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Century of age pension guessing

By Everald Compton - posted Thursday, 10 December 2015


Andrew Fisher and Alfred Deakin met at the Melbourne Club for lunch in 1908 to agree on legislation that would give Australians an Age Pension for the first time. The figure that they chose for the initial pension was the amount they reckoned the government could afford, not what pensioners actually needed.

Since then, every government has calculated the pension the same way. Its time for us to work out what it should actually be. The best way to do it will be to establish an independent Age Pension Authority and do it with a unanimous bipartisan vote of Parliament.

Fisher and Deakin were role models that Turnbull and Shorten should try to emulate. There was no majority government for the first fifteen years after Federation so all important legislation was determined by consensus. There was none of the ranting and raving through which the Gillard Minority Government had to live and survive. The two great men actually knocked one another off their perch as Prime Minister three times and remained good friends, totally unlike the viciousness of today's politics when Rudd and Abbott ran around crying foul.

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When our two pioneering Prime Ministers decided to create the pension, they shared a bottle of Red at the Club while agreeing on the details. Alas, that bottle of Red set the format for the calculation of the pension that has been followed for 107 years. The figure has usually been determined on what figure will win the next election.

Occasionally, it has been declared to be a percentage of the basic wage, but mostly it was guess work. Sometimes it was pragmatic politics when Treasurers, like Wayne Swan, realised that the pension simply was not adequate. He gave pensioners the greatest increase in history and it was a proud moment of my life to negotiate it with him.

No one has ever followed Granny Smith around and calculated, item by item, what she needs to spend in order to have a life which is respectably above the poverty line.

So, we need to find a government that will have the courage to establish an Age Pension Authority that will have the same independence as the Reserve Bank. Its task will be to determine what the age pension must be, through a line by line calculation of costs, and ask Parliament to accept it in the same way as they approve their own salary rises.

The Authority would then each year determine what the increase or decrease in the Pension should be, based on the actual economic and social criteria of that year.

This will take the pension right out of politics except for the right of governments to appoint and sack the members of the Authority according to their view of their competence.

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I reckon that the ideal Authority would have only three members backed by a highly skilled and experienced staff. Those three should be the Heads of the Reserve Bank and Treasury plus a respected social economist.

My feeling is that political leaders will experience considerable fear of the consequences of establishing the Authority because they know, as we know, that the Pension is way below what it should be and the impact on the budget bottom line will be considerable, But, in those circumstances, a wise Treasurer would undertake to spread the needed increase over several years until they get it right.

My gut feeling is that politicians, and taxpayers at large, will run away from this challenge but, one day, we will have to face up to the undeniable fact that the Australian Age Pension is one of the most miserable in the G20, a situation about which we should be ashamed.

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This article was first published on Everald Compton.



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About the Author

Everald Compton is Chairman of The Longevity Forum, a not for profit entity which is implementing The Blueprint for an Ageing Australia. He was a Founding Director of National Seniors Australia and served as its Chairman for 25 years. Subsequently , he was Chairman for three years of the Federal Government's Advisory Panel on Positive Ageing.

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