging reliance on the pension can only be a good thing. On the other hand work is becoming increasingly fragmented and many people (particularly women who have taken career breaks) simply won’t have adequate super. Its a lose-lose situation.
What’s the answer blog fans?
Could you live on the pension?
Are you worried about retirement?