Yes, millionaires. And that's people who are millionaires before you even take the value of their home into account. One of the staggering facts I learnt this week was that you can have up to $1 million in assets outside of the family home, and still qualify for the pension. This is not about demonising older people, or about attacking pensioners. Full pensioners subsist on a basic rate of less than $400 a week if they're singles, and $585 a week for couples. Some supplements come on top of that. That is extremely frugal living, and no one is suggesting they should have their house sold from under them.

But how can we have a mature debate about fairness, middle-class welfare and what one generation owes to the next, while ignoring the fact that a not-insignificant number of older Australians are claiming welfare despite being very well off? About half of the aged pension pool goes to people who own a home worth more than $500,000. Judging by the way the debate was so quickly shut down this week, first by a spooked government (Social Services minister Scott Morrison immediately ruled out including the home in the pension assets test and called the AFR report "mischievous"), and then by a predictably scare-mongering Labor opposition, we are incapable of even investigating the issue without self-startling. Even last year's McClure report into the welfare system, which was supposed to investigate how to make social security payments sustainable amid the pressures of the ageing population, excluded the pension entirely. John Daley, chief executive of the Grattan Institute, puts it in simple terms.

"The Commonwealth is spending $11 for every $10 it gets in. One dollar of that is the aged pension," he says. "If you have a budget problem, it's hard to ignore the aged pension." It is also hard to ignore in the context of a debate about fairness, a debate the Treasurer's parliamentary secretary, Kelly O'Dwyer, tried to re-frame this week, to give it more nuance. In an intelligent and thoughtful speech at the Centre for Independent Studies (which frankly made one wonder why she wasn't promoted sooner, ahead of some of the more dubious talents who are her superiors on the front bench), O'Dwyer argued it was too reductive to think of fairness merely in terms of the redistribution of income from rich to poor. She said "fair" should be defined "having regard to principles like intergenerational equity, reward for effort, personal responsibility and policy certainty, as well as a moral responsibility to have a social safety net for those who are truly vulnerable."

We should have a sharp eye out for the hidden winners and losers of every social benefit, she said. As Daley points out, the hidden winners of the policy of excluding the home from the pension assets test, are the children who will inherit that home. Take, for example, the case of an aged pensioner who bought a Surry Hills terrace, or a Crows Nest bungalow, several decades ago for well under $100,000. Both properties would now sell for well over a million dollars, so the pensioner is now extremely asset-rich (or just plain rich, in layman's terms). Unwilling to unlock the equity from that house to fund their retirement (and why should they when they don't have to?), they live on the pension until death, at which time the next generation sells up and gets a huge windfall. This amounts to a taxpayer-funded inheritance-subsidy scheme, argues Daley.

He suggests a scheme whereby pensioners with a house valued in the millions can draw the pension against the equity in their own home, while staying in the home. When they die, the Commonwealth recovers the pension money from their estate. If it sounds ghoulish, consider that we already do the same for HECS debts. In both cases actual payment is deferred, but payment is expected because there is an income, or an asset, to fund it. Under this scheme pensioners would be able to reserve a minimum amount of equity in their home so they wouldn't "lose" it. The only losers would be the next generation, who, from a welfare-fairness perspective, should be relied upon to take care of themselves. Some consider this too harsh. Nigel Stapledon, an economist and director of real estate research at the University of NSW, points out the difference in the cases of a Hobart pensioner and a Sydney pensioner, who both own their own home. One of them is an accidental millionaire, but shouldn't be penalised for that.

Both are probably unwilling to leave their family homes and should not be forced to, but one is much wealthier than the other, in real terms. Is this disparity irrelevant? In the fairness debate we discuss income inequality, but wealth inequality, which is worse, often gets overlooked. As Stapledon points out, a much bigger issue, and source of unfairness, is the favourable treatment of superannuation and the billions in foregone revenue the government loses in its tax treatment. "We pat ourselves on the back and say we have got this great retirement system but do we? It's certainly great for the finance industry who skim commissions." But that is a whole other box of monkeys.