| Future Imperfect: Planning New Age Retirement |
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Australia's baby boomers are heavily under-superannuated and most will have to rely to some degree or other on the age pension. That is a simply, immutable bottom line that just about everyone in the financial services industry understands. Thus, when Mercer's David Knox earlier this month presented a paper to the Committee for the Economic Development of Australia (CEDA) suggesting that the pension age in Australia be lifted from the existing 65 to 67 between 2015 and 2022 he set off a reasonably heated debate about the broader question of retirement incomes in Australia and the future role of the age pension. It was a debate that not only traversed the role of the age pension, but also the policy directions of the Howard Government over the past five years - a policy direction that has recognised that Australian baby boomers are, indeed, under-superannuated and will have to work longer. While Knox has suggested lifting the pension age from 65 to 67 between 2015 and 2022 it needs to be remembered that most of those born in the early 1950s will have barely entered their 70s. Indeed, someone born in 1957 will be just 65 years old in 2022 and compelled to work another year before accessing the age pension. When this sort of basic information is combined with recent research undertaken by the Association of Superannuation Funds of Australia, then the argument against Knox's contention becomes even more compelling. That research, published in June, estimated that average superannuation balances in 2007 were likely to have reached $130,000 for men and $45,000 for women and projected that this could rise to $183,000 for men and $93,000 for women now aged between 35 and 44. The ASFA research pointed out that around 70 per cent of people in the 35 to 44 age cohort were likely to have superannuation balances below the projected amount, suggesting that their relatively modest super balances would ultimately provide only a "useful but modest supplement to the age pension". However, Knox in his CEDA paper argues that the changes are necessary because without appropriate policy reform, the increase in life expectancy, decreasing birth rates and Australia's ageing baby bombers will impact the economy. He argued that a comprehensive policy package was required to alleviate future fiscal pressures and ensure that all Australians enjoyed an adequate standard of living in retirement. The paper, Pensions for Longer Life: Linking Australia's pension age with life expectancy, proposed a gradual rise in the pension age from 65 to 67, between 2015 and 2022, and an abandonment of the fixed pension age strategy in favour of a dynamic approach. It also argued that age-based superannuation rules should also be reformed and then adjusted in line with such changes. The paper suggested Australia retain a safety net to ensure those who could not work because of ill-health would be eligible to receive disability support payments. The CEDA analysis of Knox's paper said that Australians were living longer and healthier lives and that the recommendation to raise the pension age to 67 in view of the increased life expectancy was modest. It claimed the nature of work had also changed, with the typical worker of 1909 a labourer; while today's typical worker had an office job. It said that turning 65 isn't what it used to be and that the pension age should reflect this and continue to reflect this. The problem for CEDA and Dr Knox is that their proposals with respect to lifting the pension age from 65 to 67 appear to have gained little support from any quarter. Neither of the major political parties has endorsed the proposals and both the industry funds and the Investment and Financial Services Association (IFSA) have been broadly negative in their assessments. Then, too, there have been suggestions that the CEDA paper fails to adequately acknowledge the different life/work expectancies of people working in blue collar and white collar callings. Critics have suggested that the paper simply fails to recognise that many blue collar workers feel they are no longer able to fulfil their job requirements once they reach their 60s. The chief executive of IFSA, Richard Gilbert, described the proposal as being broadly unhelpful in circumstances where the financial services industry and, indeed, the Government were still waiting to determine the effectiveness of the so-called 'Better Super' regime. Gilbert said that the anecdotal evidence on the changes resulting from the 2006 Budge initiatives were that people were staying the workforce longer in any case. For its part, the Australian Institute of Superannuation Trustees (AIST) was more vociferous in its rejections of Knox's contention, with its chief executive Fiona Reynolds suggesting such a proposal would unfairly disadvantage lower income earners and blue collar workers, who were most reliant on the age pensions. "If the retirement age is lifted, it will be lower income earners who will end hp having to work to 67 because they are the most reliant on the age pension," Reynolds said. "High income earners with more savings and assets will be less affected, as they will have more choice and flexibility about retirement, allowing them to scale down work or not work at all" she said. Reynolds said while some Australians chose to work past age 65, jobs were not always there or even appropriate for older workers, particularly those in manual jobs. "While it might be relatively easy for a doctor or an architect to continue working after 65, the same cannot be said for every bricklayer or motor mechanic having to sweat it out at age 67." She said CEDA's comments that Australia should fall in line with other nations that had already moved their pension age to 67 or 68, failed to take into account the fact that Australia's age pension payments were modest compared to other European countries. "Australian pension payments are 25 per cent of male average weekly earnings compared to up to 65 percent in many European countries," Reynolds said, adding that Australia's compulsory superannuation scheme meant Australia's situation was not as dire as other countries facing the challenges of an ageing population. "Thanks to the introduction of compulsory superannuation more retirees will become less reliant on the age pension in the long term, but it should still be there for those who need it." Reynolds said there were other ways to increase work-force participation rates and respond to the challenge of providing the age pension for an ageing population with an increased life expectancy. Such measures included:
Reynolds said future retirement incomes policy should also look at providing further incentives to help Australians save for retirement, such as an extension of the co-contribution scheme, super payments to women on maternity leave, and a cut to the contributions tax for low income earners. "We do not see lifting the pension age as a priority area for future retirement incomes policy," she said. "Our current universal age pension is a fundamental social policy measure. It is one of the three pillars of the retirement incomes system and it gives some security and dignity for citizens. It is affordable, means-tested and well targeted…. And it should be there for all those who need it at age 65," Reynolds. With the CEDA paper being released virtually on the eve of a federal election and with neither of the major political parties embracing its contentions, it seems the pensionable age is set to remain at 65 in Australia for the foreseeable future. Source: Money Management, Mike Taylor |
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