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COMMUNITY AFFAIRS LEGISLATION COMMITTEE
19/06/2009
Social Security and Other Legislation Amendment (Pension Reform and Other 2009 Budget Measures) Bill 2009

CHAIR —Good afternoon. You are all experienced departmental officers. You will not be asked to give opinions on matters of policy, although this does not preclude questions asking for explanations of policy or factual questions about when and how policies were adopted. Does the department have an opening statement?

Mr Whitecross —There are a number of issues that have cropped up in the course of the day.

CHAIR —If you do not have an opening statement we thought we might go issue by issue, as we did with the previous witnesses and then if there is anything that we have not touched on we can do it that way. Certain common elements have come up through the day. Would that suit you?

Mr Whitecross —That is okay. There are a few factual inaccuracies that have come up.

CHAIR —Do you have a couple that you would like to throw on the table straightaway? We will follow your lead. You tell us what you have ready to go.

Senator SIEWERT —That is fine. If we get those out of the way first that will make life a bit easier.

Mr Whitecross —The trade-off is jumping between topics.

CHAIR —That is always inevitable. Start with what you have.

Mr Whitecross —One was around transitional arrangements.

CHAIR —Is this for the pension?

Mr Whitecross —This is for the pension. Mr Southwell needs to clarify something in relation to the family payments measure, which I will pass to him to do. I am mainly focusing on the pension changes.

CHAIR —That would be the change in pension and the protection mechanisms put in place for people? That is a very important area and we have had significant evidence on that. If you would like to clarify that it would be very useful.

Mr Whitecross —Perhaps the way to start this is to describe in a positive way the transitional arrangements and along the way I can just clarify a couple of points that came up.

CHAIR —That will be fine.

Mr Whitecross —As you would be aware, the basic package involves increases in the payment rates and some changes to and tightening of the income test. On their own that would mean that some pensioners might otherwise have received a lower rate than they are currently receiving. In order to ensure that all pensioners get an increase and that they cannot be worse off as a result of the changes, the transitional provisions provide for everyone to get an increase, $10.14 for singles or $10.14 combined for couples, and that those payment amounts would be preserved in real terms, that is, they would be indexed to the CPI so that the purchasing power for those pensioners is maintained in real terms and does not reduce. There was some concern that perhaps it would reduce in real terms, but that cannot happen.

The other misapprehension that arose was that there was some time limit on the operation of the transitional provisions and there was some reference to five years. Pensioners will remain on the transitional provisions as long as they need to as long as they are better off on the transitional arrangements compared to the new arrangements. People will not be moved off the transitional arrangements after five years. They will be moved off them as and when they are better off under the new arrangements. That change could occur as a result of a change in circumstances where they are better off. For example, you could say they have a drop in income. They could be better off under the new rules, in which case they will transition to the new rules at that point. Or alternatively, over the passage of time the payments under the new system will be worth more because of the differences in the indexation arrangements and as that occurs people will move across to the new rules.

Senator SIEWERT —Do they stay on whichever system is better for them for as long as it takes?

Mr Whitecross —As long as it takes.

Senator SIEWERT —I thought it was 2013. When we discussed this at estimates for some reason I got in my head the 2013 cut-off.

Mr Whitecross —I apologise. I may have been responsible for confusing you on that. In evidence that I gave at estimates I said that we estimated that about half of the customers would move from the transitional arrangements to the new arrangements by the end of the forward estimates period, but that is just a guess and it depends on the circumstances of the individuals.

Senator SIEWERT —That has cleared that up. Thank you for that.

CHAIR —Does anyone have any questions in that area?

Senator FURNER —Yes.

CHAIR —Mr Whitecross and Mr Southwell, I think this is in your areas. Have you seen the detailed attachments that the South Australian Superannuants provided in evidence?

Mr Whitecross —Yes. We have had a quick look at those.

CHAIR —That was on the issue of how over time certain people would be disadvantaged. That was reflected in Dr Ritchie’s evidence and also that from Mr Hayes. They were quite convinced along the areas that you have just mentioned. Has the department had a chance to talk with the Australian Council of Public Sector Retiree Organisations and the Association of Independent Retirees Australia to ensure that there does not continue to be undue concern?

Mr Whitecross —We have obviously seen things from them and we are certainly happy to clarify any misunderstandings with them.

