Giving Indue consideration to the pension in your FIRE plans

For those of us who’ve come to the FIRE movement later in life, the pension is more likely to be a factor in our financial planning for retirement than it is for those young whippersnappers who reach FIRE by their 30s. This is particularly relevant for women, who generally retire with less superannuation than men, and even more so if you’re single because your per capita living expenses are higher than those living in couples.

I know I’m not the only one who discovered the Australian FIRE community via the Barefoot Investor, and those who have will know that his approach takes the pension into account for retiring. However, there are significant changes happening around social security payments – specifically in relation to how they are paid and the third-party management of those funds – that it would be wise to keep an eye on.

Since I may very well be one of the people who’ll be affected by these changes (even though I’m over a decade away from retirement), I thought I should look at just what this might mean, assuming that there is no change of government in that time – not that that would necessarily make any difference if there are long-term contracts in place. Plus, my blurb for Strong Money Australia’s recent Epic Blogger Roundup highlighted the importance of politics in personal finance, so perhaps this will turn out to be my FI blogging niche 😊. And although politically I’m a lefty feminist progressive, I’ll do my best to remain impartial and let you draw your own conclusions around the politics involved here (no guarantees I’ll succeed, though 😀)!

So, strap in! This is the longest post I’ve ever written, so you might want to make a cuppa first.

So, what are these changes?

Financial management of social security recipients started with the BasicsCard in 2007 as a response to high levels of gambling, alcohol and substance abuse in specific communities. The current government, however, has been trialling an additional scheme that involves a private company managing the quarantined funds.

You may or may not be aware of the existence of the Cashless Debit Card (CDC) trial, also known as the Indue card (Indue being the company providing the CDC itself). The CDC scheme quarantines 80% of the recipient’s social security payment, which is held by Indue, with the remaining 20% being paid to the recipient by direct credit to their bank account. They cannot withdraw cash from an ATM or bank with it, nor can they withdraw cash from EFTPOS terminals (e.g. at supermarkets). Like the BasicsCard, the Indue card will not allow the purchase of gambling and alcohol products, and, because it’s currently just a trial, the card can only be used at approved merchants.

The Indue card has been operating in trial areas in South and Western Australia since early 2016, generally in non-capital city areas, and was extended to parts of Queensland after the Social Services Legislation Amendment (Cashless Debit Card Trial Expansion) Bill 2018 was passed by Parliament. It is being compulsorily trialled on people between the ages of 15-64 (i.e. those of working age) who receive the Disability Support Pension, parenting payments, Carer’s payments, Youth Allowance and Newstart. At this stage, age pensioners and Veteran’s pensioners may opt in if they choose. Compulsory participants can apply to be removed from the trial, but it is quite difficult and takes a considerable amount of time to achieve a successful outcome – in fact, it has been reported that less than 2% of applicants have been removed from the scheme.

The LNP government intends to extend the Indue card nationally, and their plan is to include all forms of social security payments – i.e. Age Pension recipients will be forced onto the card along with all other social security recipients.

On top of that, rent payments and bills such as electricity/gas/water, etc, will also be deducted from people’s payments to ensure they have housing and don’t fall behind with their living expenses bills, although it isn’t clear (as far as I can find, anyway) whether this applies to all recipients or only those who’ve demonstrated that they struggle in this area. However, the current government rhetoric around the Indue card is that it “is now able to provide a broad financial and budgeting tool”, so the inference is that this would apply across the board. This claim of it being a financial literacy tool is disputed by academics, however.

Now, before I freak you (and myself!) out, extending third-party cash management to all social security recipients is probably a little way down the track, if it manages to pass into legislation at all. The power of the pensioner/retiree voting bloc was demonstrated very clearly in the May 2019 federal election thanks to the franking credits saga, so the government may ultimately decide to leave the Age Pension group out. However, I think it’s far more likely they’ll leave them until last and let momentum carry the day. There is yet another bill being put to the vote in parliament at the moment relating to the CDC (to extend the trial into the Northern Territory), so this may also be a case of the frog in the pot of water, slowly being brought to the boil so that by the time it realises its life is in danger, it’s already pretty much cooked.

So, let’s take a quick look at how the money stacks up.

Example figures

For the purpose of this example, I’m treating this as if someone was retiring now at age 67 and the stock market has just crashed, gutting their super balance to the point where they can only just achieve a level of income matching the Association of Superannuation Funds Australia (ASFA) standard of living (without taking up part time work).

