Age Pension liability ‘will fall faster than projected’

The Australian

Michael Roddan, Reporter

28 December 2018

Confidential Treasury modelling of the nation’s reliance on the Age Pension has found
the amount of money spent on welfare for retirees will fall faster than previously
expected as bigger superannuation nest eggs push Australians into self-funded

The unreleased projections of the share of GDP Australia spends on the Age Pension
is “consistent” with a fall of 2.7 per cent last year to 2.5 per cent in 2038. This is
significantly lower than previous estimates of the cost of providing the pension.

The government’s 2015 Intergenerational Report had the cost of the Age Pension
holding steady at about 3 per cent of GDP. In 2002, the Age Pension cost 2.9 per cent
of GDP and was forecast to rise to 4.6 per cent by 2042.

Documents obtained by The Australian under Freedom of Information laws reveal
Treasury noted projections by actuarial firm Rice Warner were consistent with its
revised, but not publicly released, modelling using the new Treasury system MARIA
(Model of Australian Retirement Incomes and Assets).

“Rice Warner projections are consistent with Treasury’s medium-term Age Pension
expenditure profile and longer-term projections from MARIA … though Treasury’s
projections have not been released yet,” notes an email from Treasury’s modelling
division in the tax analysis group.

The paper released in May by Rice Warner chief executive Michael Rice found the
share of the population eligible to receive the Age Pension would decline from about
69 per cent last year to 57 per cent in 2038.

This was because the superannuation system was delivering larger nest eggs for
savers, putting them outside the Age Pension assets test.

The revelations that Treasury is also expecting a falling Age Pension burden comes
after the government recently scrapped a planned move to lift the retirement age to 70.

The documents obtained by The Australian showed Treasury officials considered it
would be “good to flag” the comparison between the Rice Warner report and the
department’s MARIA modelling with former minister for revenue and financial
services Kelly O’Dwyer.

While the most recent Intergenerational Report forecast “relatively stable” Age
Pension reliance, at about 3 per cent of GDP, Treasury said the lower estimates gained
from its MARIA modelling were “not unexpected” as they reflected “updated data,
modelling and policy changes” since the 2015 Intergenerational Report.
However, Treasury has not released the assumptions underpinning its MARIA
modelling, which would allow third parties, such as the independent Parliamentary Budget Office, to check the government’s projections.

Because of the fall in the reliance on the Age Pension, Rice Warner suggested using
the savings to fund increased rental assistance for age pensioners.

Michael Roddan, Reporter