The age pension is under review and change can't come too soon for many recipients, who are doing it tough, writes Barbara Drury.

Pensioners and their advocates are mobilising for a long fight in a bid to secure an overhaul of the age pension and they are not about to be fobbed off with stop-gap political cures.

Expectations are high that the Federal Government's review of pension and welfare payments - part of the broader inquiry into the taxation system by Treasury secretary Ken Henry - will get the ball rolling when it reports next February.

However, Jon Bisset, the executive director of the Council on the Ageing, insists that pensioners want results. "It doesn't end with the review," he says.

Following last month's inflation adjustment, the single age pension is $281 a week (a base of $271.40 plus $9.65) and couples share a weekly pension of $463. This translates to an annual income of $14,612 for singles and $24,076 for couples.

To put this in perspective, the latest Westpac ASFA Retirement Standard estimates that singles need $19,399 a year for a modest lifestyle while couples need $27,151. Food prices rose more than 2 per cent in the March quarter alone, putting pressure on retirees who spend up to one-third of their household budget on food (see box on inflation).

Immediate relief

Michael O'Neill, the chief executive of National Seniors Australia, believes the structure of the age pension is out of touch with today's social and economic realities. "It's been cobbled together over time and so [has] lost its way," he says.

"The change of [Federal] Government raised expectations that there would be a change of approach in the short term. The process the Government has put in place is a reasonable contribution to the debate but, given [that pensioners] have been waiting so long and become frustrated by a lack of action by the previous government, frustrations have boiled over."

Bisset agrees on the need for a long-term strategy. "The three pillars of retirement income - the age pension, superannuation and private savings - all need to be put together. It's not as easy as increasing the single pension by $30 a week," he says, referring to the present proposal by the Federal Opposition.

Instead of an immediate $30 a week, the council proposes a lump sum bonus of $750 for single pensioners and $1000 for couples to tide them over until the review is completed.

Darren Wickham, an actuary with Mercer's retirement practice, argues that the three pillars have developed in spite of each other and not in a consistent or coherent way.

"We don't actually have a retirement income system," he says.

Jeff Schubert, the director of super at Russell Investment Group and part of the Institute of Actuaries of Australia's retirement incomes taskforce, hopes that the pension review will lead to real change. "There's been change on the tax side with super but a lot more can be done. The vibe we get is that the Labor Government is interested in listening to good suggestions," he says. In the short term, however, pensioner advocates, politicians, economic analysts and pensioners all agree that single age pensioners are suffering real financial hardship.

Plight of singles

The single aged pension is pegged at 60 per cent of the couples pension but fixed costs of living, such as car registration, home insurance, phone, utilities and rent, are similar whether you live alone or with a partner.

The majority of single pensioners are women, who are more likely to have a history of unpaid work in the home or working for lower wages than their male colleagues. This means older women have had less opportunity to accumulate super or savings.

O'Neill says women are also more likely to be widowed than men and face an abrupt shift from the couples pension to the single pension without additional support.

These issues have been around for many years but the plight of single pensioners has come to a head over the past 18 months. "The economic boom and the cost pressures that flowed with that left people on fixed incomes well behind," O'Neill says. (See the National Seniors budget above)

The age pension was first introduced 100 years ago and set at the equivalent of 12 per cent of male average weekly earnings, at a time when the average life expectancy was 55 for men and 65 for women.

In 1974 the Federal Government formally pegged the pension at 25 per cent of male average weekly earnings, a move that has led to a doubling of the pension in real terms.

However, the average life expectancy today is closer to 80 years.

As the population continues to age, Australia faces the prospect of having fewer workers paying for more retirees.

Solutions

Clearly there is a structural problem with the age pension that won't be solved with a one-off payment. In any case, the Government has ruled out any immediate relief until it receives the pension review report in February.

Wickham believes there has always been confusion about the purpose of the age pension - namely, whether it is designed to alleviate old-age poverty or to form part of the population's retirement income.

