History of the Aged Pension in Australia
The Commonwealth of Australia was formed on I January 1901 by federation of the six States under a written constitution which, among other things, authorised the new Commonwealth Parliament to legislate in respect of age and invalid pensions. In the event, the Commonwealth did not exercise this power until June 1908 when legislation providing for the introduction of means-tested 'flat-rate' age and invalid pensions was passed. The new pensions, which were financed from general revenue, came into operation in July 1909 and December 1910 respectively, superseding State age pension schemes which had been introduced in New South Wales (1900), Victoria (1900) and Queensland (1908) and an invalid pension scheme introduced in New South Wales (1908).
The new pension was paid to men from age 65. It was paid to women at age 60, but not until December 1910. The age pension was also subject to a residence qualification of 25 years which was reduced to 20 years shortly after introduction. A residence qualification of five years applied to the invalid pension.
In 1912 the Commonwealth introduced a maternity allowance. This allowance was a lump sum cash grant payable to a mother on the birth of a child.”
An aged pension contribution similar to the schemes that exist in NZ, UK, US, Canada, most European and many Asian countries was created in 1946 to ensure that people would have an income in retirement. Every currently retired person has paid into this scheme through their taxes.
In the above mentioned 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. An income tax levy of 7.5%, called a social services contribution, was introduced to be used exclusively to finance social security cash payments. This contribution was paid into what was called a National Welfare Fund, from which payments were to be made. The fund was to be supplemented by subventions from payroll tax and general revenue.
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 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’s Government (1975) legislated that every person over 70, regardless of assets or income, was eligible for the aged pension as was the case in the US, UK, Europe, NZ and elsewhere.
In 1977 the Fraser Government restricted aged pension entitlements so that while recipients kept their pensions those of people above a certain income level did not increase with inflation. He 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 Pension. 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 still is collected. Every retired person has paid into this scheme and every worker is still paying the levy as part of their taxes.
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 or have forgotten about the levy.
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 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 was 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 acknowledged the contributory funding basis for pensions they would have to admit they have spent the money. They would also 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 pension funds. It is the only superannuation fund many older retirees could use. People working casually particularly women were not allowed to contribute to superannuation schemes. It was as valid a fund for contributing to super as any that exist today.
It is truly frightening that the money contributed via a Government instituted and managed fund has been effectively stolen and squandered 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.
It is not acceptable that we allow politicians and a complacent/complicit media to push the myth that the pension is welfare and denigrate those who receive it. It is important that we do not allow them to steal further entitlements from the weak and vulnerable and let them sweep their mismanagement of retirement policy funds under the carpet in the new Parliament House.
The fact that $1.6 billion dollars was taken from funding for the frail elderly in the last Budget is disgraceful.
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Larry Hannigan’s Australia
26 April 2014
1 - The Aged Pension