Senate debates

Thursday, 25 June 2009

Social Security and Other Legislation Amendment (Pension Reform and Other 2009 Budget Measures) Bill 2009

Second Reading

4:40 pm

Photo of Nick SherryNick Sherry (Tasmania, Australian Labor Party, Assistant Treasurer) Share this | Hansard source

The Social Security and Other Legislation Amendment (Pension Reform and Other 2009 Budget Measures) Bill 2009 implements key elements of the government’s secure and sustainable pension reform package announced in the May budget. They are the most significant reforms in the 100-year history of Australia’s pension system, they are reforms that deliver a fair go for pensioners and they are reforms of which this government is very proud. I am pleased to be dealing with this legislation on behalf of the government.

The retirement income system in Australia is effectively composed of a government guaranteed defined benefit age pension and, on top of that, a range of superannuation, compulsory and voluntary. In the context of total retirement income for Australians, obviously superannuation is very important. However, the age pension has been long neglected because the reality is, particularly for those older Australians either in retirement or approaching retirement, the majority have very little superannuation or no superannuation, because they simply were not in the workforce for long enough or they retired before superannuation became compulsory—another major and important retirement income reform, initiated in 1987 by the former Hawke-Keating government.

The secure and sustainable pension reform package improves the adequacy of the pension system. It makes its operations simpler and more responsive to the needs of pensioners and secures its long-term sustainability. It prepares Australia to meet future challenges, including the ageing of the population. In addition to providing significant increases in payments, the reforms will make the pension system simpler and more flexible.

At the centre of these reforms is a much-needed increase in pension payments. From 20 September 2009 single pensioners will receive an increase of $32.49 per week, comprising a $30 per week increase in the maximum base pension rate and a $2.49 per week increase in the new and increased pension supplement. Let me repeat that: single pensioners will receive an increase of $32.49 per week. Pensioner couples will receive an increase of $10.14 per week combined, delivered through the new pension supplement. That is an increase of $10.14 per week for pensioner couples.

These are the most significant reforms in the 100-year history of Australia’s pension system. Australia’s 3.3 million age pensioners, disability pensioners, carers, wife and widow B pensioners, bereavement allowance recipients, special needs pensioners and veteran income support recipients will benefit from these increases.

The single pension will increase as a proportion of the pension paid to couples combined from 60 per cent to 66.33 per cent. This ratio will also apply to the new pension supplement and the seniors supplement. The pension will continue to be benchmarked against wages using the so-called MTAWE, which was the last major reform of the pension base in Australia. I think it was 1983 when the Hawke Labor government introduced the automatic indexation of pensions to MTAWE. That was the last major reform, but this reform is the most significant in the 100 years since the age pension was introduced, in terms of the base rate of the age pension.

The pension will continue to be benchmarked to wages, and the benchmark for the single rate of pension will increase from 25 per cent to 27.7 per cent of male total average weekly earnings, which is an increase of 10 per cent. Following these reforms, the new total weekly pension plus supplement will be an estimated $336.68 for singles and $507.50 for couples combined, which amounts to $17,507.36 a year for singles and $26,390 for couples combined. The actual figures to apply from 20 September will depend on indexation and on final inflation and wages parameters that are not yet available.

The range of supplementary payments and allowances currently paid to pensioners will be simplified and made more flexible through the introduction of a new pension supplement. The value of current allowances will be maintained and increased in the new pension supplement. The new seniors supplement will be introduced to benefit eligible self-funded retirees who hold a Commonwealth seniors health card. A new pensioner and beneficiary cost of living index will be introduced from 20 September 2009 to better reflect the costs that pensioners’ households face and will be used along with the consumer price index and the new wages benchmark to determine annual increases in the base pension.

Pension advance payments will be more flexible and we will bring greater consistency to the portability rules for overseas study among income support payment recipients. To better target the pension, the income test withdrawal rate will be increased from 40c to 50c for each dollar of private income over the free area. This is one of the tough decisions needed to make the pension system more sustainable and to target the biggest pension increases to those who need them most.

Transitional arrangements will be put in place to protect existing pensioners who would otherwise have faced a payment reduction because of these changes. The transitional rules will maintain existing payments in real terms and give an increase of $10.14 a week. Pensioners will be able to access the transitional rules for as long as necessary and will be moved to the new system once it delivers them a better outcome.

To help pensioners keep more of the money they earn, a new work bonus is being introduced as part of the new income test arrangements which will help pensioners maintain some part-time work while they receive a pension. This bill will close the Pension Bonus Scheme to new entrants following a recommendation of the Harmer review. I note that the shadow minister admitted in his remarks that the scheme, which was introduced by the former Liberal government, had not achieved what it was supposed to. Now is the time to close it and replace it with a more effective incentive.

Other minor amendments are made to the pension system, including exempting certain payments being made by the Western Australian government from the pension income test. The bill also contains measures that change indexation arrangements for family payments to make family assistance more sustainable. This brings indexation arrangements for family tax benefit part A minimum rates for children under 16 into line with other indexation across the family tax benefit system.

This bill takes the tough decision to raise the pension age. The age pension was first paid in 1909, and next month marks the centenary of—


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