Booming age pension bill looms

This article is authored by Bernard Salt and is originally published by The Australian.

In round numbers there are 25 million Australians including four million aged 65-and-over and who are, therefore, eligible to apply for the age pension depending on individual circumstances. That’s about a fifth of the population or a quarter of all voters.

Concerns about the sustainability of the age pension system are underpinned by the ageing of the population, especially the advancing years of the baby boomers. There are about five million people born between 1946 and 1964; they are jumping into the space previously occupied by pre-boomers born 1927-1945 and who never numbered more than three million. You can see the issue: five million doesn’t go into three million. This creates spillage and market tension.

When boomers went to school in the 1970s teachers had to be imported from America. When boomers entered the workforce in the 1980s, they “created” the concept of DINKs or double-income no-kids, and when they did have kids from the late 1980s, they morphed into yuppies or young, urban professionals.

Interestingly it was in this pre-Friends era that a TV show called Thirty-Somethingwas popular (with boomers of course). In short, boomers have set the cultural agenda for decades. And they ain’t stoppin’ now.

The first Baby Boomers, born July 1946, turned 65 (and thus eligible for the age pension) eight years ago. And over the balance of this decade all that very first-boomer’s younger mates, born in the late 40s and early 50s have tripped across the 65-line. And there’s lots more to come. I hope those agreeable Xers and antsy Millennials are happy to work away paying taxes to prop up the entitlements of retired boomers.

It could be worse. In China, retirement starts at 60 for men, at 55 for female civil servants and at 50 for female workers. I like China already. There, female civil servants work longer than everyday female workers whereas in Australia the system is reversed. Perhaps we work our civil servants so hard that they need to retire earlier, some as early as 55?

Across the world the average age at retirement generally starts at 65 although many countries, including Australia, are pushing this to 67 or to 68 in some cases.


As life expectancy increases it is necessary to push out the time in the life cycle when retirement (and other) benefits kick in.

Just prior to World War II the average life expectancy for men and women in Australia was 63 or two years prior to being eligible for the age pension. Our grandparents and great grandparents kinda expected to die before retiring.

Today the average life expectancy for Australian men and women is 82 which allows, say, 17 years in retirement. For many years, Australia, and many other countries, could afford to be generous with retirement benefits … if we promised not to live very long into retirement. The problem is that with better health care, and a shift in work from manual labour to office work, more retirees are now living longer. In fact, many — mostly women, I have to say — are living well into their 80s and 90s. Which is wonderful for their families but for society as a whole, these are expensive “health and care” years to maintain.

And with an avalanche of boomers careening into their 70s and beyond new solutions need to be found. I have to say this is a wonderful first-world problem to have — living long lives — because in Uganda, for example, barely 2 per cent of the population is aged 65-and-over whereas in, say, Japan this proportion is 28 per cent. In Australia and America this proportion is 16 per cent.

There are several solutions to the ageing problem.

Tax-paying workers can be imported via an immigration program where new workers contribute to their own retirement via superannuation: that’s the Australian approach.

Taxes can be increased on the overall worker base: that’s probably going to happen anyway because generally we expect governments to increasingly do more. This is the moving-towards-Denmark social welfare model.

Taxes can be increased, and benefits rescinded, for existing retirees: this proposition was trialled at the recent election and was rejected (on this occasion).

But the numbers are irresistible. Our expectations in retirement, and more generally, are unstoppable. The solution in Australia at least seems to be a combination of some form of all three approaches, and I suspect this will still not be sufficient to manage the outrageous expectation of the retirement mountain.

The real solution, the unpalatable truth, is retirement planning is not something that can be outsourced to government, to an employer, to family, to a former partner, it is something that must be faced up to, planned for, saved for, worked towards over an entire lifetime. As a society we have a responsibility to offer a provision for those unable or incapable of provisioning for their own retirement.

Sickness, divorce or just rotten luck in the workforce can diminish the capacity to provision for retirement. But for the most part, most Australians understand the social contract that the kind of retirement you want is the kind of retirement you have planned for.

The difficulty, as I see it, is that there is a necessity for governments to occasionally shift the goalposts — what was possible a generation ago is no longer possible today.

We need honest conversations about what lies ahead in terms of benefits and entitlements.

The good thing about Australia is that on a world scale we are still relatively young thanks to our immigration program and our tolerance of immigrant workers.

Others nations, notably Japan, Italy, Spain, Greece and Portugal will lead the way in managing an over-65-skewed population.

In the Mediterranean this situation is exacerbated by the influx of retiree immigrants.

We have the same situation in Australia not so much with inflowing older retirees as might be found on Spain’s Costa Brava, but very much in retirement enclaves typically found in sea-change communities.

If you want a glimpse of Australia’s future demography — our canary in the coalmine of ageing — then head to places like Forster-Tuncurry north of Newcastle, to Victor Harbour south of Adelaide, and to Hervey Bay north of Noosa (see the Hervey Bay v Australia graph above).

The “problem” of ageing isn’t so much the provision of services and benefits, it is the cultivation of a culture or self-sufficiency, of long-term planning and of weaning everyone off the thinking that someone else is always responsible for their own circumstances.

Although, oddly, this logic never applies in the reverse, to the prosperous who invariably see wealth as evidence of their skills and industry.

Funny that.

What we really need to do is to change the way people think about provisioning for retirement.

It really is up to each and every individual to do what they can throughout their working lives.

With 4 million baby boomers set to retire in the next few years, it’s essential that HR Managers are prepared for the transition. Learn more about how to best manage it with Career Money Life’s free guide, click here to download.

If you want to speak to someone with regard to our Transition to Retirement programs, you can easily book a demo online or send an enquiry to contact@careermoneylife.com.

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