CHAIR —That would be very useful. It was that area, in particular, and they did point to that evidence that they provided. We would value someone getting back in contact with them, not necessarily to have people agree, but at least to know on what they disagree. That would be very useful.

Mr Whitecross —Yes.

CHAIR —What is the next point, Mr Whitecross?

Mr Whitecross —Also on income testing, there were some submissions from Welfare Rights that suggested that sole parents would lose access to child disregards under the income test. They are not making any changes to income tests for parenting payment (single) recipients, so they will continue to be assessed on exactly the same rules as they are now and there will not be any change to their means testing, so there should not be any change to their entitlements if they are on parenting payment (single).

CHAIR —And no change to their taper rates?

Mr Whitecross —No.

CHAIR —They will stay the same, except for any future increase on whatever methodology there is?

Mr Whitecross —That is right.

CHAIR —Are there any questions on that part of the sole parents area?

Senator SIEWERT —That has cleared that up.

Mr Whitecross —There was some confusion in relation to indexation and I thought I should have another go at explaining indexation.

Senator SIEWERT —We could have an indexation remedial class for us.

CHAIR —It is almost like an examination.

Mr Whitecross —As you would be aware, there are three factors we look at when we are considering adjustments to the pension. Adjustments to the pension are made twice yearly in March and September. We look at movements in the consumer price index over the six months to June and calculate an adjustment to the pension based on movements in the consumer price index. We then look at movements in the new pensioner and beneficiary living cost index and make an adjustment to the previous pension rate based on the pensioner and beneficiary living cost index, which I will talk a bit more about in a minute. We compare those two numbers and whichever of those two numbers is the better number becomes the index number that we work with. We then compare the index number to the MTAWE benchmark and if the MTAWE benchmark is above the index number we increase the index number to the MTAWE benchmark and that is the number they get. Along the way there are various roundings and things, but that is the basic process.

The way it is going to work for pensioners is that we make these adjustments for a combined couple rate. So, we index the combined couple rate to the pensioner and beneficiary living cost index and compare those two numbers. We then compare the result with 41.76 per cent of male total average weekly earnings. Whichever is the higher of those two is the one that we pay to pensioners. We then pay the single pensioners 66.33 per cent of what we are paying to the couples.

CHAIR —So, the couple is the basic model?

Mr Whitecross —Yes.

Senator FURNER —It would be helpful if you could give some examples that demonstrate what we have now as opposed to what is being proposed in dollar terms, so we can use that to demonstrate where there are concerns in this area.

Mr Whitecross —There are so many different numbers that we use in the calculation that people are struggling to come to grips with how the different numbers indirect. I can produce a working example for you, which would obviously be entirely hypothetical. At this point we do not have the indexation factors that we would need to use in September. They come out in July and August. We will not know until the end of August what the actual rates will be that will apply from September, but I could produce for you a step-through example.

CHAIR —Yes. Are there any further questions on that, Senator Siewert?

Senator SIEWERT —No.

CHAIR —Can you remind me who developed the pensioner beneficiary index?

Mr Whitecross —The pensioner and beneficiary living cost index has not been published yet.

CHAIR —That is what I thought.

Mr Whitecross —It is being developed by the Australian Bureau of Statistics. You may be aware that there were previous analytical living cost indexes produced by the ABS in relation to different segments of the population. This will be produced focused on people who are mainly dependent on income support. ABS are proposing to publish at 30 June an information paper on how they are going to develop the index, which will include some time series and also, I believe, some information on how the index will be refined over time.

CHAIR —In effect, that is the only new element? The double calculation has been in place now for a number of years.

Mr Whitecross —The comparison between the CPI indexed rate and the MTAWE has been in place for some time.

CHAIR —The new element people are struggling with understanding is the new index?

Mr Whitecross —That is right.

CHAIR —They may understand that more after they can see what is on paper from the Bureau of Statistics at the end of June?

Mr Whitecross —That is right.

Senator HUMPHRIES —I would just like to clarify that. Was there an earlier version of that pensioner CPI index?

Mr Whitecross —Yes. The ABS previously produced what they called analytical living cost indexes for different groups. One of them was for age pensioners and there was another one for other transfer recipients. They have produced that for a few years now.

