Newstart Allowance and mature age job seekers

5.52 This section considers the situation of mature age job seekers in receipt of Newstart Allowance. The ALRC does not propose to make any changes to activity test requirements for those aged 55 years and older. However, the ALRC asks for stakeholder comment about whether changes to the withdrawal rate for Newstart Allowance for recipients aged 55 years and older would have an effect on incentives for workforce participation.

5.53 At June 2012, there were 550,000 recipients of Newstart Allowance. Of these, approximately 22% were aged 40–49, almost 19% were aged 50–59, and 9.1% were aged 60–64.^[85]

5.54 For the purposes of Newstart Allowance, ‘mature age’ is defined as 55 years and older. At June 2012, there were 98,050 recipients, or 18% of the total Newstart Allowance population, in this age group.^[86] This number has almost doubled since June 2002,^[87] driven by the phasing out of Partner Allowance, Mature Age Allowance and Widow Allowance, as well as the increasing age of eligibility of the Age Pension for women.^[88]

5.55 Approximately 50,000 Newstart Allowance recipients aged 55 years and older are ‘very long-term’ income support recipients (in receipt of income support for two years or more).^[89] This represents approximately half of the total Newstart Allowance recipients in this age bracket,^[90] as well as 20% of all very long-term income support recipients.^[91]

5.56 Some Newstart Allowance recipients have been assessed as having a partial capacity to work: a physical, intellectual or psychiatric impairment that prevents a person from working at least 30 hours per week at the relevant minimum wage or above, independently of a program of support, for the next two years.^[92] At June 2012, there were 99,884 Newstart Allowance recipients with a partial capacity to work.^[93] Of these, 27.1% were aged 55 years and older.^[94] Persons with a partial capacity to work made up 27.6% of all Newstart Allowance recipients in this age group.^[95]

Activity test requirements for mature age job seekers

5.57 Different activity tests and participation obligations apply to some mature age persons. Job seekers aged 55 years and over have a concessional activity test option: they may satisfy the activity test if they undertake at least 30 hours per fortnight of approved and suitable voluntary work, paid work (including self-employment) or a combination of the two.^[96] At 29 June 2012, 19,582 (21.8%) of all activity-tested mature age job seekers were satisfying their requirements in this way.^[97]

5.58 Where mature age job seekers are satisfying their activity test in this way, they are generally not required to attend appointments with their employment services provider. They must still register and remain connected to a provider while undertaking these activities and are required to accept suitable paid work or referral to interviews.^[98] In addition, they may access or continue to access the full range of services available through their employment services provider on a voluntary basis.^[99] Job seekers who do not satisfy their activity test through undertaking 30 hours per fortnight of voluntary work, paid work, or a combination of the two, have the same participation obligations as other job seekers.^[100]

5.59 In 2009, the Participation Review Taskforce considered the different activity test rules for job seekers aged 55 years and over. It recommended that, in the medium term, mature age job seekers should have the same participation requirements as other job seekers.^[101] However, the Taskforce recommended that this change should be preceded by actions to combat negative attitudes towards older workers.^[102]

5.60 In the Issues Paper, the ALRC asked if the current activity test requirements for mature age job seekers should be changed.^[103] Some stakeholders argued that the current concessional activity test sends an inappropriate message about the expected workforce participation of mature age persons. For example, the Australian Chamber of Commerce and Industry argued that the current exemptions for mature age workers can discourage participation in the workforce.^[104] COTA agreed that allowing persons to satisfy their activity test by volunteering ‘could be seen to be discouraging older people from trying to re-enter the paid workforce’.^[105]

5.61 Other stakeholders were opposed to any tightening of the activity test for job seekers aged 55 years and over. They argued that the concessional activity test was appropriate in light of the current employment prospects for mature age job seekers.^[106] Despite its reservations about the message sent by the current activity test, COTA also did not support any immediate change.^[107] NWRN and the Brotherhood of St Laurence did not support tightening the current activity test for this group of income support recipients.^[108] For NWRN, changes to the activity test would force older job seekers into ‘a cycle of constant rejection and humiliation’.^[109]

5.62 Writing about the prospects for an ageing labour force, Professor Philip Taylor makes a similar argument:

While older workers may nowadays be somewhat closer to the labour market than they once were, their employability is often quite poor … Something that even its most ardent proponents must recognize is that ‘activation’ in terms of offering the ‘right’ of older people to work when there is no work to be had due to age discrimination, a lack of skills currency, or failing health may simply be condemning many to ‘active’ ageing in the form of labour force participation, but with little or no prospect of meaningful job opportunities.^[110]

5.63 The ALRC considers that there should be no further tightening of the current activity test for job seekers aged 55 years and over. The test as it currently operates serves to provide a concession for the barriers to work faced by persons in this age group. Given that job seekers may voluntarily continue to engage with their employment services provider, the current activity test requirements do not appear to be acting as a barrier to mature age participation.

