20. Australian age pension

The Australian age pension was introduced in 1909, and many of its core elements have not changed since that time. The aim of the age pension is to provide an adequate safety net payment to older people unable to support themselves financially in their retirement. Its primary objective is thus the alleviation of poverty. As at March 1997, the single rate of pension was $347.80 a fortnight and the married rate of pension was $290.10 a fortnight for each member of a couple.

The Australian age pension is and has always been a flat rate non-contributory payment funded from general revenue. It is not linked to previous labour force participation.

The pension is both income and assets tested; it is thus targeted at those in financial need. Under the income test, the pension is reduced by 50c for each dollar of income over a specified 'free area' of income. As at April 1997, some pension was payable until income reached $804.40 a fortnight for single people and $1,343.20 a fortnight for couples (combined). Under the assets test, the pension is reduced by $3 a fortnight for every $1,000 of assets over specified limits, which vary between single people and couples, and home-owners and non-home-owners. For home-owners, the value of the family home is excluded from the calculation of assets.

The age pension is currently payable to men at age 65 years and women at age 61 years. Traditionally, women became eligible for the age pension at 60, but the pensionable age for women is being slowly increased to 65 over the next 16 years. It will reach 65 years in July 2013. Of the 1.6 million people receiving the age pension in June 1996, 1 million were women; thus women outnumber men by almost 2 to 1 amongst age pension recipients.

The age pension is paid to Australian residents, that is, a person whose normal place of residence is Australia and who is an Australian citizen or has permanent resident status. Except for refugees, a person must have been an Australian resident for a total of 10 years before the age pension is payable. This rule can be modified under shared responsibility social security agreements with specific countries.

The rate of pension paid is indexed to the Consumer Price Index (CPI), and is adjusted every March and September according to movements in that index. In addition, the Commonwealth Government has introduced legislation to support its commitment to maintaining the single rate of pension at a minimum of 25% of Male Total Average Weekly Earnings. This, together with CPI indexation, ensures that the relative value of the pension is maintained and that people who are dependent upon the age pension are able to benefit from increases in community living standards.

Pensioners also receive additional support in the form of rent assistance (if renting privately), a pharmaceutical allowance and the pensioner concession card which entitles the holder to a range of concessions on services provided by Commonwealth, State and Local Government.

The Department of Social Security retirement income program (incorporating age pension and wife pension for some partners of age pensioners) is one of the largest of the Australian Government's expenditure programs with some 1.7 million recipients and total estimated outlays of $13.6 billion in 1997 - 98. This represents some 32% of total social security portfolio outlays.

There is also a range of benefits available to war veterans and their dependants through the Department of Veterans' Affairs (DVA). One of these is the service pension which is similar in many ways to the age pension. It is subject to income and assets tests in the same way as age pension. Some 337,830 people receive this payment from DVA. The service pension is available five years earlier than the age pension, that is, at age 60 years for males and 56 years for females (the qualifying age for females is being progressively increased from 55 to 60 in a similar way to the increase in the age pension age for women described overleaf). Like the age pension, the rate of service pension is linked to increases in the CPI and increases in the value of Male Total Average Weekly Earnings.

The ageing of the Australian population will impose pressure on program outlays in the Social Security Portfolio in the future. A number of policy responses have been undertaken to moderate the effects of the increasing number and proportion of older people in the population. There has been a greater emphasis placed on encouraging self-provision for retirement. Strategies here include the provision of free financial information for retirees and pre-retirees, and other methods of innovative service delivery, such as Retirement Service Centres. The government has also encouraged greater superannuation coverage through the compulsory superannuation guarantee, and encouraged increased personal savings through a newly announced tax rebate for savings.

The phasing in of the increased age at which women become eligible for the age pension (to equalise it with that for men) is also expected to yield some savings, as is the introduction of a deferred pension bonus plan for people continuing in gainful employment beyond the age pension age. (This measure recognises that many people are choosing to put their considerable skills and experience to productive use in the workforce beyond age pension age.)

Age profile of age pensioners, Australia 1996

References/further reading

Department of Social Security 1996. Annual report 1995 - 96. Canberra: Australian Government Publishing Service (AGPS).

Department of Veterans' Affairs 1996. Annual report 1995 - 96. Canberra: AGPS.

Kewley T 1980. Australian social security today: major developments from 1900 to 1978. Sydney: Sydney University Press.

Data sources

Data presented here are drawn from Department of Social Security Customers 'A Statistical Overview - 1996' (Department of Social Security) and unpublished data from the Department of Social Security and the Department of Veterans' Affairs.

Prepared by the Department of Social Security