By Rachel Clun and Jennifer Duke
The chairman of a historic review into the retirement sector wants more people to be forced to pay for their own aged care but has rejected an industry push to reserve a portion of superannuation for these costs.
Retirement Income Review chairman Mike Callaghan, chair of the Aged Care Financing Authority from 2018 to 2020 and former chief of staff to Peter Costello, said ring-fencing a portion of super solely for aged care would be “inefficient”.
Mike Callaghan chaired the Retirement Income Review.Credit:Michel O'Sullivan
The federal government spent $19.9 billion on aged care in 2018/2019, but in its final report released last week the aged care royal commission found the sector was failing older Australians in many instances “simply because there is not enough funding to meet the assessed need”.
A tax on superannuation earnings was proposed by the Australian Council of Social Service earlier this year as a means of boosting aged care funding. Government backbenchers have also been canvassing the idea of quarantining controversial upcoming rises in the superannuation guarantee for the purpose of aged care.
The super guarantee is currently legislated to rise from 9.5 per cent to 12 per cent of incomes by 2025, with the first 0.5 per cent due in July. About a dozen Coalition backbenchers oppose any increase saying it would be a burden on taxpayers, while Labor, the unions and the super funds say the increases are necessary to ensure people have enough money in retirement.
But Mr Callaghan, whose review found the current super rate could be enough if assets were used more effectively, opposed the backbenchers’ push to quarantine superannuation guarantee rises for aged care. Of the 1.2 million people who received aged care services in 2017/2018, just 7 per cent of those used residential aged care.
“The concept of putting aside part of your superannuation balance when you may not need it is like self-insuring for something you may not need,” Mr Callaghan said. “It is not a good way to handle these risks.”
“It would be an inefficient insurance arrangement ... when you only have a small proportion of people who need it.”
However, Industry Super Australia chief executive Bernie Dean said he expected superannuation would be used to help fund aged care costs.
“It seems clear there will be a greater expectation that in the future people will need to fund more of their own aged care from private savings – super will form a role in that,” Mr Dean said. He warned any moves to “chip away at super” such as stopping the increase in super would erode the amount of money people have to retire and contribute towards aged care costs.
ACOSS chief executive Dr Cassandra Goldie said universal access to high-quality aged care services should be funded through the tax system, based on people’s ability to pay. One way to achieve that was through a 15 per cent aged care levy on super fund income.
“This would fund a legislated aged care guarantee,” she said. “Like the Medicare Levy for health, this would be a form of collective insurance for the care people will need in future.”
A 1 per cent Medicare-style levy was proposed by the aged care royal commission, outside of superannuation, but the two commissioners proposed slightly different levy models.
Mr Callaghan, who is an ex-Treasury official, said people “who can afford to pay should pay” and moving towards more means testing could see the private sector come up with new solutions.
“If you had a system where more people had to pay, you’d see insurance products being developed [in the market] to cover these costs,” he said, adding that under a system where individuals pay very little it would not develop.
He further supported increased means testing and potentially using equity in the family home to help fund aged care, such as through a program similar to the government’s reverse mortgage-style Pension Loan Scheme. This is an option previously proposed by lobby group National Seniors Australia.
National Seniors Australia chief executive Professor John McCallum said aged care needed to be funded in a way that doesn’t disadvantage those on lower incomes. With much of older Australians’ money tied up in homes, the Pension Loan Scheme was one of the “more obvious” options, he said. A dedicted home care loans scheme would be in addition to existing care rather than a replacement of government funded options.
“I think it’s got a lot of virtues,” he said.
Pat Sparrow, speaking for the Australian Aged Care Collaboration representing more than 1000 aged care service providers, said Australia spends half the amount as a percentage of GDP on aged care as other comparable OECD countries - about 1.2 per cent, compared to 2.5 per cent.
“Given the level of funding required, we need to consider what would be the best mix between government funding and consumer contributions, including a levy, personal contributions, support for home equity release and payment through superannuation products such as annuities and longevity insurance,” she said.
Research commissioned by the Royal Commission that found 61 per cent of taxpayers were willing to pay more tax for aged care.
Labor superannuation spokesman Stephen Jones said assumptions around the adequacy of retirement income often fail to take into account the rising costs of aged care and funding arrangements should be discussed. “The discussion about aged care and super costs should be had in the same breath”.