Tough times ahead – the budget and older workers
The 2014 Federal Budget is mostly ‘stick’ and very little ‘carrot’ for older Australians. By reducing government support to older Australians, it will force many to work longer but offers few incentives to do so.
It’s not clear whether all the changes from the Federal Budget will make it through the Senate, but there are a few realities that older workers need to consider.
The major change is that the age pension will be both more difficult to obtain and of lower value. Income testing will be more stringent, with the income eligibility threshold being 35 per cent lower than it currently is. Superannuation will continue to be included in the asset test’, but super draw downs will now be considered income’ as well, making it harder to obtain a part pension.
Additionally, the age pension will now be indexed to the Consumer Price Index (CPI), rather than the average male wage. Council on the Ageing (COTA) estimates that this means a real world reduction of $80 per person per week on a full pension within 10 years.
Last but not least, the age at which a person is eligible for the pension will increase from 67 years of age at a rate of six months every two years until it hits 70 years of age in 2035. This translates to Australia having the highest age for the age pension in any OECD country.
COTA – the leading national advocate for seniors – came out strong in response to the Federal Budget stating that: “The more vulnerable and disadvantaged groups within the community are being asked to take a disproportionate share of the burden of adjustment, including the young and the old.”
There will also be an increase in the income threshold for the Seniors Healthcare Card. The Seniors Supplement was abolished as of 1 July, 2014 and a new co-payment for both doctor’s visits ($7) and medications (80 cents) will be introduced. As seniors are the demographic most in need of medical assistance, this will hit them the hardest.
The other major change is to superannuation. The concessional superannuation contribution cap (contributions that are made before tax deductions) that you are permitted increases from $25,000 to $35,000 by 2015 for those over 50 years of age. The non-concessional cap (voluntary contributions from post-tax incomes) goes up from $150,000 to $180,000. This means that you can voluntarily build your super faster. However, for incomes over $300,000, the tax rate on super contributions still jumps from 15 per cent to 30 per cent.
Overall, older people are being encouraged’ to work longer and save more to support their retirement.
Judy Higgins, the general manager of the Older Workers job board, says that this means hard times ahead for some older Australians and women in particular.
“Older women reportedly have, on average, half the amount of super of males the same age,” she says.
“They earn less and are more likely to have significant gaps in employment due to childbirth, parenting or later in life caring duties.”
The only support program proposed in the Federal Budget is the introduction of the Restart programme, which offers employers up to $10,000 to employ an older worker. The payments are staged over two years and the person being employed must have been on benefits for more than six months.
The Federal Treasurer Joe Hockey says that this will help 32,000 older workers back into employment.
Yet Higgins disagrees.
“Previous incentive payments of these types have had little to no affect,” she says.
“We think the government has missed the mark with the Restart incentive, if the objective is to increase the number of older jobseekers being employed.”
This budget is about getting people to work longer and increase their own superannuation balances before retirement. Older workers in fulltime employment may be able to save more, but those who are not working and who do not have adequate super balances face a difficult future.
With falling support from government in managing the cost of living and healthcare, older workers will have to make up the difference from their earnings or superannuation, or start drawing against their assets earlier.
Source: The Living Well Navigator
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