On Thursday 1 May 2014, the Federal Government released the National Commission of Audit report which details 64 recommendations “to place Commonwealth spending on a more sustainable long-term footing”.
In relation to your retirement plans, including your current lifestyle if you have already retired, the National Commission of Audit (NCOA) recommends some radical changes to the Age Pension, an increase in the age when you can access your super benefits, and a more onerous income test for the Commonwealth Seniors Health Card, to name a few.
Important: The NCOA recommendations have not yet been publicly accepted by the Federal Government, and what is outlined in this article will not necessarily become Government policy. What you can be certain of however, is that at least softer versions of many of these recommendations will make an appearance in the 2014 Federal Budget, to be announced on 13 May 2014.
The link to the complete list of 64 recommendations from the NCOA report is at the end of this article, but the recommendations affecting the Age Pension, preservation age, Commonwealth Seniors Health Card, Pharmaceutical Benefits Scheme, Medicare payments and other retirement and health-related measures are outlined below.
As way of context, the first recommendation of the NCOA report recommends that the federal government adopt a fiscal strategy that achieves the following:
- a surplus of 1 per cent of GDP by 2023/2014
- substantially reduce net debt over the next decade
- ensure tax receipts remain below 24 per cent of GDP.
The key NCOA recommendations affecting super benefits and the future lifestyles of retirees are:
- Access to super. Increase superannuation preservation age to 62, and eventually to 65 years
- Age Pension age, Age Pension rates and Age Pension eligibility. Some of the recommendations to change the Age Pension are rather disturbing, for example, a proposed new means test would include your home if valued above $750,000 in today’s dollars. See text below for more detail.
- Tougher income test for Commonwealth Seniors Health Card. The NCOA recommends that tax-free superannuation benefits are counted as income for the CSHC income test. See text below for more detail.
- Pay more for Medicare. Higher income earners not to get access to Medicare, and co-payments for all Medicare funded services, up to 15 visits.
- Pharmaceutical Benefits Scheme. Co-payment increase of $5 for medicines for general patients, and co-payment increase of $2 for concession cardholders.
- National Disability Insurance Scheme (NDIS). A slower phase-in of the scheme, and exercise of ‘budget control’.
- Family Tax Benefits. Abolish Family Tax Benefit Part B, and introduce a new single means test for Family Tax Benefit Part A.
- Paid Parental Leave. Scale down the leave entitlements to Average Weekly Earnings, currently $57,460
- Child care. Child Care Rebate and Child Care Benefit to be replaced with a single means-tested payment reimbursing parents for a proportion of their child care costs.
- Aged care. Include full value of principal place of residence in current aged care means test, and allow ‘reverse mortgages’ to access equity in home to pay for aged care
- Carer payments. Introduce of an income test, set at $150,000 a year, for Carer Allowance
- Unemployment benefits. Force single, young people to relocate for work after 12 months, and increasing the income test taper to 75%.
- Minimum wage. Ensure minimum wage is set at 44% of Average Weekly Earnings (AWE is currently $57,460) so set at 44% of $57,460, indexed to CPI less 1%.
- Disability Support Pension. Change eligibility, and income test to include homes valued above $750,000 in today’s dollars
- Housing Assistance. Extend Rent Assistance to public housing tenants, provided State governments charge market rates of rent.
- Unfunded superannuation liabilities. Close Military Superannuation and Benefits Scheme, and move towards a funded model for existing defined benefit schemes using money from the Future Fund.
- Department of Human Services payment system. Outsource payments system to private sector.
Delay access to super benefits until 62, and then 65 years
The NCOA recommends (no 14) increasing the superannuation preservation age to 62 years by 2027, and eventually increasing preservation age to 5 years below the Age Pension age. Based on related recommendations, this would mean preservation age would increase to age 65 by around 2053.
Quoting directly from the NCOA report: “The Commission recommends some changes be made to the superannuation system to complement changes being recommended for the Age Pension by:
- increasing the superannuation preservation age to five years below the Age Pension age;
- extending the current phased increase in the preservation age by an extra four years so the preservation age reaches 62 by 2027; and
- increasing the preservation age in conjunction with the Commission’s proposed increases in the Age Pension age thereafter.”
Lift Age Pension age to age 70 by 2053
If you are born after 1964, then expect your Age Pension to be 70 years of age, if the government accepts the NCOA recommendation (no 13). The NCOA recommends (no 13) linking Age Pension age to 77% of life expectancy at age 65 from 2033. What this means is that Age Pension age is expected to be around 70 years of age by 2053. The increase will not affect anyone born before 1965.
