All around the world, governments are trying to get workers to work longer. Australia is no exception. Population ageing – increasing longevity combined with lower fertility – will generate massive increases in the per-worker fiscal cost of supporting people in retirement and old age, unless we work for longer. This is a calculus most governments now appreciate, at least in theory.
Age Discrimination Commissioner Susan Ryan organised a conference this week to explore the issue. It focused mainly on the short to medium term. Chris Richardson, from Access Deloitte, analysed what might happen with increased labour force participation over the next decade. This is surely of great interest. Participants pointed to the value of older workers, their mature judgement, their reliability, and their loyalty, and how workplace culture is changing.
But the shifting demographic underpinning the push for working longer plays out in the long term. By 2050, the 65+ population of Australia will have doubled, and the 85+ group will have increased by a factor of four.
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So how is it that the average Australian retirement age is lower by three years compared to 40 years ago (OECD figures)? Especially when, according to the Australian Government Actuary, Australia’s life expectancy has been increasing significantly. It now stands at 23 years for 60-year-old males, and 26 for females – among the world’s highest.
International experience indicates, and Australian experience supports, the idea that the single most important determinant of retirement age is the age you can access your retirement income.
The OECD estimates that Australian labour force participation moves from a highly respectable 82% for the 50-54 age group to 53% for those aged 55-64, and then plummets to 25% for ages 65 to 69. Australia has three access ages: 55 (about to start moving to 60) for superannuation access; 65 (about to move to 67) for age pension access; and 60 for tax-free superannuation benefits. Two sticks and a carrot.
This alignment between access age and falling labour force participation is no coincidence. To take just one cross-country comparison, New Zealand’s mature labour force participation rate climbed rapidly over the last 20 years, to 76% for ages 55-64, as age pension access there increased from 60 to 65, with no widespread superannuation to buttress it. It is now higher than Australia’s, whereas 20 years ago it was lower, at least for males.