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Older people

- see also Assets; Estates; Personal income; Savings

Age of entitlement: aged-based tax breaks

John Daley, Brendan Coates and William Young, Grattan Institute (November 2016).  The Commonwealth Government could save about $1 billion a year by winding back three tax breaks for older Australians that are unduly generous and have no sensible policy rationale. Seniors pay less tax and get a higher rebate on private health insurance than do younger workers on the same income. They do so through the Seniors and Pensioners Tax Offset (SAPTO), a higher Medicare levy income threshold, and higher private health insurance rebates that are available only to older Australians.


Annuity and estate taxation in an entrepreneurship model

Cagri Kumru and Arm Nakornthab, ARC Centre of Excellence in Population Ageing Research (February 2016). This paper analyses the interaction between estate taxation and annuity demand both analytically and quantitatively.


Facing demographic challenges: pension cuts of tax hikes?

Chung Tran, Austaxpolicy: Tax and Transfer Policy Blog (September 2016).  Both pension cuts and tax cuts can mitigate Australia’s fiscal challenges, but the two reforms lead to different distributional and welfare effects.


Super tax targeting

John Daley and Brendan Coates, Grattan Institute (November 2015). Better targeting of superannuation contributions tax breaks could save the budget $3.9 billion a year, and a 15 per cent tax on the superannuation earnings of retirees could raise another $2.7 billion a year. The current system of tax breaks for superannuation is expensive and unfair. Tax breaks should be targeted more tightly at their policy purpose, which is to encourage savings to supplement or replace the Age Pension. Tax concessions cost the budget more than $25 billion a year in foregone revenue, and most of the benefit goes to those who don’t need them. More than half the benefit of current superannuation tax breaks flows to the wealthiest 20 per cent of households who already have enough resources to fund their own retirement. In tight budgetary times, these costs are unsustainable and must be reined in. Three reforms could better align tax breaks with the goals of superannuation. One, contributions from pre-tax income should be limited to $11,000 a year. Eighty per cent of contributions above this level come from people likely to retire with enough assets to be ineligible for an Age Pension even without such big super tax breaks. Two, lifetime contributions from post-tax income should be limited to $250,000. Three, earnings in retirement – currently untaxed – should be taxed at 15 per cent, the same as superannuation earnings before retirement. The wealthiest 10 per cent of retirees pay no tax on their average super earnings of $85,000 a year. The proposed reforms are fair. They would only apply to future contributions and earnings. Younger and low-income people would not have to pay so much in other taxes if super tax breaks for rich old men were wound back. Previous repeated changes to superannuation have been too timid. Decisive reforms are needed to narrow the wide gap between the goals of the system and what it delivers.


The Generation Game

Bright Blue, Fabian Society and CentreForum (September 2015). Commissioned by Independent Age and RNIB ahead of the 2015 UK spending review, this series of essays by Bright Blue, the Fabians and CentreForum aims to stimulate a debate about spending priorities for an ageing population.


The super challenge of retirement income policy

CEDA (September 2015). Australia’s three-pillar approach to retirement income is internationally well regarded. However, many Australians currently approaching retirement face potential poverty, especially if they do not own their own homes.

Australia’s aged dependency ratio (the number of people over 65 for every working-age person 15 to 64) is expected to double over the next 40 years, and the Australian Government recognises that current arrangements are fiscally unsustainable.
In this policy perspective, The super challenge of retirement income policy, CEDA examines:

  • A history of government support for retirement in Australia;
  • Market failure and the retirement income system;
  • Alternatives to the current retirement income system; and
  • Living income- and asset-poor in retirement

Three foundations for a secure retirement

ACOSS (July 2015).  Submission to the Government’s retirement incomes review.  A secure retirement rests on three foundations: adequate income, affordable housing, and decent affordable health and aged care. Income alone is not enough. There is a serious imbalance in the Federal Government’s support for retirement, with an estimated $30 billion ‘spent’ each year on inefficient tax breaks for superannuation while health funding is being cut and funding for affordable housing programs has also been reduced.


Where Next For Pensioner Living Standards

Gemma Tetlow, Joseph Rowntree Foundation and Institute for Fiscal Studies (September 2015). The last 50 years has seen a dramatic increase in pensioner incomes and decline in pensioner poverty rates in the UK. But what are the prospects for the future? A Round-Up, published by the Joseph Rowntree Foundation, draws together key findings from a programme of work led by the Institute for Fiscal Studies which looked at the prospects for future pensioner living standards.