5.64 In addition, the concessional activity test recognises the value of volunteering, not only as a potential pathway to paid employment, but also as a form of productive work in its own right.^[111]

Taper rates for mature age job seekers

5.65 Newstart Allowance has undergone significant reform since the early 2000s. The primary consequence of the reforms has been a significant extension of the scope of Newstart Allowance to encompass a wider population group, including parents of young children, people with a partial capacity to work and the mature aged.^[112] These reforms have meant that Newstart Allowance increasingly treats groups of recipients differently—for instance, through different activity test requirements.^[113]

5.66 In general, however, Newstart Allowance recipients have the same income free area and withdrawal rate applied to any income received. The current income free area is $62 per fortnight.^[114] Income between $62 and $250 per fortnight reduces payments by 50 cents in the dollar. Income above $250 per fortnight reduces payment by 60 cents in the dollar.^[115]

5.67 The AHRC notes that the low income free area for Newstart Allowance recipients ‘acts as a specific disincentive to part-time or casual work’.^[116] NWRN reported that ‘older job seekers tell us that the exceedingly low “income free” area … is a major impediment to undertaking additional hours of work’.^[117]

5.68 The income free area, together with the withdrawal rate, is intentionally designed in this way to maintain the incentive to take up full-time paid work.^[118] In a joint submission to the Allowance Payment Inquiry, DEEWR, FaHCSIA, DHS and DIISRTE argued that ‘if people in receipt of payments are encouraged to take part time employment there is an inherent risk that they will substitute this for full time permanent work’.^[119] They contended that this is at odds with the ‘message that people should be making the maximum effort to fully support themselves’.^[120]

5.69 However, DEEWR, FaHCSIA, DHS and DIISRTE also acknowledged the changing nature of the cohort in receipt of Newstart Allowance. This has changed from a group of job seekers notionally with the capacity and availability to work full time, to one including those with partial capacity to work, caring responsibilities, and the mature aged. This change was said to present ‘new challenges to the allowance payment system to assist people in the transition off payment and into work’.^[121] There is some evidence that part-time or casual work can act as a stepping stone or pathway to full-time work.^[122] There is also evidence that persons aged 55 years and older (particularly men) may remain in casual employment for an extended period, possibly as a step towards retirement.^[123]

5.70 In addition, the different activity tests for different Newstart Allowance payment groups means that fully meeting participation obligations may not result in sufficient employment income to move completely off income support. This may be the case for principal carers and those with a partial capacity to work, who have part-time participation obligations.^[124] This may also be the case for Newstart Allowance recipients aged 55 years and older satisfying the concessional activity test.^[125]

5.71 The financial benefit derived from combining paid work and income support can be improved by modifying the income free area or withdrawal rate. This is the policy intent behind the changes to the income test for single principal carers, to take effect from 1 January 2013. This change will introduce a flat withdrawal rate of 40 cents per dollar for each dollar received over the income free area.^[126]

5.72 There may be merit in introducing a less severe withdrawal rate for Newstart Allowance recipients aged 55 years and over to improve the financial incentives for combining part-time or casual work with income support.^[127] As the AHRC has noted, mature age persons may face particular barriers to obtaining full-time work—despite their maximum efforts—because of the prevalence of age discrimination.^[128] Additionally, in some circumstances part-time or casual work may be more suited to managing ill health or disability or combining work with caring responsibilities.

5.73 It has been said that ‘ongoing, purposeful reform to the allowance payment system which promotes higher workforce participation and productivity growth is critical to helping Australia manage an ageing population’.^[129] The OECD and others have suggested that payment reform should move in the direction of fewer distinctions between payment recipients, not more.^[130] However, the ALRC invites stakeholder comment about whether changes to the income test withdrawal rate for Newstart Allowance recipients aged 55 years and over should form part of the process of ongoing reform.