Senator HUMPHRIES —Why is that not going to be the tool that they will use for this exercise? Why does it have to be upgraded?

Mr Whitecross —There are two reasons. One is that the customer group we want to apply this to is broader than just age pensioners. It includes age pensioners, but it also includes a range of working age pensioners as well, mainly DSP but a few others. We needed an index that was broader than just age pensioners because people at different ages have different baskets of goods. However, low-income people have some similarities in their patterns of consumption compared with higher income people. That was the first reason.

The second reason is that the ABS does not believe that the analytical living cost indexes are robust enough to use for this purpose. As the name implies, they were really produced for information purposes—that is why they are called analytical—rather than as a robust measure of movements in living costs for particular segments of the population. They believe that to produce an index that would be robust enough to be used to adjust pensions they needed to do some further work on refining and developing an index, which is what I believe they are outlining in this information paper.

Senator HUMPHRIES —Would you expect that the new test will be dramatically different from the indexation figure that the old analytical test produced?

Mr Whitecross —This is, of course, an area of speculation. If we look at the history of the age pension analytical living cost index and compare it with the history of CPI, for example, you would say that over an extended period the two deliver about the same increase because, broadly speaking, prices for the whole community more or less go together.

The difference is that prices of different goods move at different times and age pensioners and other low-income households may be more susceptible to price rises in relation to particular goods than other goods, so they might be more vulnerable to increases in the price of food, for example, which they spend more of their money on and less effected by reductions in the price of electrical goods because they do not consume as many electrical goods.

In the short run an index which is more responsive to their basket of goods ensures that they maintain the purchasing power of their payments in relation to the kinds of goods that they buy. In the long run it might not make that much difference because in the long run things tend to even out.

Senator FURNER —Why were the adjustments for the months of March and September put in?

Mr Whitecross —I am probably going to be scratching to remember exactly why. I would only be relying on my memory. This goes back a long way, to the March and September days. I am not sure if any of my colleagues are aware of it.

Ms Foster —No. I am afraid I am scratching my memory as well.

CHAIR —It is a long time.

Senator FURNER —The reason why I ask that is that if there is a reliance on the CPI figures then the March will be relying on the December and the September will be relying on the June figures.

Mr Whitecross —That is right.

Senator FURNER —Is that intentional?

Mr Whitecross —The June figure comes out in July and the male total average weekly earnings figure and the pensioner beneficiary living cost index will come out in August. September is as early as we could adjust them. I am always being told by my colleagues how tight I have made the schedules for adjusting it in September as it is. That is just the lags between when the ABS collect the data and when they publish the numbers, then it is the administrative processes that we have to go through to adjust the pensions means that even though three months sounds like a long time, it is not that long.

Senator FURNER —The March figures were released on 22 April this year, so it gives you an indication why that delay is there. I understand that.

Mr Whitecross —We have tried to get that time frame down to the shortest time frame we can get it to in order to make an adjustment.

CHAIR —What is your next issue, Mr Whitecross?

Mr Whitecross —I think they are the main ones at the moment. If I come up with some others I will let you know.

CHAIR —Mr Southwell, are you going to do the family tax one?

Mr Southwell —Yes. I just wish to distinguish between two different measures that were in this budget. One involved pausing the upper income thresholds for three years for several of our payments and the other one involved permanently breaking the link to the MTAWE indexation via the CPC pension rate. The second of those is a permanent break rather than a three year only.

Mr Whitecross —There was one minor matter in relation to indexation that I wanted to mention. Mr Hayes from the Council of Public Sector Retiree Organisations in his evidence said that MTAWE was introduced to allow pensions to keep up with shelf prices of goods. We believe that the consumer price index and the pensioner beneficiary living cost index are elements which are designed to keep the pensions adjusted for increases in the prices of goods that pensioners buy. The adjustment by male total average weekly earnings is really about keeping the rate of pension in line with general living standards in the community. It is not really to do with changes in prices, it is more of a community living standards benchmark.

CHAIR —Are they the issues that you wanted to clarify?

Mr Whitecross —I am happy to answer questions on anything else that you have got.

Senator SIEWERT —One of the questions that I had we have just dealt with. I wanted to ask about the work bonus. Is that what we are calling it?

Mr Whitecross —Yes.

