One thing Australians have always been wary of is politicians making plans for how they should spend their own money.
However, the latest example – using superannuation balances to support the aged care system – is a particularly dangerous idea.
The logic is put very clearly – we have a cash starved aged care system and a cashed up $3.5 trillion superannuation system.
With one third of superannuation balances set to be passed on as inheritances instead of being used for retirement spending, why not somehow mash the two together and solve the problem in one easy move?
An idea that sounds good but doesn’t pass the sniff test
Well, the idea sounds seductive on the surface but it doesn’t bear a lot of critical examination.
For a start, the aged care system is effectively funded and regulated by the Federal Government and they have primary responsibility for making sure it runs correctly and is funded properly.
Just because they may have done a poor job of that for a very long time is not a very good reason for hunting around for private sources of wealth to top up a system which is currently unsustainable.
Adding a pile of cash to a poorly designed system doesn’t really fix anything, it merely kicks the can further down the road.
Aged care costs set to double
At the moment the $30 billion aged care system is estimated by the Independent Parliamentary Budget Office to increase the Budget cost of aged care by more than 82% over the next decade to a staggering $63.6 billion in 2033-34.
That would leave it behind only the age pension, the NDIS and defence in having a larger impost on the Budget.
Clearly, what is needed is some genuine reform.
New proposals a cash grab
Similarly, there are big problems with the three main proposals being looked at – to “ring-fence” a portion of super balances for aged care, to encourage people to make voluntary super contributions with the extra accumulated for aged care or to increase the rate of compulsory employer contributions to super specifically for aged care and make it easier for people to withdraw their super for aged care deposits.
All are simply looking at different ways of accessing cash – none of them look at changing the system by perhaps incentivising home care or looking at alternative funding mechanisms such as redirecting tax revenue, introducing an aged care levy similar to Medicare or starting a new social insurance scheme.
On a more fundamental level, what has happened to the idea of user pays for aged care – what would be the point of someone who never even uses aged care to have part of their superannuation tied up for many years for that purpose?
It is their money and they should be free to spend or save it as they see fit
What would happen to unused aged care balances?
Surely the issue of inheritance of super balances might even get worse under these proposals, with ringfenced but unused aged care balances also being inherited – unless the proposal is to commandeer those funds?
The other obvious issue is that not everybody has a huge super balance and how would you access the funds from those that do have a large balance to use for those who do not?
If someone doesn’t have the personal funds to pay for more of their aged care bill now, it is unlikely that these reforms are going to change anything and the Federal Government will remain on the hook for these costs.
System needs real reform
None of this is to minimise the need for reform of the complex and difficult to navigate aged care scene, particularly at a time when current taxpayers are coming under pressure to maintain a growing cohort of those in care.
Just to point out that some of the solutions being bandied about by politicians including Assistant Treasurer Stephen Jones don’t stand up to a lot of scrutiny.
If too many super dollars are going into inheritances, why not change the super system rather than divert the cash to aged care through some sort of financial and longevity lottery?
And if the aged care system is getting too costly and complex, why not look to the users of the system for the extra cash rather than a more generalised search for extra funds?
Other solutions are out there
And why not look to further incentivising in-home care services which hold the promise of greatly reducing the overall cost?
Under the current system there is no problem with accessing superannuation balances if needed to fund a place in an aged care facility, or for that matter getting cash from a house or other private assets.
There may well be ways to increase the contribution from some aged care users, although there will always be those who simply don’t have the resources to cover the costs.
However, looking to the superannuation sector to somehow support aged care is yet another way of kicking the can down the road rather than squarely facing up to the policy problems and coming up with some genuine reform solutions.