Superannuation Policy for Post Retirement: Volume 2

Australian Government Productivity Commission (July 2015). This report is a detailed analysis of two aspects of superannuation policy affecting the post-retirement phase:

  • What might happen if the age that individuals can access their superannuation (the ‘preservation age’) were raised?
  • Is the way people draw down their superannuation, and in particular, the use of lump sums, problematic?

As part of its research for this paper, the Commission has developed a model – referred to as the Productivity Commission Retirement Model (PCRM) – to assess the effects of increasing the preservation age.


Superannuation Policy for Post Retirement: Volume 1

Australian Government Productivity Commission (July 2015). This report is a detailed analysis of two aspects of superannuation policy affecting the post-retirement phase:

  • What might happen if the age that individuals can access their superannuation (the ‘preservation age’) were raised?
  • Is the way people draw down their superannuation, and in particular, the use of lump sums, problematic?

As part of its research for this paper, the Commission has developed a model – referred to as the Productivity Commission Retirement Model (PCRM) – to assess the effects of increasing the preservation age.


Super for some: Who wins and loses from 30 billion worth of tax concessions for superannuation

Richard Denniss, The Australia Institute (April 2015). Richard Denniss, Executive Director of The Australia Institute and long-time advocate of overhaul to the super tax concessions scheme, has welcomed moves on the issue by the Australian Labor Party but says it needs to be the start, not the end of the conversation.


Joe Hockey’s intergenerational gift to the wealthy

Richard Denniss, The Australia Institute (March 2015). While it is not polite to admit it, the plan to reduce the tax paid by wealthy Australians is one of the main reasons that Treasury predicts we will have so much trouble paying for health and aged care in the future.


Can you eat the family home?

The Australia Institute (February 2015).

The new Social Services Minister Scott Morrison is concerned about retirees who are cash poor but asset rich. Labor Deputy Leader Tanya Plibersek raised similar concerns, saying: ‘You can’t eat your family home, you can’t pay your electricity bill with it.’

But an existing government scheme allows retirees to do just that, argues The Australia Institute.

The Pension Loans Scheme (PLS) allows retirees to draw an income from the government by borrowing against their home while they live in it. The balance of the loan is later settled from the estate, but retirees cannot be forced out of their home.


The Wealth of Generations

John Daley and Danielle Wood, The Grattan Institute (December 2014). Older Australians are capturing a growing share of Australia’s wealth, while the wealth of younger Australians has stagnated, a new Grattan Institute report finds.
The housing boom plus rapid increases in government payments on pensions and services for older people risks creating a generation of young Australians with a lower standard of living than that of their parents at a similar age. The generational bargain, under which each generation of working Australians supports retirees while still improving its own standard of living, is under threat.
The report finds that most age groups are richer than they were in 2003. An average 55 to 64-year old household was $173,000 richer in real terms in 2011-12 than was a household of that age in 2003-04. The average 65 to 74-year old household was $215,000 better off over the same period.
However, the average 35 to 44-year old household was only $80,000 richer. Worst affected were 25 to 34-year olds who had less wealth than people of the same age eight years before – even though they saved more than did people of that age in the past.
Governments are also spending much more on pensions and services, particularly health, for older households. In 2010, governments spent $9400 more per household over 65 than they did six years before. Much of the increased spending was funded by budget deficits. Future taxpayers will have to repay the debt.
In the past, each generation took out more from the budget over its lifetime than it put in. This “generational bargain” was sustainable when incomes rose quickly – the norm for 70 years.
The generational bargain is at risk because government transfers from younger to older cohorts are now so large that future budgets may not be able to afford them, and incomes may rise more slowly over coming decades. If so, the last two decades in the United States and Britain illustrate the potential outcomes. The wealth and incomes of younger age groups in these countries have fallen well behind those of their parents at a similar age.
Although older generations will ultimately pass on much of their accumulated wealth, this may not help younger generations much. On current trends, inheritances are typically received later in life and primarily benefit those who are already wealthy. Gifts to younger generations are typically small, and also primarily benefit well-off households.
The report proposes tighter targeting of the Age Pension, reducing superannuation tax concessions and a shift to increase taxes on assets in order to redress the balance. These reforms would fall most on those who have benefited most from windfalls and government largesse, and have paid lower taxes while deficits accumulated.
Governments should not delay, or a younger generation may be even worse off, as they miss out on benefits their parents enjoyed. The huge challenge for governments and the nation is to introduce policies that ensure we keep a vital part of the generational bargain: rising living standards for every generation.