ASFA released new figures on 18 February 2020 for modest and comfortable retirement incomes for singles and couples.

The basic full pension for a single (excluding any supplemental payments) is currently $850.40 per fortnight ($22,110.40 per annum). Couples get $1282.00 per fortnight ($33,332.00 per annum).

	Single – modest	Single – comfy	Couple – modest	Couple – comfy
ASFA standard	28,165.00	44,146.00	40,560.00	62,269.00
Full pension	22,110.40	22,110.40	33,332.00	33,332.00
80% quarantined	17,688.32	17,688.32	26,665.60	26,665.60
Total available cash	10,476.68	26,457.68	13,894.40	35,603.40

Depending on one’s budget and typical expenditure, this may or may not be too problematic. However, if you’re on the modest end (or lower) of the ASFA standard of living, you might find life rather more difficult than expected. For a single on a modest living standard, that’s less than $1000 per month. For a couple living modestly, that’s actually even less on a per capita basis – just under $580 per month each.

Then there are all the other issues with the scheme, some of which I find quite concerning. The following list are just dot points, really – there is plenty of information and a lot of stories available online from people who are currently living on the card, should you be interested in looking them up. I’ve provided a list at the end of the various articles and sources I’ve consulted in the process of researching this post. (I’ll apologise now for the probability that I haven’t followed any strict referencing style.)

FIRE seekers by definition are either already or becoming good money managers, so there is no genuine need for us (nor, for that matter, for anyone who is not a problem drinker, drug addict or gambler) to require oversight of our financial dealings by a private company.

Issues with the card

Legal, oversight, policy, and biased review

Changes to legislation have overridden laws that were designed to protect social security recipients from third parties taking payment from them without their consent; e.g. the “garnishing” of payments to direct monies to entities such as utilities companies (to pay bills) – a problem if your income is low enough that you need to juggle payments.

The Indue card, like many credit cards, has to be authorised (activated) by the cardholder. Once authorised, the cardholder is considered to have consented to the CDC trial, as well as Indue’s Terms & Conditions. However, if you need those funds to meet your living expenses, are you going to refuse to activate it? Surely this amounts to being forced into a contract under duress?

The funds that are transferred to Indue become the legal property of Indue, not of the intended recipient. Indue is not a bank, so they are not governed by any legislation relating to banking (nor Centrelink-related legislation) and are not bound by the consumer protections that banks must provide. However, they are an Authorised Deposit-taking Institution as listed on the APRA register.

Local oversight of the card is often made up of people who are supporters of the card system (and sometimes also beneficiaries, such as local business owners). Community consultation on its implementation appears to have been limited to local politicians rather than the community at large. Whether local oversight is something that would remain if the CDC becomes a permanent fixture is unknown.

Those people currently on the card cannot be removed from it, even if they move to a non-trial area. In Hinkler (Qld), the trial is restricted to persons aged up to 35, but even once a person turns 36, getting monies held by Indue returned to them is proving to be difficult despite Indue’s own Terms and Conditions stating that this is what will be done.

Reviews of the trial reports produced by the Minderoo Foundation (Andrew “Twiggy” Forrest’s foundation), including reviews by academics and the Australian National Audit Office, indicate that the research methods and data collection are deeply flawed and any conclusions drawn from them are likely to be invalid. There are also concerns about the collection of private data without consent.

Card function

The Indue card doesn’t block specific products (as yet – this is being investigated), it blocks merchants that sell prohibited products. So even if a business primarily sells products that are not on the banned list, it may still be disallowed as an Indue merchant because it has one or two things on its shelves that have even an extremely tenuous link to alcohol, drugs or gambling (e.g. a nursing student who was unable to buy items she needed for her study claims that Indue staff told her she couldn’t buy from the online Medshop because it sold hand sanitisers, which are restricted due to their high alcohol content).

The card cannot be accepted in places like the second-hand market, fresh food markets, op shops, cash-only sellers, garage sales, sharing rental property, etc. You can’t buy goods over the internet either (e.g. from eBay) – you’re forced to buy from the big stores where you have little to no ability to bargain on price, especially for groceries. If you’re in a remote area you’ll be even worse off, because goods often cost more (sometimes quite a lot more) in remote areas than in major population centres. If you want to buy from someone second-hand (e.g. from Facebook Marketplace) you have to screenshot the advertisement and apply to Indue to be able to buy it. Getting a response can take several days.

