Middle income earners are most disadvantaged by the superannuation system, Mercer’s senior partner David Knox highlighted during an interview in which he pitched the concept of a universal pension for all Australians regardless of how wealthy they are or how much they earn.

In addition to making the system simpler a universal pension would also make it fairer, Knox said during an hour-long interview with David Bell, executive director of The Conexus Institute as part of the group’s ‘Big Ideas’ series. Watch the full interview here.

While explaining the advantages of the universal pensions concept, Knox highlighted how the current system falls short for middle income earning Australians.

“Under the current system it’s the middle income earners who miss out. Low income earners get the age pension, high income earners get more of the tax concessions, middle Australia don’t get much at all so even under the current system there is an equity issue,” Knox noted.


Knox explained that a universal pension concept, which exists in New Zealand and in the Netherlands, could result in “taking some off the top” by essentially removing or tapering tax concessions for higher income earners and redistributing these savings to middle income earners.

“It’s more efficient in the economic sense and it should deliver better resource allocation in the economy because it doesn’t have these barriers or traps that people try to avoid [including] some people trying to arbitrage the aged pension,” he said.

The Retirement Income Review tabled with government towards the end of last year all but dismissed the idea of a universal pension because of the cost which it estimated at $30 billion.

Knox said some of the estimated cost of a universal pensions system could be offset by tax concessions in the wealthy and high income category.

Specifically Knox pointed to the 11,000 people highlighted by the Retirement Income Review with more than $5 million in their super as an area where some concessions could be clawed back. He also pointed to the transfer balance cap as high enough at $1.7 million for an extended period of up to a decade.

“Lets taper the tax concessions, low income still get pension, the middle income earners could become with winners but overall it could be a fairer system,” he said.

Rather than move to a part means tested/part universal-style system a-la the Canadian, Danish and Israeli retirement savings systems, Knox suggested Australia go the full hog by removing the means test and provide a pension payable to everyone above the age pension eligibility age with appropriate residency status.

Knox highlighted simplicity and better allocation of resources as the major arguments for adopting a universal pension system, while acknowledging that cost and the broader desire for retirees to be self funded as detracting factors.

“I agree that it does appear to be a socialist policy in that it’s paying something to everybody,” he acknowledged in response to an audience question. He also noted that the policy move would fit more comfortably with the Australian Labor Party given both Medicare and the mandated superannuation savings system were ALP policies.

“For the Liberal Party it’s an opportunity to rejig the current system to make it simpler for everyone and make it better for middle income earners,” he said.

As the population gets older Knox pointed out the government is paying significant sums in health and aged care costs, “[S]o a little bit of extra income means we don’t need to relay on super as much,” he noted.

“It’s a way to get the two pillars [pensions and retirement savings] working together better,” Knox said.

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