Reforming Social Security Benefits – House Ways and Means Committee Subcommittee on Social Security
Eugene Steuerle, Tax Policy Center (May 2013)

Reform of the Social Security benefit structure should proceed on the basis of principles and goals related to adequacy, protections in old age, encouragement of work to protect the tax base on which programs like this depend, and equal justice under the law for those equally situated. Many features of current law violate basic principles of public finance without promoting other worthy goals in an effective or well-targeted manner. In his testimony before the House Ways and Means Subcommittee on Social Security, Gene Steuerle lays out how to go beyond the types of options put forward by many proposals under consideration to achieve such reform.


Exposure draft for Tax Laws Amendment (Sustaining the Superannuation Contribution Concession) Bill 2013
The Parliament of the Commonwealth of Australia House of Representatives

The Government has released for public consultation an exposure draft for Tax Laws Amendment (Sustaining the Superannuation Contribution Concession) Bill 2013 and the accompanying explanatory memorandum. Very high income earners receive a higher superannuation tax concession than average income earners. The changes contained in the Bill will effectively ensure that very high income earners will receive a superannuation concession on their contributions more closely in line with the concession received by average income earners. This will improve the fairness of the taxation of the superannuation system.


Tax Laws Amendment (Sustaining the Superannuation Contribution Concession) Bill 2013 Explanatory Memorandum
The Parliament of the Commonwealth of Australia House of Representatives

The Government has released for public consultation an exposure draft for Tax Laws Amendment (Sustaining the Superannuation Contribution Concession) Bill 2013 and the accompanying explanatory memorandum. Very high income earners receive a higher superannuation tax concession than average income earners. The changes contained in the Bill will effectively ensure that very high income earners will receive a superannuation concession on their contributions more closely in line with the concession received by average income earners. This will improve the fairness of the taxation of the superannuation system.


Super for some: who wins and loses from $30 billion worth of tax concessions for superannuation
The Australia Institute (March 2013)

Australia’s compulsory superannuation system has delivered a large pool of retirement savings and boosted the retirement incomes of many Australians. However, the fact that the superannuation scheme has benefits does not mean that it should not be carefully examined and genuinely reformed.


Fair Share: The Tax Edition
VCOSS (September 2011)

Outlines how tax can change the way disadvantage is caused and addressed, and what changes VCOSS hopes for in the National Tax Forum.


Summary of ACOSS proposals, Henry Review recommendations
Australian Council of Social Service (5 Apr 2011)

This is a brief summary of the Henry Review’s key tax reform proposals and compares them with those advanced by ACOSS, and the Government’s response.


The Great Superannuation Tax Concession Rort
David Ingles, Australia Institute (February 2009)

A research paper examining the cost of superannuation tax concessions.


Submission on Retirement Incomes to the Henry Tax Review
Industry Super Network (21 September 2009)

Supplementary submission on retirement incomes to Australia’s Future Tax System Review.


Progressive Tax Reform: Reform of the Personal Income Tax System
Australian Council of Social Service (November 2009)

This report advocates strengthening the personal income tax system in order to achieve progressive tax reform. It covers topics such as personal income tax rates, consumption taxes, company income taxes, taxation and saving, taxation and the transfer system.


A Single-Tier Pension: what does it really mean?
Institute for Fiscal Studies (July 2013).  From 2016 the existing two part state pension system in the UK is to be replaced by a new single-tier system. The new state pension is expected to be set at around £146 per week; restoring the state pension to the same level of generosity relative to average earnings as it was in the early 1970s. A new report published today by researchers at the IFS, funded by the Joseph Rowntree Foundation (JRF), examines how the proposed reforms affect different types of individuals and contrasts the short- and long- term effects of the proposed reforms which are found to differ dramatically. A significant reform of the UK’s state pension system is currently being enacted. From 2016-17, the basic state pension and state second pension will be replaced by a new single-tier pension for everyone below the state pension age (SPA). This will bring an end to earnings-related state pension accrual in the UK. This marks the latest step on a long, tortuous and rather circular journey “a journey that started in the early 1970s with a basic state pension worth about £145 a week (in current earnings terms) and that has finally ended up in much the same place. The major difference between the 1974 system and the proposed new system is that the new system will be essentially universal, with considerably more extensive crediting of unpaid activities than was available in 1974.