During disaster events such as the recent bushfires, lack of power means no electronic transactions are possible. Having extremely limited access to cash means not being able to buy necessary goods, including petrol so that you can evacuate from an affected area.

Technological issues

The card appears to be plagued by technological problems – there are reports of multiple attempts to get transactions to go through – or the card is just declined outright and simply won’t work.

Banks have outages (planned or otherwise), also resulting in the inability to carry out electronic transactions. Without access to (much) cash, cardholders can be prevented from carrying out their day to day business when they need to.

Fees charged for transfers of funds, including rent and grocery shopping. People have reported being charged default fees of up to $26 because Indue has not paid loan payments on time. If you’re already trying to get by on a limited income, being hit with outrageous fees will make it even harder to make ends meet.

Okay, just a little bit of politics, because it’s important

If, as the government claims, the genuine intent of the cashless debit card is to prevent people from accessing products that detract from their ability to take care of themselves and their families, then surely it would make more sense to only require those individuals who have alcohol, drug or gambling problems to be subject to income management. And in any case, the Australian Government Social Security Guide provides income management options for vulnerable people to help them manage their finances more easily. The trial, however, is geographically targeted rather than being driven by actual need.

This scheme is being heavily pushed by the LNP, which seems to conflict with their ideological belief in small government and avoidance of “nanny states”, until you look at the parties behind it and how they benefit. Indue is a donor to the LNP, and its deputy chairman up until 2013, Larry Anthony, is now the President of the National Party. (Nothing to see here, folks – move along!)

The card reportedly incurs administration costs of approximately $10,000 per year per participant. This seems ridiculously high and, economically, extravagantly inefficient when you consider that a Newstart recipient is paid slightly less than $14,000 per year. The projected admin costs if every welfare recipient was transitioned to the Indue card would reportedly be over $3billion more than it is now. These costs are borne by the taxpayer. There are some interesting calculations of the value of the CDC contracts available in this article. The expectation of the government is that these costs would be considerably lower once the scheme is rolled out nationally (presumably if and when the issues identified through the trial are resolved).

So, where does that leave us?

Ultimately there’s no way to know whether any national roll out of this scheme will pass through both the House of Reps and the Senate in the future. The Labor Party supports income management, but only for those people that actually need it, and the Greens don’t support it at all, at least as far as I’ve been able to determine.

So although the future of the CDC is not entirely certain, I will say this, though. Who you vote for is important. It’s very easy, while everything is going well, to assume that that state of affairs will continue indefinitely, but each of us is only one major life disaster away from needing that social security net ourselves. This is the whole point of a society, after all – to ensure survival through mutual cooperation and helping those who can’t help themselves. Our current government seems to believe that society should serve the economy, but they’ve got it arse-backwards – the economy should serve it’s society. We FIRE-chasers may very well achieve financial independence before retirement (even us late starters), but we all still have family and friends who aren’t on board and who will likely end up receiving at least some level of social security in retirement. If not for yourself, at least pay attention to government policy on behalf of those who matter to you, and vote accordingly.

Finally, a little bit of fun snarkiness, courtesy of Juice Media

References

7.30 (ABC News). What life is like on the cashless welfare card. 9 October 2019. https://www.youtube.com/watch?v=dhFoyoPXGbU, accessed 29 February 2020.

Australian National Audit Office. The Implementation and Performance of the Cashless Debit Card Trial. 17 July 2018. https://www.anao.gov.au/work/performance-audit/implementation-and-performance-cashless-debit-card-trial, accessed 29 February 2020.

Bagshaw, Eryk. ‘Evidence lacking’: Auditor-General criticises cashless welfare card trial. 17 July 2018. https://www.smh.com.au/politics/federal/evidence-lacking-auditor-general-criticises-cashless-welfare-card-trial-20180717-p4zrzu.html, accessed 22 February 2020.

Dr Bielefeld, Shelley, Prof Cox, Eva, and the Accountable Income Management Network Secretariat. The Cashless Debit Card: Flawed Beyond Technological Redemption, 16 August 2018. https://www.powertopersuade.org.au/blog/the-cashless-debit-card-flawed-beyond-technological-redemption/15/8/2018, accessed 14 February 2020.

