Australia is between a rock and a hard place. Rising life expectancies mean our present age pension system is unsustainable, yet any attempt to change it will be met with strong resistance from the over 65s - the fastest growing group in the community.
The present income and asset tests are generous. A homeowning couple can have assets of about $1,126,000, plus their home, before losing eligibility to at least a part pension under the assets test. For the income test, the cut off for a couple is $73,247 a year.
It's hard to make an argument that people whose assets and income are in range of these figures should be receiving assistance from the government. Expect to see the limits reduced - the big question is when.
The possibility of raising the pensionable age even further is making headlines and on first glance it would appear an easy option. It would have no impact on today's retirees and the government tells us how many billions of dollars would be saved in years to come.
The reality is that it is impractical, as older people find it harder to obtain work and certain occupations such as heavy trade work are not suited to most older people. But how does a person aged 60 support themselves if there's no pension until age 70?
Under the current system the disability support pension is the only safety net for people who are unemployable and who have not reached pensionable age. It's a waste of everybody's time to force them to look for work and report to Centrelink. The outcome is that they are effectively on welfare even though they are precluded from eligibility due to their age.
Then there is the ridiculous proposition that the age at which a person can access their superannuation be tied to pensionable age. Is anybody seriously suggesting that a person aged 60, with $900,000 in super, be forced on to some form of welfare because they can neither access their super nor the age pension?
An easy target is the senior Australian pensioner tax offset (SAPTO), which was introduced in July 2000 to compensate older Australians for the effects of the GST. It allows a single pensioner to earn up to $32,279 a year tax free, and a couple $28,974 each tax free.
The tax-free threshold for most Australians is just $18,200 a year. Why should pensioners get special treatment?
A radical proposal would require pensioners to be forced to use some of their financial assets before qualifying for the age pension. For example, if Harry and Sally had, say, $500,000 in financial assets, they would be ineligible for any age pension until financial assets were reduced to, say, $300,000. If this were to happen, new applicants for the age pension would be assessed under much harsher cut-off points for both asset and income tests.
The proposal to tighten age pension eligibility by including part of the value of the family home in the assets test has been widely publicised. The present system is certainly inequitable. A couple can live in an expensive home, have up to $238,000 in financial assets and receive the full pension, while a renting couple with no assets would get exactly the same pension, plus maybe a bit extra for rent assistance.
It's not on - think about the practical difficulties. Every home would have to be regularly valued, and there would have to be weighting given to areas such as Sydney where home prices are at record highs. And what sort of consideration would be given to those who were asset rich and cash poor?
If the rules changed, the media would be full of stories of cash-strapped widows living in run-down houses in good suburbs being forced out on the street.
Would people have to resort to reverse mortgages to live, or would they spend up big so they could retain the full pension? And who would pay $600 to have their home valued every five years, then suffer a drop in their pension if a property boom meant the value of their home had gone up?
Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: firstname.lastname@example.org.