The Age Pension and related supplements is the single largest item in the Commonwealth Budget that is wholly under the Commonwealth’s control. It is budgeted at $47 billion in 2018-19, and at $202 billion over the forward estimates.
The Age Pension and related supplements represents 9.7% of all Commonwealth expenditure and 2.5% of GDP. It is expected to grow substantially over coming years as the baby-boomer generation enters retirement, many with superannuation accumulated over two-thirds of their working life, and at lower average contribution rates than apply today.
The rules governing the Age Pension and its related payments are extraordinarily complex, a consequence of Australia’s approach of ensuring that payments are directed to those most in need, and withdrawn from those who have some capacity to provide for themselves. The model does not attempt to cover this level of complexity. Instead it focuses on the key elements that drive the overall cost of the Age Pension. You can choose:
The model also addresses one significant potential change to the Age Pension – the consequences of including the family home in whole or in part in the pension asset test. It does this by assuming that the value of pensioner owner-occupied homes follows the same distribution as the value of owner-occupied homes for all households over 65, and adding the value of the home above a selected threshold to the value of other assets owned by pensioners. Given the nature of publicly available data the results of this aspect of the model should be treated with caution, especially toward the upper end of the family home value distribution.
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The model does not take into account any second round effects.