Why the aged pension will always be there
A majority of Australians fear that the pension will not be available when they retire. After hearing from a coworker that the pension would not exist when my generation would retire, I wanted to explain why I think this is almost certainly wrong.
The Australian aged pension is 112 years old. In that time almost all the advanced economies have adopted some form of socialised insurance for the aged. A more recent trend has been for middle income countries to legislate for universal social insurance.
The reason why socialised insurance for the aged is so common is simple; most people find the idea of the elderly living in poverty horrifying. Almost all cultures teach young people to respect and even revere the elderly. Before the advent of capitalist economies and modern states the elderly relied on family connections to protect them in their old age. And beyond that social connections outside of immediate family provided further insurance.
The few advanced economies that do not have serviceable social insurance programmes for the aged tend to be in South East Asia. This is not because they operate a user pays system where workers save and self-fund their retirement, but more so that strong social norms dictate that children will provide for their parents. In South Korea to receive a basic living allowance the elderly must prove that they cannot receive family support. Unfortunately, this approach is disastrous for the elderly who cannot access strong family support. South Korea, Singapore and Japan all have notably high rates of the elderly living in poverty considering their wealth.
The more common model than our flat rate of pension is a contributions based scheme such as social security in the US. The main difference is that this design leaves far more of the elderly in poverty. Even without this system women who spend less time in the workforce are a fast growing segment of our homeless population.
Were Australia to abolish the pension, many would be thrown into poverty. We would have the highest rate of the elderly living in poverty in the developed world. Could Australia become the most callous country in the world? I hope not.
Sometimes both sides of politics collude to enact policies that are unpopular with voters. The privatisation of state assets is one common example of this. In this case the majority cannot enforce their preference through voting and the preference of the well-connected political class predominates. The complexity of that issue further accentuates the advantage of well connected groups to dominate policy.
When an issue can be easily simplified to a yes or no proposition the mass of ordinary people really do rule. An example of this was operation fortitude in 2015 when the immigration minister Peter Dutton planned to have police carry out on the spot visa checks on the streets of Melbourne. Their was a strong public backlash, with crowds forming on the streets and in railway stations. Exactly why the government caved and cancelled the operation is disputed but the protests played a role. Or if you find this example unpersuasive consider that despite staking his reputation on standing up to protesters French president Emanuel Macron has repeatedly had to offer them concessions. Such examples being rare in Australia we can easily forget that ordinary people have political power when an issue is salient enough.
What would you do if the government abolished or cut the rate of the pension? I expect many people would protest and the government would be forced to appease the out of control public anger. This is the real insurance for the elderly in our society. Public sentiment in favour of the elderly and the power and solidarity of the ordinary people to enforce that view. After all public institutions like the pension or Medicare would likely not exist without the political power of working people organised in the form of unions.
What the government has done and will continue to do is further lower the means test for access to the pension. This move punishes those on low incomes who underwent the most difficulty to save. Those who narrowly miss out on receiving much or any pension support often respond by becoming embittered against the system of the welfare state, reasoning that It does not help people like them. In short more stringent means testing creates divisions amongst the poor and working class and fosters support for harsh policies that hurt the less well of.
It’s possible that if the government keeps promoting super they could reduce the fraction of those who depend on the pension to a shrinking minority. This would be difficult because any system of mandated savings (whish super is) will only tend to replicate the highly unequal distribution of income. No matter how much the rules are tweaked it is almost like fighting economic gravity to get the system to deliver a liveable amount of superannuation for those with low lifetime earnings, as evidenced by the distribution of benefits from the system.
Still if the government pushes hard maybe they could achieve a workable level of super without pension access for 70% of retirees (currently 37% of Australians don't receive any pension). In this situation those receiving on the pension might become a highly stigmatized group like the unemployed are today. With Pensioners being held in high esteem, we are a long way from that situation. But if this did happen it would represent a terrible social breakdown not some great policy achievement.
Ordinary people do not believe the pension will be abolished for no reason. They hear the communication from politicians on both sides that this vision of a user pays system is their(politicians) aspiration for the future. The media produces constant uncritical coverage of the ASFA and their estimates of how much super people need to have. This is a bit like asking Apple if you really need the latest MacBook when your old model is doing fine. Australia’s ‘elites’ are pushing superannuation hard despite all the heavy lifting on income security still being done by the 100 year old aged pension.
The aged pension Costs only 2.9% of GDP. There is no reason at all why it could not be four or five percent. We can and should set the rate of pension at where we can be comfortable that needs are being met and let the cost take care of itself. If housing access is still a problem the best solution to that is simple — build directly. It is also unacceptable that aged care services are hard to access and of poor quality. Australia is a rich country and we more than have the resources to address these problems.