Other Age Pension recommendations
The NCOA recommends (no 12) changing how the Age Pension is indexed so it is set at 28% of Average Weekly Earnings, and transitioning this arrangement over a 15-year period. Currently, the Age Pension is set at 27.7% of MALE average weekly earnings which is a lot higher than Average Weekly Earnings.
The NCOA also recommends (no 13) replacing the current Age Pension income and assets tests with a single means test using deemed income over a greater range of assets. The new test would apply to new recipients of the Age Pension from 2027/2028 onwards.
Disturbingly, the proposed test recommended by the NCOA would include your family home based on the indexed value of a home valued at $750,000 in today’s dollars.
Also, the NCOA recommends increasing the Age Pension income test taper: from 50% to 75%, which would apply to new Age Pensioners from 2027/2028 onwards.
Tougher income test for CSHC
The NCOA recommends (no 15) that tax-free superannuation benefits are counted as income for the Commonwealth Seniors Health Card, which gives retirees who do not receive the age Pension access to discounted health services and other concessions.
Quoting directly from the NCOA report: “The Commission recommends that the Commonwealth Seniors Health Card be maintained as part of Australia’s retirement income system, but that changes be made to improve targeting to those most in need by adding deemed income from tax-free superannuation to the definition of Adjusted Taxable Income used for determining eligibility for the Commonwealth Seniors Health Card.”
Pay more for Medicare
The NCOA recommends (no 17) that higher-income earners should take out private health insurance for basic health services instead of claiming on Medicare, and these higher-income earners don’t have access to the private health insurance rebate.
The NCOA also recommends co-payments for all Medicare services of $15 per service up to the safety net threshold and then $7.50 per service. Force concession card holders to pay $5 per service up to safety net threshold and then $2.50 per service.
The NCOA also recommends a batch of other changes including co-payment for hospital emergency visits, and ensuring bulk-billing doctors still charge the service co-payment at clinics.
Pay more for PBS
The NCOA recommends (no 19) a co-payment increase of $5 for medicines for general patients (taking the cost from $36.90 to $41.90), and co-payment increase of $2 for concession cardholders.
Overhaul Family Tax Benefits
The NCOA recommends (no 20) changing the arrangements for Family Tax Benefit Part A, and abolishing Family Tax Benefit Part B. Quoting directly from the NCOA report: “The Commission recommends FTB arrangements be better targeted to those in need and simplified to boost workforce participation including by:
- changing arrangements for Family Tax Benefit Part A by introducing a new single means test, with the maximum rate of the benefit paid up to a family adjusted taxable income of $48,837 and then phasing out at 20 cents in the dollar until the payment reaches nil;
- abolishing Family Tax Benefit Part B;
- introducing a new Family Tax Benefit Part A supplement to be paid to sole parent families who have a child under the age of eight. The supplement should be the same as the current maximum rates of Family Tax Benefit Part B ($4,241 for a family with a child under five, or $3,070 for those whose youngest child is aged five to eight years);
- changing the per child rates to be based on the current Family Tax Benefit Part A rates for a first child and paid at 90 per cent of this for second and subsequent children; and
- removing the Large Family Supplement and Multiple Birth Allowance recognising that the costs of children are sufficiently covered by the basic rates.”
Tougher tests for aged care
NCOA recommends (no 25) that the full value of your home should be included in the current aged care means test, and to allow Australians to access equity in their homes to help pay for aged care services.
Quoting directly from the NCOA report: “The Commission supports the range of reforms currently being introduced in the aged care sector, but recommends additional measures be undertaken to improve the effectiveness and sustainability of the sector by:
- including the full value of the principal residence in the current aged care means test;
- implementing arrangements to allow older Australians to access equity in their principal residence, to pay for part of the cost of their aged care services;
- introducing a fee for aged care providers to access the accommodation bond guarantee or, alternatively, requiring providers to take out appropriate private insurance to cover the risk of default;
- terminating the Payroll Tax Supplement…”
Introduction of income test for carer payments
Quoting directly from the NCOA report: “Many Australians care for a family member or friend who is unable to care for themselves. The Commission recommends [no 26] payments to carers be maintained, but recommends changes to improve targeting including:
- limiting the annual Carer Supplement to only one payment per carer;
- introducing an income test for the Carer Allowance, set at $150,000 per year;
- reviewing eligibility criteria applying to the type of care provided and to the needs of the adult receiving care. This should ensure that Carer Payment is targeted to those whose caring responsibilities limit their capacity to work; and
- aligning Carer Payment arrangements with the Commission’s recommended changes to the Age Pension benchmark by transitioning to a new benchmark of 28 per cent of Average Weekly Earnings at the same time as implementation of the Age Pension benchmark changes.”
For more details on the recommendations listed above, and for a complete list of NCOA recommendations see the full NCOA report by clicking on this link.