A universal pension proposal for Australia - lessons for Australia from New Zealand

06 May 2014

The Retirement Policy and Research Centre (RPPC) has today published a new PensionBriefing: A universal pension proposal for Australia. It looks at a recent report from a Canberra-based think tank, The Australia Institute.

Australian taxpayers spend about the same on retirement incomes as New Zealand taxpayers. New Zealand Superannuation and tax breaks for KiwiSaver currently total 4.4% of GDP. The Age Pension and tax incentives for superannuation in Australia cost a total of 4.6% of GDP.

By 2016/17, tax incentives in Australia are expected to exceed the cost of the Age Pension and The Australia Institute’s report (Sustaining us all in retirement – the case for a universal pension by David Ingles and Richard Denniss) suggests what it thinks is a better way of doing things.

The report recommends the removal of tax breaks for retirement saving while, at the same time, abolishing the complex income- and asset-tests associated with the Age Pension. The pension itself could increase by 25% and, according to the authors, “could be expected to virtually abolish poverty amongst the old”.

The new arrangements will:

  • significantly reduce the complexity of administering the Age Pension;
  • eliminate the distortions and unfairness inherent in tax incentives for retirement saving;
  • probably reduce the ‘over-consumption’ of housing in old age;
  • reduce ‘double-dipping’ – that’s when Australians retire early to access their compulsory savings and spend those before qualifying for the pension from age 65.

The report proposes making the new more generous pension taxable, as is the case with New Zealand Superannuation.

In the short-term, the authors estimate that the cost to taxpayers would fall 30% from the current $A74 billion total. Over the long-term, it would be cost-neutral by comparison with the current arrangements.

Michael Littlewood, co-director of the Retirement Policy and Research Centre says that Australia has much to learn from New Zealand’s retirement income framework. “Hopefully, the new report will start a useful debate there.”

The Australian government seems ready to make further changes in the May 2014 Budget. An already-increasing state pension age (that will be 67 by 2023) looks set to increase to age 70 by 2035 and the means-tests will be tightened.

Michael Littlewood suggests that the government should instead look at the new report’s recommendations that will save more than $A20 billion in the short-term but will have other beneficial effects, such as on labour force participation rates at the older ages

Michael Littlewood
Co-Director, Retirement Policy and Research Centre
Phone: +64 9 923 3844
Mobile: +64 21 677 160
Email: michael.littlewood@auckland.ac.nz