Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 60

Extracts from the National Commission of Audit

On Thursday 1 May 2014, Joe Hockey released the National Commission of Audit, accompanied by this statement. It’s an important review, the first into the scope and efficiency of the federal government in 20 years. Mr Hockey said it will provide important input to the forthcoming budget, as well as guiding future policy.

For those who would like to read the report, the home page of the Commission is linked here. In the following extracts, we have links to the recommendations on aged pensions and superannuation preservation age, as well as the Commission’s statements on age pensions and aged care.

Perhaps the most important graph in the entire report, as shown below, estimates the proportion of the eligible population receiving an age pension. While the proportion on full pension is expected to fall from the current level of 50% to about 30% by 2050, part-pensioners rise by the same amount, from 30% to 50%. So the current ratio of 80% of the eligible population receiving a pension remains unchanged out to 2050. A part-pension gives eligibility to a wide range of benefits relating to health, transport and utilities. This will change if the recommendation is adopted to include the family home in the means test for the age pension, and income from super for eligibility for the Commonwealth Seniors Health Card.

The full list of recommendations is linked here.

Recommendation 13: Age Pension – tighter targeting of eligibility

The Age Pension is an essential part of Australia's social safety net. The Commission recommends that changes be made in future to ensure it is more sustainable, affordable and better targeted by:

  • formally linking the eligibility age of the Age Pension to 77 per cent of life expectancy at age 65 from 2033. This will result in the eligibility age for the Age Pension increasing to around 70 by 2053. The proposed change would not affect anyone born before 1965;
  • replacing the current income and assets tests with a single comprehensive means test. Under this approach the existing assets test would be abolished with the income test extended by deeming income from a greater range of assets. The new comprehensive means test would apply prospectively to new recipients of the Age Pension from 2027-28 onwards;
  • including in the new means test the value of the principal residence above a relatively high threshold. The threshold in 2027-28 would be equivalent to the indexed value of a residence valued today at $750,000 for coupled pensioners and the indexed value of a residence valued today at $500,000 for a single pensioner. This change would apply prospectively to new recipients of the Age Pension from 2027-28 onwards; and
  • increasing the income test withdrawal (taper) rate from 50 per cent to 75 per cent. This change would apply prospectively to new recipients of the Age Pension from 2027-28 onwards.

Recommendation 14: Superannuation preservation age

The Age Pension and superannuation are interrelated elements of the retirement income system. The Commission recommends some changes be made to the superannuation system to complement changes being recommended for the Age Pension by:

  • increasing the superannuation preservation age to five years below the Age Pension age;
  • extending the current phased increase in the preservation age by an extra four years so the preservation age reaches 62 by 2027; and
  • increasing the preservation age in conjunction with the Commission's proposed increases in the Age Pension age thereafter.

The section on Age Pension is linked here.

In 2013-14, an estimated $39.5 billion will be spent on the Age Pension, benefitting 2.4 million recipients. Expenditure on the Age Pension is currently growing at 7 per cent per year. Age Pension expenditure is expected to continue to increase largely as a result of an ageing population, increased life expectancies and benchmarking to the Male Total Average Weekly Earnings benchmark.

The features of the Age Pension means test, such as a 50 per cent taper rate and high income free area, can mean pensioners with relatively high levels of income (up to $47,000 in annual income) are able to access a part-rate pension.

As shown in Chart 7.1 on current projections there is unlikely to be an increase in the proportion of individuals who are completely self-sufficient and not reliant on the Age Pension despite the significant investment in superannuation over time. Even allowing for a decline in the proportion of people receiving the full pension, a rise in the number of people receiving the part-rate pension will see the proportion of older Australians eligible for the Age Pension remaining constant at 80 per cent over the next forty years or so.

The section on aged care is linked here.

Currently around 1 million older Australians receive some form of aged care support. The majority of these are people who receive services in their own home and the community. Around 200,000 people are in permanent residential care.

With the ageing of the population, the number of Australians aged 65 and over will rise rapidly, from 3 million today to over 8 million by 2050. Moreover, by 2050 it is expected that more than 3.5 million people will access aged care services, with around 80 per cent of these delivered in the community.

There is a strong rationale for government involvement in aged care on equity grounds and also to overcome information gaps and protect vulnerable Australians. However, over recent years there has been increased acceptance and use of private co-contributions toward the cost of care.

Formal aged care services are predominantly financed by government, with supplementary user contributions also required in many areas. Public funding is primarily delivered through payments to the providers of the various care services.

Aged care expenditure is expected to be around $13 billion in 2013-14, with strong growth expected over coming years. Expenditure on aged care is currently growing at around 4 to 5 per cent per year in real terms. Residential age care is the single largest area of expenditure. Expenditure is being driven primarily by demographic and health factors.


 

Leave a Comment:

banner

Most viewed in recent weeks

Australian house prices close in on world record

Sydney is set to become the world’s most expensive city for housing over the next 12 months, a new report shows. Our other major cities aren’t far behind unless there are major changes to improve housing affordability.

The case for the $3 million super tax

The Government's proposed tax has copped a lot of flack though I think it's a reasonable approach to improve the long-term sustainability of superannuation and the retirement income system. Here’s why.

Tariffs are a smokescreen to Trump's real endgame

Behind market volatility and tariff threats lies a deeper strategy. Trump’s real goal isn’t trade reform but managing America's massive debts, preserving bond market confidence, and preparing for potential QE.

The super tax and the defined benefits scandal

Australia's superannuation inequities date back to poor decisions made by Parliament two decades ago. If super for the wealthy needs resetting, so too does the defined benefits schemes for our public servants.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Getting rich vs staying rich

Strategies to get rich versus stay rich are markedly different. Here is a look at the five main ways to get rich, including through work, business, investing and luck, as well as those that preserve wealth.

Latest Updates

SMSF strategies

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Superannuation

The huge cost of super tax concessions

The current net annual cost of superannuation tax subsidies is around $40 billion, growing to more than $110 billion by 2060. These subsidies have always been bad policy, representing a waste of taxpayers' money.

Planning

How to avoid inheritance fights

Inspired by the papal conclave, this explores how families can avoid post-death drama through honest conversations, better planning, and trial runs - so there are no surprises when it really matters.

Superannuation

Super contribution splitting

Super contribution splitting allows couples to divide before-tax contributions to super between spouses, maximizing savings. It’s not for everyone, but in the right circumstances, it can be a smart strategy worth exploring.

Economy

Trump vs Powell: Who will blink first?

The US economy faces an unprecedented clash in leadership styles, but the President and Fed Chair could both take a lesson from the other. Not least because the fiscal and monetary authorities need to work together.

Gold

Credit cuts, rising risks, and the case for gold

Shares trade at steep valuations despite higher risks of a recession. Amid doubts that a 60/40 portfolio can still provide enough protection through times of market stress, gold's record shines bright.

Investment strategies

Buffett acolyte warns passive investors of mediocre future returns

While Chris Bloomstan doesn't have the track record of his hero, it's impressive nonetheless. And he's recently warned that today has uncanny resemblances to the 1990s tech bubble and US returns are likely to be disappointing.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.