House of Representatives

Social Security and Veterans' Affairs Legislation Amendment (Pension Bonus Scheme) Bill 1998

Second Reading Speech

Senator BARTLETT (Queensland)

The Democrats also will be supporting this bill. We want to ensure that it does get through but, rather than simply indicating that, I think it is important that anybody that does follow parliamentary debates is assured that this legislation has been given a good degree of scrutiny by the Democrats as well as by the broader Community Affairs Legislation Committee. To outline some of the Democrat views on it-as I would have done if we were not pressed for time-I shall save senators the torment of having to hear me speak it if they are willing to grant leave for my speech on the second reading to be incorporated in Hansard .

Leave granted.

The speech read as follows-

With this legislation, the Government is seeking to introduce a scheme under which people who defer claiming the Age Pension may be paid a Pension Bonus.

The amount of bonus they receive will be determined by the length of time they defer claiming their pension. A person who defers for the maximum of five years stands to receive a bonus payment of around $21,000.

The benefit to the Commonwealth, of course, is that the person hasn't been receiving pension payments for that five-year period.

Through this scheme, the Government is hoping to save around 18 million dollars in its first full year, rising to over 40 million in subsequent years.

As people being to claim their bonuses, however, there will be a cost to government and in the longer term it is expected that the scheme will actually be revenue neutral.

As we heard at the Community Affairs inquiry into this legislation, these estimates are based on a number of assumptions.

Most notably, the government estimates that of all the people that will claim the bonus, more than 80% would have deferred their retirement to keep working anyway. In other words, the majority of people receiving a bonus under this scheme will actually be getting a windfall gain for no change in their behaviour.

As the Department pointed out, however, the savings achieved from those who are encouraged by the scheme to delay their retirement will, in the short to medium term at least, more than offset those costs.

Clearly, the level of savings to be gained are dependent on just how accurate the Departmental estimates are of the number of people to take up this scheme and I think we'll all be watching closely to see if those estimates are met.

At the Community Affairs Committee, some concerns were expressed that people who wouldn't normally qualify for the pension may end up receiving a bonus payment.

The Democrats believe, however, that the means test at the time of claiming the bonus combined with the social security gifting provisions is as rigorous a test as that currently applied to the Age Pension.

We also acknowledge that imposing a means test at the time of registration would be unfair as people may not yet have structured their investments for retirement. A For example, someone looking to defer their pension may be reluctant to tie up their money in a long-term "income stream type" investment.

Of greater concern to the Democrats is the potential for people to gain unrealistic expectations of the bonus. That is, if not given very clear and very accurate advice by the Department or if people misunderstand the advice they are given, they may find at the end of their deferment period they are not entitled to the payment they thought they were going to get.

Given that people might have deferred claiming their pension for up to five years, this is a situation that needs to be avoided at all costs.

I note the Department has undertaken that people registering for the scheme will be referred to a Financial Information Service Officer to discuss how the scheme works and, very importantly, how it will apply to their particular circumstances.

The Democrats believe this is of the utmost importance. People may totally rearrange their retirement plans in reliance of this scheme and, because of that, it is essential that they have full information to make those decisions on.

The Department will also write to people each year reminding them of the rules and I can only hope that those letters will be in `plain English' and will leave people in no doubt as to their entitlements under the scheme.

As anyone who has had experience with the social security system knows, a person who doesn't fully understand their obligations for a particular payment or who, for some reason, is prevented from fulfilling those obligations, can often find themselves in great hardship.

Under the proposed rules for the pension bonus, at the end of the deferment period, a person or their partner must claim the bonus within 13 weeks. This limit has been set to prevent people from dispersing their assets in order to claim a higher bonus payment.

The Democrats can foresee that this requirement could, in some circumstances, lead to injustice. The particular scenario we are concerned about is where one member of a couple is working and accruing the pension bonus. We believe it would be unfair if, following the death of that person, their widow or widower was to miss out on the bonus because, due to their bereavement, they neglected to claim their bonus within 13 weeks.

In discussions my office has had with the Minister's office I understand an agreement has been reached whereby the 1 3-week limit will be extended to 26 weeks for people who may find themselves in these circumstances. Can I just take the opportunity to thank the Minister for addressing this issue for us.

Finally, as with all other social security payments, there may be the potential for people to manipulate their affairs so as to circumvent the legislative requirements of this scheme in ways that are not yet foreseeable.

If this is to occur, it's likely the Government will be coming back to the Parliament with amendments to close any `loopholes'.

At this stage, I simply want to signal that, unless there is a particularly convincing reason to the contrary, the Democrats will not be supporting the application of any future amendments to those people who are already registered.

When people might be deferring their pensions for up to 5 years, it would be totally unjust to change the rules on them midstream.

In conclusion then, the Democrats do have some concerns over the financial impact of this scheme. We recognise, however, the potential savings involved and also the fact that the Government has given undertakings to introduce such a scheme. We will be watching its progress with interest.