Business Spectator’s Callum Pickering has this afternoon provided some sensible suggestions on how to improve the sustainability of Australia’s retirement system, which echos reforms proposed by me previously (for example, see here and here):
To address rising age pension expenditures, I’d recommend a couple of things.
First, the asset test for the pension should be extended to include the value of your principal home. It seems absurd that households can receive the full age pension while sitting on million-dollar properties. Housing wealth accounts for almost 60 per cent of household wealth and excluding a great chunk of it when determining the pension is negligent.
Second, reverse mortgages can be used in some cases to alleviate the cost of aged care. Reverse mortgages can free up a lot of liquidity that is typically locked in the family home. Though in some cases, it might be better for retirees to downsize to free up cash (and free up premium homes).
Third, superannuation needs to be reformed, with more of the concessions directed towards those who rely on superannuation the most. The 15 per cent flat tax on superannuation income provides massive concessions to the wealthy who don’t need these concessions. Instead, a progressive superannuation tax system should exist, which redistributes wealth across the superannuation system. A higher tax for the wealthy can be used to improve the superannuation of the poor and relieve the pressure on the age pension and aged care services.
Hear, hear.
