Word: 1603

References: 4

Type: Essay

Critical Appraisal Of A Review Article, Saunders And Wong (2011) Pension Adequacy And Pension Review

Introduction

The Australian pension package has been available for decades and primarily supports senior citizens, disabled persons and carers. In 2008, an opposition leader to the Australian government called Brendan Nelson created awareness that payments made by the Pensions package were inadequate. This prompted the Minister of Families, Housing, Community Services and Indigenous Affairs, Dr. Jenny Macklin to address the issue. Dr. Macklin appointed the ministry’s secretary called Dr. Jeff Harmer to review the pension package in 2008. The report dubbed the Harmer Pension Review was released in February 2009. The review critically assessed three main areas of the Pensions policy namely age pension, carer payment and disability support pension. The Australian Government used the pension review findings to amend its Pensions package.

This essay critically appraises the review Saunders and Wong (2011) article “Pension Adequacy and the Pension Review”. The essay will provide an account of the pension review as well the policy issue that is discussed in the review article. In addition, the essay will describe the concept of adequacy and the methods used to gauge adequate payment to pensioners. The deprivation approach and the main results depicted in Saunders and Wong paper will be discussed too.

Policy Issue

The issue of inadequate payment led to the review of the Australian Governments’ Secure and Sustainable Pensions package. The issue of adequate payment was the centre of the policy agenda. The recipients of the pension’s package and the Australian public felt that the amount of payment provided to the beneficiaries were not adequate because the costs of living had increased. The affected individuals were experiencing difficulties in making ends meet. The existing standards of living had increased which raised the question of adequate monetary support. It had been reported that the standards of living had increased, but the question of the amount of increment to be enforced was contentious. For many decades, the issue of pension payment adequacy had not been discussed in Australia. The Harmer Pension review created the required platform to engage in discussions about payment adequacy.

The second contentious policy issue that was raised by the review was the frequency of payments. The design and delivery of payment to pensioners was also found as an issue that needed to be addressed. In addition to this, questions were raised about the overall amount of support provided by the pension scheme against consistent and continuous payments. An additional policy issue was the mode of payment of allowances that would improve the finances of the three groups receiving pension.

The Pension Review Report investigated the financial security of disabled persons, senior citizens and carers. The various levels of support were analyzed vis a vis the purpose of payment. The review was to consider whether the payment was enough to sustain an individual living in the current community standards.

The main research objective of the Saunders and Wong (2011) Pension Adequacy and the Pension Review paper was to discuss the adequacy of payment that was suggested in the Harmer pension review. The authors examined the definitions of adequacy citing its use in several official reports. Adequacy is generally described as the capacity to sustain oneself within standards of living that are reflected in community standards. A method used to calculate adequacy called the deprivation approach was illustrated. The approach is commonly used in Europe to determine adequacy payments.

Main Results of the Article and Policy Recommendations

The definition of adequacy is reviewed in the Saunders and Wong (2011) paper. There are various definitions of adequacy used in previous reports. Most importantly, the definition should capture the issue of ability to cater for an acceptable standard of living as well as calculated with reference to current community standards. In the Pension review background paper, Harmer (2008) described adequacy as the ability to support a basic acceptable standard of living accounting for prevailing community standards. The review indicated that the amount of payment given to pensioners should be able to cater for their basic needs and adequately support their needs. Various methods are used to calculate adequacy, an elementary one being an increment in pension payment over a period of time. This method assumes that the increment is adequate and does not take current living standards into account. The second method is a method whereby an external benchmark is used to evaluate the increment of payment. The poverty line is a commonly used benchmark that compares incomes between different groups of people. The review adopted various methods or benchmarks to calculate adequacy of pension payments to various categories of individuals. The review also focused on the adequacy of the single and married pension rate.

