Re­lief as pen­sion age is left un­changed

In­creased bonus re­mains as an in­cen­tive to work after 67

Money Magazine Australia - - THIS MONTH -

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

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