Tomorrow, new rules apply for people getting a part-pension. If they have a certain amount of wealth and dependent on whether they own their own homes, retirees may have their pensions removed or reduced.
To me, I think that’s fine. The government has limited resources and it has to draw a line somewhere. Previous governments were too generous (think Howard and Costello) and that has required an adjustment, but it seems pretty odd to me, from my perspective, that we are just focusing on this small group of people.
You see, from my point of view, a pension is like a tax in reverse. So why does this rule only apply to people after they retire? Also, if it makes sense to discriminate between home owners and asset holders after they retire, why doesn’t it apply to tax-payers before they retire. It’s the same people, just older!
By analogy, if pensioners receive less pension because they own their own home then why don’t home-owning taxpayers pay more tax? If the asset rich are deserving of less pension after they retire, then why aren’t we asking them to pay more tax before they retire?
And then you have to ask why certain classes of assets get such different treatments throughout a person’s life. Going back to the pension test, the family home test is completely binary. You either have one or you don’t. If you have a Vaucluse mansion or a one-bedroom unit in Canley Vale, it’s all the same. That doesn’t make sense.
If you are poor or stupid and can’t afford a financial adviser, you are very likely to end up getting screwed by the system. The government makes up the rules but try to get a government official to explain to you the best way to organise your stuff. There is no chance of that happening! I think the government should provide this service free of charge. Better still, just treat everything and everyone the same.
If you owned a rambling home in Killara with no other assets but were receiving a full pension you have no way out except dying. Sell the home and you lose the pension. Give the proceeds to your children and you are guaranteed to never have anything but charity. The system is full of ‘gotchas’ on one side and perks for those who can manipulate the system.
I say just treat all assets the same. And don’t wait for retirement to start ‘taxing’ wealth. A very small rate of wealth tax (say 0.5% of value) could apply to all wealth over a threshold, throughout life. The threshold would rise with age. Then give the pension to all but continue to collect the wealth tax. Then effectively a person with, say, $1.5 million would probably lose all their pension. These new rules would be a lot easier to follow. They wouldn’t be penalised for not organising their affairs.