"There's also a common belief that 'I've paid taxes and I deserve the pension' - but the fact that the age pension is means-tested means you don't necessarily get the pension, [even] if you pay tax [throughout your working life]," Wickham says.

In discussion papers circulated by the Institute of Actuaries, Wickham, Schubert and others present a number of options for the Government to consider. Increasing the eligibility age for the pension above 65 would save public money but would be politically difficult. And, as Schubert points out, many people retire before 65, so the pension age in itself is not the cause of people stopping work.

Alternatively, people could be encouraged to work beyond 65 by removing the age-pension income test.

"We should reward people for working past 65 rather than penalise them by taking part of their pension away," Schubert says.

This could be achieved with an extension of the existing pension bonus scheme, which rewards people who delay retirement for up to five years from age-pension age. Singles can claim a maximum lump sum of up to $34,344 for working an extra five years for at least 20 hours a week, while couples can claim up to $28,686.

Alan Freshwater, a financial planner at RetireInvest, says the pension bonus scheme can easily add an extra year or two of retirement income for people. "I had a client who was delighted to receive the full bonus. She had only received super for the last decade of her career, she liked her job and was young of mind, so she stayed on [at work] five years extra," he says.

Lift the base rate

One problem for the three pillars system is that self-funded retirees can take their super payout as a lump sum from age 60, with no compulsion or incentive to convert all or some of it into a lifetime pension and then move onto the age pension when their savings run out.

"People are not purchasing lifetime annuities because they are very expensive and not well-integrated with the age pension," says Wickham, who advocates allowing people to buy a government-underwritten age pension with their super. He leaves it to others to argue about the level of pension.

Seniors groups agree that in the short-term the single aged pension needs to be raised to two-thirds of the couples pension, or an extra $30 a week, and the base rate needs to be increased. The Council on the Ageing also wants an increase in the pension base rate from 25 per cent of male average weekly earnings to 35 per cent.

Pensioners received a bonus payment of $900 in this year's budget, including an increased utilities allowance. This was welcome but in most cases it didn't go far.

Some groups argue that bonus payments and allowances should be better targeted. O'Neill says pensioners who rent their homes need additional support, as do carers.

"Some say the bonus is a godsend when you live on a fixed income, because there's no way you can save on $281 a week. If the fridge breaks down or you fall behind in your rates, $500 provides some catch-up. Others say we should make sure the base rate is enough to save for a rainy day," he says.

Cost of living rises hurt pensioners

Critics say that pension increases should not be tied to a basket of goods, such as the Consumer Price Index, which measures the cost of living. That's because pensioners and low-income earners spend proportionally more on staples such as food, which have gone up in price, and they spend less on plasma TVs, mobiles and electronic gadgets, which have fallen in price.

An alternative method of identifying financial hardship is to look at age pensioners in relation to other retiree households.

Using this method, the Melbourne Institute calculates that the poverty line for a single retiree is at present about $306 a week, including housing costs, while the poverty line for retiree couples is $434 a week.

International comparisons are also popular. Australian age pensioners are better off than their counterparts in the US, Britain and Japan but worse off than the Scandinavians and many other European countries.

Jeremy Sammut, a researcher with the Centre for Independent Studies, says that Scandinavians pay for their largesse with average tax rates of about 50 per cent, compared with Australians' average tax burden of 30 per cent. Many European countries also have contributory pension schemes that make direct comparison difficult.

By any measure, pensioners are doing it tough. The pension review background paper says that more than half of aged pensioners have less than $20 a week of private income to supplement their pension. That doesn't leave much fat to draw on in lean times.

Your entitlements

Life is no picnic on the pension but it does have its benefits. Retirees on a full or part-pension and even those who are entirely self-funded are entitled to concessions on a wide range of goods and services, from medicines to household bills and public transport.

Financial planner Alan Freshwater says that while none of the benefits are massive, they make a difference.

The Commonwealth pensioner concession card is available to anyone who qualifies for the age pension. Cardholders receive a pharmaceutical allowance of $5.80 a fortnight for singles and $2.90 a fortnight for each member of a couple. You can also buy prescription medicines at the discount price of $5 and receive free hearing and eye tests, emergency dental treatment and ambulance services.

