The age pension should be restructured to become a safety net for the poorest pensioners, rather than a widely distributed entitlement, Rice Warner said yesterday.
The age pension is the largest cost in the federal budget and it is questionable whether this situation is sustainable as the baby boomer generation retires.
"We consider it is time to reform our social security structure in a way that will cut costs to taxpayers and which will allow scope to pay higher benefits to our poorest retirees," the actuarial company said.
"Over time, the age pension should become a safety net rather than an entitlement for most retirees."
Currently, about 75 per cent of Australians over the age of 65 rely on a full or part age pension for financial support.
In 2010, the cost of the age pension was around 2.7 per cent of gross domestic product (GDP), or $32 billion a year.
"This is projected to rise to 4.6 per cent of GDP over the next 40 years, costing around $140 billion per year in 2050," Rice Warner said
"The question to be asked is whether better targeting or encouragement for private superannuation could reduce the cost increase over the period and/or provide higher benefits for those in real need."
The company proposed a system in which pensioners were eligible for the age pension only after having spent their wealth including their superannuation and any other assets above a defined threshold.
It proposed to set a threshold of $250,000 in super savings for an individual and $350,000 for a couple, while allowing individuals to own a house worth up to $1 million, after which the age pension means test would apply.
"We have selected an amount of $250,000 as the income from this, combined with the age pension, would provide a comfortable income in retirement," it said.
As a result of the reforms, the average age at which a retiree becomes eligible for the age pension would generally be older.
This would save between 5 and 10 per cent of age pension costs over time, Rice Warner said.
"These savings could be applied to provide support for older Australians in areas such as aged care," it said.
