Dear Mr Shorten and Labor Party Representatives,
So far there has been no mention of a plan by Labor to adequately fund pensions and part pensions for retirees; and yesterday Mr Shorten made it clear that Labor is going to maintain the harsh cuts to part pensions put in place by the LNP by doubling the taper rate and reducing the deduction for self funded retirees who are primarily drawing down after tax income.
While the funding of other services such as Education and Health are primarily State responsibilities the funding of pensions is a prime central responsibility of the Commonwealth Government and requires adequate planning.
Starting with the Hawke Government successive Governments have not done that. Instead they have stolen people’s retirement funds and now pretend that previous Governments and retirees instituted no pension savings plan and made no provision for their retirement. This is totally false.
As I am sure you know a superannuation scheme was created in 1946 to ensure all retirees would have a pension and that every currently retired person has paid into this scheme.
This is similar to the schemes that exist in NZ, UK, US, Canada, most European and many Asian countries. In these countries every retired person gets an aged pension as a result of their contributions. In Australia the majority of retired people get no pension or a partial pension only. People’s pension entitlements were further diminished by the changes approved in the 2015 Budget that affect self funded retirees with both limited assets and small defined benefit pensions.
The Australian Pension scheme was set up in 1946 by the Chifley/Curtin Governments in a bipartisan agreement with the Menzies opposition. Income tax was split into two components. One, the social services contribution, was to be used exclusively to finance social security payments, in particular the aged pension. This contribution was set at 7.5% and lodged in a National Welfare Fund.
Mr. Menzies stated that the Compulsory Contribution (levy) should be kept separate so that “the stigma of charity should be removed from the Age Pension. It should be an entitlement earned by the person’s personal contribution to the fund.”
However he changed his mind about keeping the fund separate and in 1950, when the balance in the fund was almost 100 million pounds, the levy was grouped with Tax Paid but was still collected.
On the basis of this levy The Whitlam Government (1975) legislated that every person over 70 was eligible for the aged pension as had been done in the US, UK, Europe, NZ and elsewhere.
In 1977 the Fraser Government restricted aged pension entitlements and transferred the balance of the Welfare Fund (by then almost half-a-billion dollars) to Consolidated Revenue, and ‘borrowed’ it for other uses such as the building of New Parliament House.
In 1985 the Labor Government repealed Acts No. 39, 40 and 41 of 1945 (The National Welfare Fund Acts) and introduced the Income and Asset Tests, thus excluding millions of Australians from receiving the Social Services Pensions. Much of this money was used for other purposes including the completion of the new Parliament House. Mr. Hawke is reputed to have said they would work out how to fund pensions when the time came. They continued to collect the 7.5% levy and to this day it is still collected.
There have been estimates that the trillions of dollars stolen from the fund would be enough to pay a non-means tested pension to every retiree of more than $500 a week.
It seems that the method present politicians have adopted for dealing with the ‘borrowed’ money is to pretend this levy never existed and that this money was never contributed for retirement pensions. By now most people also seem to be confused about the levy or have forgotten it existed.
This was very evident in November 2015 when Scott Morrison, arguing for tax cuts for high income earners, stated that Australians paid more personal income tax than people in other OECD Countries and that they did not pay a Social Services levy. Among other things, he is obviously completely ignorant of the fact that there is a social services levy that is incorporated into statements of personal income tax. An ABC Fact Check showed that when the Social Services levy paid in other countries is taken into account their tax rates are on par with Australia’s. On the basis of this levy other OECD Countries can afford to pay a pension to their retirees but Australia disgracefully tries to limit payment even to the most needy.
If politicians accepted the contributory funding basis for pensions they would have to admit they have spent the money. They also would have to accept that the pension should not be asset and income-tested; that there could be no possible basis for including the family home in any tests; and that the pension is not being paid from the taxes of younger generations (whose own 7.5% also is being misappropriated).
The National Welfare Fund was the only fund the majority of working people had available to them until the last decade or so as only Government and large organisations had superannuation funds. It is the only superannuation fund many older retired people could use. People working casually such as many women were not allowed to participate in superannuation schemes. It was as valid a fund for contributing to superannuation as those that exist today.
It is truly frightening that the money people contributed via a Government instituted and managed fund has been effectively stolen and it is grossly insulting to say to people who contributed to this Fund that they did not pay for their pensions and that the aged pension they receive is welfare or even worse that is being stolen from the future generations.
At this stage retirees are not requesting a universal pension but consider that the changes that have deprived low income self funded retirees of all or a significant portion of their part pensions in the 2015 budget are completely unjustified. They expect those changes to be reversed or at least modified at the very least to be grandfathered.
The increase in the taper rate has taken it back to where it was about twenty years ago and does not in any way allow for inflation in that time. It will force retirees on small lump sums to draw down much more of their capital to live on and mean that many more people will have to rely on a full pension much sooner than would be the case if the 2007 taper rate was maintained, but who is doing any forward planning?
The discount rate of about 40% that existed for the money people on defined benefit pensions draw down fortnightly made allowance for the fact that a significant portion of this money was just their savings. The reduction of this to 10% leaves people who made after tax contributions in old schemes of up to 30% of their after taxable income during their working lives with little more than the pension.
These contributions made a saving for the future made it impossible for people to pay off mortgages during a period when interest rates were up to 18%. It meant most people retired with significant mortgages and debts. If they had taken a lump sum instead of the pension many would be entitled a full pension and most would certainly get a much larger part pension.
The fact that $1.6 billion dollars was taken from funding for the frail elderly in the last Budget is disgraceful and the rhetoric that has been used to disparage the elderly over the past three years from Labor as well as Liberal think tanks is unconscionable.
It would be much fairer if all retirees got a pension from a portion of their contributions. The remainder of their retirement savings could be taken as a lump sum or pension as is the case in the UK, US, Europe, NZ and many other countries.
While you have proposed ‘grandfathering’ the proposed changes to high end super for people with lump sums over $1.6 million in their funds there was no proposal to grandfather last year’s changes.
This Labor team is becoming a huge disappointment. It appears to be totally out of touch and disengaged from real people. There have been no discussions with senior groups by Chris Bowen, Mr Shorten or Jenny Macklin about how the changes made impact on people. Undoubtedly they will turn up at a few nursing homes for morning tea in the next few weeks.
Chris Bowen was Minister for Superannuation but appears to have no idea of what superannuation schemes exist and have existed, like his counterpart Mr Morrison, or of the fact that there are older schemes that are unlike the current ones.
Like their predecessors this Government and Opposition appear to see people’s retirement savings as a large amount of money that can be subverted to other purposes and not repaid. We have two parties standing with policies that take from the poorest and most vulnerable retirees to give tax cuts to the rich or fund other largesse.
Labor has given retirees who are its lifelong supporters every reason not to support it in this election.