Senator SIEWERT —Is that $500 a fortnight, or $250 a week?

Mr Whitecross —Yes. We usually talk about it in terms of a fortnight because pensions are paid on a fortnightly basis and the income is assessed on a fortnightly basis.

Senator SIEWERT —I have had a number of people suggest to me that it sounds really good, but it is not, because Centrelink already counts in a level.

Mr Whitecross —Do you mean the free area?

Senator SIEWERT —Yes, the free area. Can you clarify for me what they currently do?

Mr Whitecross —The general operation of the income test is that there is a free area. It will go up on 1 July, but it is currently $138 for a single person and $240 combined for a couple.

Senator SIEWERT —I think there are some people getting a bit confused about what is counted in.

Mr Whitecross —The reason it is called a free area is that you can earn that much without it having any impact on your pension entitlement. When your income exceeds that point your pension will begin to be reduced. As outlined in the changes to come into effect on 20 September, that reduction will be 50c for every dollar that you earn. The work bonus operates on top of that to reduce the amount of income that is assessed.

Senator SIEWERT —It is going to operate on top of the current free area.

Mr Whitecross —The way the work bonus will operate is that it changes the amount of income that will be counted in your assessment. If you earn $500, instead of counting $500 in your assessment, if you were say a single person it would be $362 over the free area, because we are only going to count half of that income, we will count only $250 in their assessable income which means they will be only $112 over the free area.

Senator SIEWERT —I see, so both will still count?

Mr Whitecross —Yes.

Senator SIEWERT —You have still got the free area and then the work bonus on top of that.

Mr Whitecross —Yes.

CHAIR —That only includes income generated by work.

Mr Whitecross —Yes, by employment.

Senator SIEWERT —That is a specific encouragement to keep people in the workforce.

Mr Whitecross —The evidence in the consultations around the pension review was that a lot of people, particularly people with not very high savings, looked to work as a way of supplementing their pension. It is obviously a matter for individuals whether they want to work or not, but if they do want to work we wanted to make sure that they were able to get a return on that and to supplement their pension.

Senator SIEWERT —If I interpret where the government is coming from, it is those who are most in need of extra support or extra income that are helped to get that.

Mr Whitecross —The bonus is targeted at the first $500 of earnings. Obviously it is designed to assist people earning up to a certain amount to supplement their pension. Anybody who works will get the benefit of it.

Senator SIEWERT —It will be greatest for the people that are on the smallest income.

Mr Whitecross —Proportionately it will be greatest for the people earning the lower amounts.

Senator SIEWERT —I think I am fair in quoting a number of the submitters that said that there was a group of self-funded retirees, for example, who are not working. They are concerned that they are supplementing their income from their own savings and they do not get the same benefit. That is the position they were putting this morning.

CHAIR —It was them and overseas pension recipients. They are the two about whom people raised in submissions the fact that, in their belief, their income should be equated with work earnings as opposed to other forms of income. I know that is a policy decision, but in the submissions they would be the two groups.

Senator SIEWERT —I am not seeking to get your opinion on the policy position, I am trying to get an understanding for people reading this and for those who have been writing to us so that they can understand where the government is coming from on not including other income outside of that which is earned through work.

Mr Whitecross —All I can say is that the government’s decision was to target this measure to employment income as a way of assisting people who were working to supplement their income.

Senator SIEWERT —That is what I was interpreting it to mean. I wanted to be clear. Thank you.

CHAIR —Are there any other questions on that issue?

Senator SIEWERT —Somebody said today that in documents it says that there are around 70,000 people it will assist. Have I misinterpreted that or do you have numbers on how many people you think it will assist? I thought that was actually surprisingly small, given the number of people that are on—

Mr Whitecross —I do have that number somewhere. My number here is 74,000. It is the number of people who would get a rate increase as a result of that, but we have not attempted in that calculation to model any behavioural change, so the change may encourage other people to do more work, and of course, that does not count people who are working whose earnings are below the free area and who may be able to increase their earnings without reducing the pension.

Senator SIEWERT —They keep their work below the figure.

Mr Whitecross —Yes. There would be other people who would be earning and able to benefit from it, but this was the number of people, based on the data as it was around the time of the budget, who would benefit straightaway from the change.