Caro, Jane. Jane Caro: Sorry, ScoMo, But Cashless Welfare Cards Are A Slap In The Face. 9 September 2019. https://10daily.com.au/views/a190821lnzba/jane-caro-sorry-scomo-but-cashless-welfare-cards-are-a-slap-in-the-face-20190909, accessed 29 February 2020.

Cleland, Bilal. The poor worse off while companies profit from cashless welfare card. 29 September 2019. https://independentaustralia.net/politics/politics-display/the-poor-worse-off-while-companies-profit-from-cashless-welfare-card,13148, accessed 15 February 2020.

Harris, Rob. Scott Morrison eyes long-term cashless debit card roll out. 8 September 2019. https://www.smh.com.au/politics/federal/scott-morrison-eyes-long-term-cashless-debit-card-roll-out-20190907-p52oxb.html, accessed 22 February 2020.

Henriques-Gomes, Luke. Cashless welfare card: how does it work and what changes is the government proposing?, 6 February 2020. https://www.theguardian.com/australia-news/2020/feb/06/cashless-welfare-card-how-does-it-work-and-what-changes-is-the-government-proposing?, accessed 14 February 2020.

Klein, Elise (OAM). There’s mounting evidence against cashless debit cards, but the government is ploughing on regardless. 1 November 2019. https://theconversation.com/theres-mounting-evidence-against-cashless-debit-cards-but-the-government-is-ploughing-on-regardless-123763, accessed 22 February 2020.

Knaus, Christopher and Davey, Melissa. Cashless welfare card trial costs up to $18.9m, data reveals, 2 May 2017. https://www.theguardian.com/australia-news/2017/may/02/cashless-welfare-card-trialled-for-fewer-than-2000-people-at-cost-of-up-to-189m, accessed 14 February 2020.

Koslowski, Max. ‘The card declined and I broke down’: Life on the cashless welfare card. 14 September 2019. https://www.smh.com.au/politics/federal/the-card-declined-and-i-broke-down-life-on-the-cashless-welfare-card-20190913-p52r02.html, accessed 22 February 2020.

Lawless, Mick. Scott Morrison’s unholy war against the poor. 1 August 2019. https://dingo.news/voice/2019/08/01/scott-morrisons-unholy-war-against-the-poor/, accessed 15 February 2020.

Lawless, Mick. Scott Morrison’s unholy war against the poor – continued… . 31 July 2019. https://dingo.news/voice/2019/07/31/scott-morrisons-unholy-war-against-the-poor-continued/, accessed 15 February 2020.

Maury, Susan. The Cashless Debit Card is not a ‘financial literacy tool,’ and Big 4 involvement won’t change that. 10 February 2020. https://www.powertopersuade.org.au/blog/the-cashless-debit-card-is-not-a-financial-literacy-tool-and-big-4-involvement-wont-change-that/10/2/2020, accessed 22 February 2020.

McCartney, Melanie. The Cashless Debit Card is part of Authoritarian creep, which affects us all (part 1). 5 December 2019. https://theaimn.com/the-cashless-debit-card-is-part-of-authoritarian-creep-which-affects-us-all-part-1/, accessed 15 February 2020.

McCartney, Melanie. The banks are getting ready to take over cashless debit card management (part 2). 6 February 2020. https://theaimn.com/the-banks-are-getting-ready-to-take-over-cashless-debit-card-management-part-2/, accessed 15 February 2020.

McCartney, Melanie. Social security privatisation and income management profiteering. 13 April 2019. https://melmacpolitics.com/2019/04/13/social-security-privatisation-and-income-management-profiteering/, accessed 15 February 2020.

(Surname not provided), Amanda. Indue Cashless Debit Card exit issues. 14 February 2020. https://www.youtube.com/watch?v=g5Ngy3TvuCI&fbclid=IwAR1H01e1UZiPaRtD5ZK0AwXzb4CZSVvc89lwvpAGfTrtc7ko1feTOrVwfmk, accessed 29 February 2020.

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The Say NO Seven. Features of the ANAO report into the 12-month Ceduna and East Kimberley region Cashless Debit Card Trial. 22 February 2020. https://theaimn.com/features-of-the-anao-report-into-the-12-month-ceduna-and-east-kimberley-region-cashless-debit-card-trial/, accessed 29 February 2020.

Wighton, Jocelyn. My experiences of the Cashless Debit Card, 10 April 2018. https://www.powertopersuade.org.au/blog/my-experiences-of-the-cashless-debit-card/9/4/2018, accessed 14 February 2020.