Means Testing Mean for Old Age Pensions

There is a current suggestion to means test the age pension. In particular: include the value of the house -- the principal place of residence -- in the means test. After all, a pensioner can always borrow against the value of the house...

What a mean suggestion!

Some old couple have been living in the same house for fifty years. The house value has risen due to normal inflation. Now they have a valuable house, no income and an unknown number of years to live. They are forced to mortgage their house.

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Ten years later, the house is mortgaged to the hilt. They have lived frugally but all the money is gone. There is no money for mortgage repayments so the bank takes the house. The couple now has no income, an unknown number of years to live -- and nowhere to live.

Why means test an age pension?

The pensioner has money, why should we support them? Well, they have paid a heap of taxes, let's pay some of it back. They still have an income! So what? Perhaps it would be nice to give old people just a bit more. There are more and more old people! Does that make each age pensioner worth less?

Let's look at that first question: The pensioner has money, why should we support them? We can see their taxes -- paid over many years -- as an investment. Okay, an unusual investment, in that they "invest" a whole heap of money but expect only a fraction back.

The investment / repayment view is why I have nothing to say -- today -- on other types of pension. Age pensioners have had years to "invest". Other pensioners may not. So, back to age pensioners:

Why do we -- or some people -- object to paying a full age pension to an old person? It may just be meanness, perhaps disguised as economic rationality. Or it may be annoyance, based on known abilities to avoid tax.

Some of our most famous millionaires are seen to pay very little tax. They pass all of their money through large, conglomerate companies. By the time a tax return is filed, there is no visible income to be taxed. Why should we pay an age pension to these visibly-rich people?

I agree... But why punish other pensioners for our annoyance at the smaller number of people who use the law to minimise their tax payments?

Solve the real problem

I believe that the real problem is, that we are paying age pensions to people who, (a) Do not need the money, and (b) Have spent many years avoiding the payment of the "investment" of taxes.

Forget the means test on age pensions: if you get to be old enough, you deserve to get some tax money back. Oh, but you never actually paid any taxes? Oh, well, perhaps we will now not pay you an age pension...

Look back to the last few years of a pensioner's income-earning years. Did the pensioner pay zero tax for the last few years of their income-earning years? Well, sorry, no tax paid, no pension payable.

Did they pay a reasonable amount of tax? Or were they family partners of someone who did pay tax? Okay, they get an age pension. Feel free to adjust the pension based on current income. Just make sure that the amount paid is a reasonable amount to cover living.

Roll the plan in over several years. If you plan to collect an age pension in the future -- start paying taxes now.

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