Government tightens pension assets test to save $2.4 billion

Social Services Minister Scott Morrison confirmed that the government has abandoned its 2014 budget plan to cut back the indexation of pensions. AAP/Lukas Coch

A crackdown on the pension assets test would save the budget A$2.4 billion over the forward estimates, with 91,000 current part-pensioners becoming ineligible and another 235,000 having their part-pension reduced.

Announcing the measure ahead of Tuesday’s budget, Social Services Minister Scott Morrison confirmed that the government has abandoned its 2014 budget plan to cut back the indexation of pensions, which would have affected more than four million people.

The government was forced into its retreat because it had no hope of getting the initiative, which would have substantially eroded the value of the pension, through the Senate. Its revamped proposal, which Morrison has been “road testing” as he tries to lay the ground with crossbenchers, appears to have a much stronger chance of winning support.

In changes starting January 1 2017 – after the election - the government would reduce the maximum value of assets that could be held to qualify for a part-pension. This is now up to $1.15 million, plus the family home, for a couple – it would be cut to $823,000 and the family home.

The government is softening the blow for those who stand to lose by retaining their eligibility for the Commonwealth Health Seniors Card or Health Care Card, which provides the same concessional access to pharmaceuticals as received by those on the pension.

Prime Minister Tony Abbott said on radio that “this idea that you can be a liquid-assets millionaire and still be a part-pensioner I think is problematic”.

But, in a comment directed at Labor’s intention to target the superannuation tax treatment for well-off people, Abbott said the government had no plans “to smash people’s superannuation”.

Abbott said he was determined the budget would be “fair”. Last year’s budget was widely attacked for its perceived unfairness.

The new pension plan has winners as well as losers in Morrison’s bid to make it politically acceptable.

More than 170,000 pensioners with modest assets would have their pensions go up by an average of more than $30 a fortnight, including about 50,000 part-pensioners who would qualify for a full pension under the new rules.

More than 90% or 3.7 million pensioners and others who receive pension-linked payments would either be better off or have no change, Morrison said.

The plan reverses the liberalisation of the “taper rates” brought in by the Howard government. Morrison said those changes had been put in place when the budget was in surplus and there was $40 billion in the bank.

He said those hit by the changes would be able to maintain their current level of income by drawing down less than 1.84% on their additional assets ($574,000 for a single homeowner) in a worst-case scenario.

“It is common for pensioners not to draw down on their assets while receiving the pension,” Morrison said. He said research by his department on asset holdings of pensioners had found that during an individual’s last five years of receiving the pension, 42.5% increased their asset holdings and 24.7% maintained them at the same level.

Less than a third of pensioners actually saw their assets decrease in their last five years, he said.

In the first five years on the pension, 44.5% increased their assets, 12.9% had the same amount and 42.6% decreased their assets.

On average, pensioners have about $113,000 in assets.

Opposition Leader Bill Shorten reserved his position. “Let’s see the detail, the fine detail, but this is a government who when they talk pensions, I get very worried for pensioners,” he said.

The Greens said the plan seemed a step in the right direction but suggested it should be referred to a Senate inquiry.