1 March – 1 September 2016 correspondence on the 10% Cap issue
The 2015 Budget measure known as the 10% Cap came into effect on 1 January 2016.
The measure reduced from 50% to 10% the amount of tax-free income that defined benefit pensioners can exclude from the age Pension income test. The only justification that has ever been provided by the Government has been based on pensioners’ pre-30 June 1983 service.
The then-Minister for Social Services, Mr Morrison, gave, as his one example, that it is possible for a retiree couple on a defined benefit pension of $120,000 pa to receive a (very small) part Age pension. To their credit, on 25 June 2015, the Australian Greens, in the Senate debate on the measure, expressed misgivings about the likely actual effects of the 10% Cap, and promised to review the matter if their misgivings proved justified.
On 9 March 2016, after the effects of the 10% Cap would have become clear, ACPSRO wrote to the Minister for Human Services, requesting simple data about its impact on various levels of retirees’ income and, in particular, how many of those affected had no pre-30 June 1983 service at all.
Eventually, after attempts by the Office of the Minister for Social Services to avoid answering, eg claiming the Caretaker Convention, the Department of Social Services responded on 18 May 2016. In the second paragraph of the second page, the Department advised that it does not hold “administrative data” about who has, or has not, any pre-30 June 1983 service. The subsequent data provided in that letter, however, demonstrated that the financial effect of the 10% Cap measure has fallen predominantly on defined benefit pensioners on quite modest retirement incomes. Almost none of the data appears to to match Mr Morrison’s May 2015 example of a retiree couple with a defined benefit pension of $120,000 who had been receiving a part Age pension.
On 13 July 2016, after the General Election, ACPSRO wrote to the Minister for Social Services, pointing out the inconsistency of the data with the original claimed intention of the 10% Cap measure, and requesting corrective measures be taken.
On 16 August 2016, a departmental officer responded on behalf of the Minister, maintaining the original official line on the justification for the 10% Cap. ACPSRO responded on 26 August 2016, pointing out why the original concern about pre-30 June 1983 service is misconceived and, more pertinently, that imposing the 10% cap measure on retirees with no pre-30 June 1983 service is quite unjust.
In the same late-August period, ACPSRO wrote to the Australian Greens, requesting them to make good on their 25 June 2015 promise to have the matter reviewed if experience demonstrated unintended consequences, and sent letters to the Senate cross-bench, for example to Senator Xenophon, providing them with the background if the matter comes up for discussion.
ACPSRO recommends that member organisations bring this compendium of documentation to the attention of affected retirees so that they may raise the matter with politicians.
The above quoted documents are also available in the table below.
For more information about ACPSRO and the Ten Percent Cap Issue, go to the ACPSRO page.
Canberra, 5 September 2016.