The Deprivation approach was shown to be directly related to income adequacy calculations. Deprivation is described as the inability of an individual to afford basic commodities that are viewed by the community as essential commodities. A survey is usually conducted to determine levels of deprivation within specific groups of people. A questionnaire was drafted that asked the individuals recruited in the survey to list items that they viewed as essential. A sample of the population was calculated and the questionnaires distributed. Only adults were recruited into the study. Saunders and Wong (2011) compared two surveys conducted in 2006 and 2010. The first survey was The Community Understanding of Poverty and Social Exclusion (CUPSE) while the second survey was the Poverty and Exclusion in Modern Australia (PEMA). The two surveys were compared to determine whether the increase in pension initiated after the Pension Review was adequate to the beneficiaries of the pension scheme. Items rated as essential included clothing, beddings, medical cover, ability to purchase medicines, daily meals, dental care, a home, furniture among other things.

Comparison of the two surveys indicated that deprivation of recipients of the pension scheme after its review reduced. One major finding was that the adequacy of the Age pension was more than that of the recipients of other categories for instance disability, unemployed or sole parenthood in the year 2006. Another major finding was that there was an increase in the pension reduced deprivation among pension recipients namely self-funded retirees, service pensioners, disability pensioners, parenting payment recipients and newstart allowees. The mean deprivation in the recipients of the Age pension dropped from 1.0 to 0.85 in the years 2006 and 2010, respectively (Saunders and Wong, 2011).

The Harmer Pension Review (2009) reported five key findings. The first finding indicated that the reform should prioritize full rate pensioners who are single. It was revealed that the rate of pension of couples compared to that of singles was too low and should be increased from 64% to 67%. In addition, individuals who receive pension increment should be those with little or no means. It was also indicated that payments could be integrated into a pension supplement. Lastly, it was thought that payment to pensioners should reflect the current standard of living.

Contribution to the Academic Literature

The Pension adequacy review paper by Saunders and Wong (2011) strongly indicated that the deprivation approach is a superior approach that should be used to determine payment adequacy in Australia.

The deprivation approach is more community-based as its findings are sourced from all classes of members of the community. This is unlike the use of other methods used to judge adequate increment amounts, for instance the assumption that an increase in payment is more adequate because it is a higher amount than the previous one. Another method used to assess adequate payment is the poverty line. According to Saunders (2005) the poverty line is not in line with current living standards and focuses on income. The deprivation method is a better method of determining adequate payment.

The methodology used in the paper was appropriate. The research question in the Saunders and Wong paper is thoroughly reviewed. The methods used to determine adequate payment to pensioners was critically reviewed with proper arguments. Definitions and concepts of adequate payment and deprivation approach were clearly defined by the two authors. The assumptions stated in the paper were realistic and appropriate. The conclusion of the Saunders and Wong (2011) paper is that the deprivation approach is highly recommended for determining payment adequacy in Australia. The deprivation approach has also been used in Europe to monitor progress in countries aiming to achieve goals stated in the European social policy agenda (Whelan et al, 2008). The findings in the Saunders and Wong paper do not contradict those of any other research.

Conclusion

In conclusion, an important feature that determines the success of the social security system is adequacy. Adequate pension payments are the right step towards social equity. The review article by Saunders and Wong (2011) indicates the methods used in the Harmer pension review to determine adequate pension amounts. The two authors suggested that the deprivation approach should be used in the future to determine income inadequacies. The findings determine items that are very basic to individuals in various groups in the community. In addition, the approach determines individuals in various categories who are deprived of their basic needs.

References

Harmer, J. (2008) Pension Review: Background Paper, Department of Families, Housing, Community Services and Indigenous Affairs, Canberra.

Saunders, P. (2005) The Poverty Wars: Reconnecting Research with Reality, University of New South Wales Press, Sydney.

Saunders, P. and Wong, M. 2011. Pension adequacy and pension review. The Economic and Labour Relations Review, 22(3), 7–26.

Whelan, C. T., Nolan, B. and Maître, B. 2008. Measuring material deprivation in the enlarged EU, Working Paper No. 249, Economic and Social Research Institute, Dublin.