You will also be eligible for a phone allowance of $23 every three months and a utilities allowance worth $514 a year, plus discounts from state and local government authorities on rates, water, energy bills, telephone, rail travel and car registration.

In NSW, ACT and Victoria, a pensioner concession card entitles bearers to concession fares on public transport and some long-distance train travel.

It's not just age pensioners who receive extra support.

The Commonwealth Seniors Health Card provides benefits for self-funded retirees who have reached retirement age and are living on a single income of less than $50,000 or joint income below $80,000.

The health card delivers the same discount on prescription medicine that age pensioners receive and access to GP bulk billing. You also get the quarterly telephone allowance, travel concessions and the Seniors Concession Allowance of $109 every six months to help with household bills.

If you're a retiree or only working part-time, and are more than 60, don't forget the seniors card issued by your state government. Depending where you live, this may entitle you to concessions on public transport and savings on car registration, entertainment and retail goods and services.

See http://www .centrelink.gov.au, http://www.seniorscard .nsw.gov.au and http://www.seniorscard .vic.gov.au for more information on these benefits.

Just $4 left this week

Jean Beaver has led an adventurous life, working for many years as a missionary in Papua New Guinea, which is in stark contrast to the restrictions she battles against now.

At age 74 she is making ends meet, but only just, on the full age pension. "I do manage but I can't eat what I'd like to," she says.

Lamb loin chops, her favourite, are a distant memory. "I eat lots of fruit - cheaper ones - but I don't buy cakes and biscuits. I don't go hungry but I fill up on bread.

"At my age you spend a lot at the chemist. I spent $25 last week - that's a lot of money," she says.

Divorced 12 years ago, she received half the proceeds from the sale of her marital home, which bought a unit in a retirement village in Sydney's western suburbs. She has no other assets, so lives entirely on the pension.

Until she retired she worked at a number of low-paid jobs such as cleaning, so she has no superannuation or savings. She doesn't have a car and, because she needs a motorised scooter to get around, she's restricted to train travel, because buses can't accommodate her scooter.

"Twelve years ago I managed all right on the pension but over the past five years the cost of food, clothing, maintenance and home-help fees just keep going up.

"Before my mother died we used to go to concerts together, which I can't afford any more. We used to go to the shops for ice-creams on summer afternoons but I can't afford to do that any more."

These days, her social life is restricted to church on Sunday and lunch at the local shopping-centre food hall with her sisters once a week.

She says she wouldn't turn her nose up at an extra $30 a week but it wouldn't make a lot of difference. "Fifty dollars probably would help," she says.

Similarly, she says the $500 bonus payment allowed her to replace her toaster and buy a heater, which she had previously gone without, but it hasn't improved her general standard of living.

"This week I've got $4 left in my wallet, which will pay my train fare to get the pension. I've written letters to the NSW Premier, the Prime Minister, the Minister for Ageing and the Finance Minister but I just get an impersonal letter back.

"I said to my sister: 'I hate being old - it used to be fun. You were free to go places but I can't any more,"' she says.

Single pensioner, renting                       
INCOME                          Weekly                  
Base pension (maximum)          $271.40
Plus                    
Pension supplement              $9.65
Rent assistance                 $55.10
Utilities allowance                     $9.62
Telephone allowance             $1.77
Pharmaceutical allowance                $2.90
Total income                    $350.44                 
Includes rent assistance and                    
govenment allowances                    
weekly shortfall                                        
EXPENDITURE                     Weekly                                  
Housing (rent, insurance, repairs)      $122.46 34.95%
Fo o d                          $57.96  20.62%
Personal care                   $17.00  6.26%
Energy (power & gas)            $11.45  4.22%
Household goods & services              $49.70  18.31%
Clothing & footwear                     $15.10  5.56%
Health services                 $15.90  5.86%
Leisure & activities                    $0.00   0.00%
Transport                               $75.61  27.86%
Total expenditure                       $365.18 
Shortfall                               $14.74