Senator SIEWERT —Thank you. I wanted to move on to the age increase. I am sure you will have read the submissions and heard people’s commentary regarding concerns around the age increase from 65 to 67. One of the issues that ACOSS and a number of other submitters have raised is increasing the preservation age for super. I am wondering whether that has been considered, or was that considered? I am aware that I am moving into policy areas, but what are the reasons why it is not a good idea?

Mr Whitecross —That area of policy is really within the portfolio of the Treasurer rather than our portfolio.

CHAIR —At estimates you referred to the Henry review and said that element of discussion was with them.

Mr Whitecross —I think there was some reference to it in the retirement incomes paper that was published at the time of the budget as well. I think it is a matter that the Henry review would be looking at. It is certainly within their terms of reference.

Senator SIEWERT —I understand it is the department’s comments, but it is also wrapped up in this whole issue. If we are going to make such a significant change then it is something that I think should be considered together.

Mr Whitecross —Yes. Obviously that is a matter for government on how they set those things and presumably the Henry review may be looking at that. The preservation age is currently 55 and I think rising to 60 progressively over time, so it is already below the age pension age.

Senator SIEWERT —Senator Boyce is not here, but I know Senator Humphries may raise this point, too. Senator Boyce was asking some questions this morning around resolving some of the issues surrounding age discrimination. A lot of that related to superannuation. I presume that I will have to ask Treasury those questions, but have you looked into some of the barriers? When you were looking at the policy of increasing the age from 65 to 67, did you look at some of those issues? I know there has been work done, but it was raised today that there are still some areas where, on the surface, it looks like major discrimination barriers within the legislation.

Mr Whitecross —In relation to employment of older workers, a lot of these policies relate to the work of other portfolios. I know that there is a range of measures within the Department of Education, Employment and Workplace Relations looking at assistance for older workers. They and FaHCSIA are also responsible for some measures in relation to employment for people with disabilities, which includes a lot of older workers. There is consideration of these things. The Department of Education, Employment and Workplace Relations is probably better placed to give you further information about what programs are in place to support older workers. The changes are coming in progressively from 2017, which is eight years away, so there will be an opportunity to consider how those programs are operating and what else might need to be done in relation to that.

Senator SIEWERT —I hear what you are saying in terms of the time available to work it out. Some of the comments that have been made here today are that we should be getting on to it sooner rather than later if we actually want to make changes and lessen the impact on people.

Mr Whitecross —I can tell you that we have obviously discussed this issue with the Department of Education, Employment and Workplace Relations as the department primarily responsible for programs and services to support older workers to stay in work and to find work. They are probably the best placed to describe what those programs are and what processes they have in place to monitor them.

Senator SIEWERT —I will take it up with them when I get an opportunity.

Mr Whitecross —It is worth noting that employment amongst the pre-retirement age is increasing rather than reducing. Since 1995 it has gone up.

Senator SIEWERT —The figures that were quoted to us this morning are that 50 per cent of those between the age of 65 and 60 are on income support. I will need to check the figures.

CHAIR —Senator Humphries.

Senator HUMPHRIES —I was in another committee when this area was covered in the estimates committee a couple of weeks back, so possibly this question has been answered. I understand the argument for increasing the pension age from 65 to 67. It is not clear to me, though, whether there is an argument that it should stop at 67. What is the rationale for 67 as opposed to 70, for example, and has the government made a statement that 67 is the extent of its ambitions for the age pension to be adjusted to?

Mr Whitecross —I am not aware of any statement in relation to that. My understanding is that the announcement that the government has made is in relation to increasing the pension age from 65 to 67 progressively from 2017 to 2023. That is the only statement that I am aware of in relation to that.

Senator HUMPHRIES —What is the rationale for 67? Is that a formula arrived at by virtue of the work done in the pension review that reflects some kind of calculation of the cost of aging in the community versus the amount available? Is there some magic in that figure or is it simply a figure produced to arrive at a certain saving to the government?

Mr Whitecross —The age of the age pension is basically a government decision. I could not unpack that particularly. It is broadly consistent with moves we have seen in some other countries. It is broadly consistent with movements in life expectancy that we might expect to see over the period that we are talking about.

Senator HUMPHRIES —In fact, since the age pension was originally set at 65 life expectancy has increased dramatically, so on that basis you could argue that the increase should be more than two years. I am trying to work out whether there was any rationale other than to say, ‘We need to save some money. This will produce certain savings so we’ll put it up to 67.’

