Age Pension, Age Pension eligibility, Age Pension age

Increase in Age Pension age to 70:

Is this a good idea?

On 1 July, the Age Pension eligibility age will increase to 67, the final incremental increase in a process that started in 2017 when the eligibility age was 65. .

Unlike the situation in France, where the official pension age will rise in one hit by two years, from 62 to 64, Australian politicians have managed our increases in a much more orderly manner.

So we can now breathe a sigh of relief, secure that the age of eligibility won’t increase again, any time soon?

Not quite.

Recent research from the Macquarie Business School has recommended further increases to the qualifying age – all the way up to age 70 in 2050. This would see an increase to 68 by 2030, 69 by 2036 and 70 by 2050.

Why, you may well wonder?

The stated need for such an increase is based upon meeting a target of 23% for the somewhat unflatteringly named ‘Old Age Dependency Ratio’. This is  a measure of people aged over retirement age and not in the work force, divided by ‘working age’ adults (15-67).

One of the authors of the research, Professor Hanlin Shang, noted:

“While it’s great that we are living longer, it may not be good for the government pension system.  Who would have ever thought there would be so many centenarians? As people live longer, there is a longevity risk and they’ll consume more pension from the government.”

“Less people in the working group and more in retirement will make the old age dependency ratio (OADR) higher. What this means is there is less working people to support elderly people. And with more elderly people in the population, this will create a burden for the government pension system.” 

Other solutions offered by Professor Shang and his fellow researchers focused on increasing the number of taxpayers through possible increase to migration and more government incentives to increase the total fertility rate.

These insights are arguable.

The article sharing the solution of a higher Age Pension age did not mention superannuation. As more Australians retire, they will retire with higher and higher super balances owing to the number of years compulsory superannuation has been in place (more than 20). The higher the balance, the lower the likelihood of receiving a full or even part-Age Pension. Over time the pressure on government coffers to provide an Age Pension will reduce.

Separately, but just as importantly, there is an inherent assumption that all citizens under retirement age – whether the previous 65, soon to be 67 or proposed 70 – are fit and able to work. Those who are not will be forced to live on Job Seeker payments unless they have sufficient savings to fully fund themselves.

Similarly the ‘Old Age Dependency Ratio’ is not just poorly named, it’s wildly inaccurate. Sadly the Gross Domestic Product (GDP) in Australia does not measure the value of volunteering, estimated to total $17.3 Billion. Many retirees turn to volunteering after leaving work, but this contribution is not recognised when the ‘dependency’ ratio is calculated. 

Other unrecognised inputs from the older population include inter-generational wealth transfers, often in the form of inheritances, but now, more frequently, as living gifts in the form of home deposits, education, cars and other significant loans or gifts. And then there are the boomerang kids who return to live rent free in order to save for their own home thus increasing household costs for their retiree parents. Or the army of grandparents who provide free child minding so many hours every week. You only need to wander past a primary school at pick-up time to see this in action.

The notion of older Australians as ‘dependent’ is both inaccurate and poorly measured. Basing an increase to Age Pension eligibility age on this ratio is questionable at the very least.

What are your thoughts? 

Do you believe that there is a case to raise the Age Pension eligibility age? Or would you keep it at 67 (post 1 July) for the foreseeable future? 

Don’t forget you can check your own Age Pension eligibility using our free calculator at any time. With the change to entitlement age moving to 67, your own situation may be about to change.

Check your entitlements here.