Relief as pension age is left unchanged

Increased bonus remains as an incentive to work after 67

Australians will be breathing a sigh of relief following the announcement that the federal government will no longer push for an increase in the age pension eligibility age.

It’s welcome news for people who want to, or are obliged to, stop work at 67, while those who intend to continue in paid work beyond 67 will keep the incentives to do so announced in the last budget. The increase in the pension work bonus remains in place so that, from July 1, 2019, income up to $300 a fortnight will not count towards age pension means testing.

The announcement recognises what the Association of Superannuation Funds of Australia (ASFA) has been saying for some time – that with the best will in the world, many people find it difficult to work into their late 60s, either due to the nature of their occupation or their health.

Maintaining the existing access age is a much fairer public policy, because a rise in the eligibility age would push people in their late 60s onto Newstart, which assumes they are actively looking for paid work and are prepared to enter an employment pathway plan. Neither of these makes sense for many older Australians.

From an economic perspective, there is no justification for raising the eligibility age either. Australia’s age pension is among the most fiscally sustainable in the world. Government expenditure on the age pension was 2.6% of GDP in 2016-17. According to figures from the Organisation for Economic Co-operation and Development (OECD), between 2013 and 2015 public expenditure on pensions was 14.9% of GDP in France, 7.7% in the UK and 4.9% in the US.

Treasury and OECD projections indicate that the expenditure as a percentage of GDP is not expected to increase over the next 40 years. On the other hand, other OECD countries, without our compulsory super system, face steadily rising costs.

Super does all the heavy lifting when it comes to financial security in retirement and will do even more when the super guarantee rises to 12%. In fact, we project that people relying solely or almost exclusively on the age pension will halve between now and 2050, from around 40% to 20%.

Dr Martin Fahy, CEO, ASFA