Mr Whitecross —I think the retirement age was discussed in the Harmer report. I will see if I can direct you to anything that will be helpful in relation to that.

CHAIR —There were some international comparisons.

Mr Whitecross —Yes, there are certainly international comparisons that are relevant.

Senator HUMPHRIES —Rather than detain the committee at the moment, can you perhaps take on notice the relevant pages? I am happy to go back and refer to those at my leisure.

Mr Whitecross —Yes. When I was referring to life expectancies, I am obviously aware that life expectancy has increased quite a lot since 1909, but even over a shorter period life expectancy is expected to grow by a number of years between now and 2023. It was more in the shorter horizon than the rise since 1909 that was looked at. There is some discussion of this in the report around about pages 144 and following, but if there is other information I can provide then I am happy to do that.

Senator HUMPHRIES —I will have a look at that. I have one more question. I cannot see in the explanatory memorandum to the bill any estimate of a full-year saving that the government would make from this pension age adjustment. Do you have a figure for that?

Mr Whitecross —In relation to this issue the savings are outside forward estimates period so there are no formal estimates in relation to those savings. The budget overview that Treasury produced included some modelling which indicated the kind of long-term savings they expected to get from the increase in the age pension age. That was in the budget overview document that was published by Treasury on budget night.

Senator HUMPHRIES —Can you recall approximately what the first full year of that effect will be?

Mr Whitecross —I think those things were described in terms of percentages of GDP. They said around about 0.2 per cent of GDP at 2017, rising to 0.7 per cent of GDP in the longer run.

Senator HUMPHRIES —Is there a dollar figure in the budget papers?

Mr Whitecross —I am not aware of the dollar figure. I think that far out they focused on percentages of the GDP rather than dollar amounts.

Senator HUMPHRIES —Thank you.

Senator FURNER —I have a number of issues around discrimination on retirement age. There have been a few witnesses appear today expressing concerns. National Seniors Australia were concerned about issues associated with people in forced retirement or mandatory retirement and I expressed to them my concerns in my own state—I appreciate it is state legislation—where police have to retire at age 60. We heard from the LHMU about concerns in the hospitality industry. I think they quoted that was the second-highest industry of associated injuries and they were finding it difficult to live on their benefits, given that they come from part-time employment and that sort of environment, and having to work until 67. Thirdly, I understand under the public service that a public servant needs to make application to work beyond their retirement age. I am just wondering what you are doing about those sorts of issues that we are aware of?

Mr Whitecross —In relation to issues of people who are not able to continue working as a result of occupational injuries, the main thing to say is that the social security system is a safety net system. It does not just apply at age 67 or 65. People who are incapacitated and unable to work or have a disability which prevents them from working are able to access income support through the disability support pension, or if it is a short term injury, through the sickness allowance. So there are provisions. In the case of disability support pension, the rate of assistance is the same as the age pension.

If people in their specific circumstances are not able to continue working because of a disability that they might have acquired at work, then there are other provisions to support those people. I am not in a position to comment in relation to compulsory retirement ages.

Ms Foster —In terms of public servants, for instance, they would have to be canvassed with the Australian Public Service Commission. I do not know that we could comment on those issues.

CHAIR —Any other questions, Senator Furner?

Senator FURNER —No.

CHAIR —Any other topics? We have had a great deal of discussion about the fact that sole parents are not part of this process and statements about breaking the nexus of the sole parent payment being treated as a pension as opposed to a benefit. I just want to clarify. The pensions that are part of this program are going to have the three-part comparator for looking at their increases. How are Newstart and sole parent benefits going to be assessed for increase of those areas? I just want to get that clear on the record.

Mr Whitecross —In relation to Newstart, sickness allowance and other allowances, they will continue to be indexed twice yearly in the March and September dates for increases in the consumer price index, so there is no change in relation to them. There is also no change in relation to parenting payment (single). It will continue as now to be indexed to the consumer price index and then benchmarked against male total average weekly earnings to ensure that the maximum base rate equals 25 per cent. They are the same arrangements as exist at the moment.

CHAIR —In terms of a comparator, we have got the ongoing basis just on CPI for benefits and allowances. We are still going to maintain the sole parent payment or they will have the comparator, whichever is greater, of CPI or MTAWE, and then the new group will have the pension benefits cost price index as yet another comparator?

Mr Whitecross —That is right, and a different MTAWE benchmark as well.

CHAIR —Sometimes I think it would be useful to have one great big graphic that had them all side by side so you could see it, because there is great confusion. Apart from any other aspect that has come out in this very short inquiry, it continues to be the confusion around it. Just to put it on record, can you tell us what information processes the department has gone through to ensure that people do have the correct information? I know we asked that at Senate estimates, but to round off the inquiry it would be good if we could put on record what information and public relation processes there are in place, because these changes are going to impact on a wide range of the community across all kinds of areas. One of the aspects is that I do not think everybody knows what payment they are on now; they just know they receive a payment. How are we going to inform people about how they fit, how they could ask questions and to whom they should ask questions?

Ms Foster —In News for Seniors, for instance, there will be an issue coming out fairly shortly. I think it is schedule for publication in July, the winter edition. That is published by Centrelink. That will have an outline of the measures. I am conscious that I am talking for another agency here in terms of referring to Centrelink, but Centrelink is planning a number of articles in various journals that it produces as well as foreign language newspapers describing what the changes will be.

CHAIR —Does FaHCSIA itself have a strategy?

Ms Foster —FaHCSIA itself is examining the possibilities for a strategy.

CHAIR —The reason I ask is that extensive amounts of activity were put in place for the Harmer review and probably the database of people who gave submissions and attended public forums for the Harmer review led to probably one of the better databases in this area that any organisation has. I was wondering whether you had any thought of using that mechanism?

Mr Whitecross —I could have answered that. Yes, we have corresponded with people who made submissions to the Harmer review to provide them with information about the changes. Obviously people are writing to us to clarify issues in relation to the changes and we are also corresponding with them in relation to their questions on how the changes will work as well. We have provided people who interacted with the Harmer review, or participated in making submissions, with information about the changes.

CHAIR —Is the contact point FaHCSIA or Centrelink for people who are confused about where they fit?

Mr Whitecross —Different people might want to raise different issues. Generally, if people are concerned about their own entitlements it is better for them to talk to Centrelink because Centrelink is in a reasonably good position to discuss their actual circumstances with them. Sometimes customers do not want to raise issues about the policy and we are happy to answer questions about how the policy works.

CHAIR —You may have to take this on notice, and it is probably a longer term question, but a number of people have raised with us their concerns about the increase in the entitlement age for the age pension, which has come across a whole range of things. It would be useful to have some indication of what the department and the government’s position is going to be about what kind of consultation and what kind of community interaction is going to be taken over the following years. That is a long-term question, but there has been so much concern expressed about this change, and it is the first change in 100 years to this particular entitlement and eligibility age. We would like to get some idea for the committee and also for the Senate about what the information and consultation process is going to be, because there are so many levels to that. The other things are immediate changes to entitlement and payment, but this one is the most significant policy change.

Mr Whitecross —As Ms Foster indicated, we are looking at what communication activities we might want to undertake complementary to Centrelink. One of the groups that we are conscious of is that there would be a group of people who would be interested or concerned about the change to the pension age who are not currently Centrelink customers. While Centrelink has an important responsibility in relation to their customer group, it is an important role for us in communicating with the broader community that might be affected by some of these other policy changes, so we are looking at that.

CHAIR —Senator Furner, you asked a question earlier today about maternity allowance. Was there anything that you wanted to clarify with the department about that?

Senator FURNER —No, that is fine.

Senator HUMPHRIES —I have a couple of questions. One of the things in the explanatory memorandum says the bill contains amendments to provide for the necessary increases and future adjustments of indexation for pensions that cannot be included in the Carbon Pollution Reduction Scheme (Household Assistance) Bill 2009. I have not gone through the bill to find out what those provisions are, but what sort of provisions are we talking about in the bill?

Mr Whitecross —The provisions in this bill in relation to that relate to household assistance for pensioners. They were not included in the other bill because in preparing the other bill people were mindful of the fact that we were proposing changes to the way we pay pensioners, including the development of the new pension supplement. So it was more appropriate to include the measures to provide for household assistance associated with the carbon pollution reduction scheme in the bill where we were introducing the changes to the pension arrangements, otherwise we would have been amending provisions that did not exist.

Senator HUMPHRIES —What exactly does this bill do? Does it provide a mechanism for the minister to increase pensions by determination in the future?

Mr Whitecross —No. It nominates the percentage adjustments to how the amount will be calculated. It provides a provision which explains how the amount will be calculated and that it will be added on to the pension supplement amount.

Senator HUMPHRIES —It is not the actual amount. It is a mechanism for this current—

Mr Whitecross —It describes in terms of percentages of payments. Obviously you will have a chance at some stage to look at this, but they are described in schedule 5 of the bill.

Senator HUMPHRIES —I will look at that later on. Thank you.

Mr Whitecross —It describes increases in two stages. One is on 1 July 2011 and the other on 1 July 2012, and it has the method for calculating the amount that will be added to the pension supplement in relation to household assistance and subsequent adjustments to indexation arrangements to ensure that the price affect which is being advanced through those adjustments is not delivered a second time through in placing adjustments. They are different because the architecture of the pension is different, but in substance they are similar to the arrangements for beneficiaries and other groups who were in the other household assistance bill.

Senator HUMPHRIES —It is a very long schedule so I look forward to using that to deal with my insomnia.

Mr Whitecross —Be sure to read schedule 4 first so that you can understand schedule 5, which is even longer.

Senator HUMPHRIES —I am extremely grateful. I have a question which you could take on notice. I asked in a previous estimates committee for an estimate of how many of the previous five years’ pension adjustments would have been higher by virtue of the application of the ABS analytical index for cost of living increases for aged people. I accept that is not going to be the tool that we will use in this case, but as an indicator, is it possible to get an update to that answer for the purposes of the last five years?

Ms Foster —We will try to look at that. The previous analytical living cost indices were produced on an irregular basis. I think they were always published annually, but at different points during each year. I do not know if we will be able to do a direct comparison.

Senator HUMPHRIES —The last five years for which figures are available will be fine. Thank you very much.

Mr Whitecross —I know that at the last point that we had in our analytical living cost index, which was the September point last year, the age pensioner analytical living cost index was below the CPI.

Senator HUMPHRIES —I think that was for 19 of the 20 increases for that period I asked for. That would have been the case as well, so I assume that it is a similar answer now.

Ms Foster —Since that discussion there have been 24 indexation points. This information only goes to the MTAWE benchmark and CPI, so I am happy to do that.

CHAIR —Was the answer to that, that it was nearly always higher with the CPI?

Ms Foster —The MTAWE is almost always based on CPI.

CHAIR —There was great concern raised by some of the agencies today that using the different assessment tools was going to make the gap between the different payments even wider, and the fact that the other payments, as you pointed out to me, are mainly on the CPI, which indicates that that gap up until now has not been as wide, but if you have a look at the evidence that was given by the group of agencies, Uniting Care, Welfare Rights, Relationships Australia and Catholic Social Services, they were all concerned that the different models would cause a greater gap.

Mr Whitecross —It would be fair to say that the predominant factor that adjusts pension rates is male total average weekly earnings. The CPI and the new pension beneficiary living cost index will mainly have the affect of ensuring that if prices are higher than wages in the short run pensioners will get the benefit of a full increase to reflect increases in prices, but in the long run that tends to be overtaken by male total average weekly earnings adjustments.

CHAIR —Thank you very much. Have we missed anything?

Mr Whitecross —I know Senator Furner has left, but he was asking before about the March and September indexation arrangements.

Senator SIEWERT —The wonders of modern technology.

Mr Whitecross —Thanks to the wonders of modern technology and the diligence of my staff I can tell you that March and September indexation has been in place since September 1990 and that prior to that the indexations were in April and November. That change was to bring indexation forward by roughly four weeks in order to make the adjustments more timely.

CHAIR —That is very useful. Is there any other area that you think we need to know about this afternoon?

Mr Whitecross —I think we have covered all the things that needed to be covered from evidence earlier today. If I detect anything else, I will provide that to you.

CHAIR —The Hansard for this will be available late Monday and then we are due to give the report on Wednesday, so I am sure you will be seeking the Hansard to check things out. That will be very useful. Thank you.

Committee adjourned at 4.03 pm