Pension age will rise to 70 after “she’ll be right” attitude

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Australians born after 1965 will need to work until they are 70 to be able to receive the age pension, Treasurer Joe Hockey announced on Friday.

The announcement came after the release of the National Commission of Audit report, which recommended the superannuation preservation age should be set at least five years less than the Age Pension eligibility age.

Hockey is due to hand down his first federal budget on May 13.

In his speech on Friday, he criticised the opposition party’s attitude to major expenditure problems.

“If there’s anything that comes out of today, it is proof that the ‘she’ll be right’ attitude of our political opponents is not good enough and it was never going to work,” he said.

The Commission of Audit found that if there were no changes to the budget, in 10 years’ time Australia would still be in deficit.

The debt would be $440 billion with no crisis buffer.

“The aged pension needs to be a safety net by 2035, not a cargo net,” Hockey said. “We have been realistic about getting the revenue to start to give us capacity to restructure the way government operates, and that’s not going to be easy.”

The Commission’s report also recommends lowering age pension payments, tightening eligibility, and using the family home as a part of means testing.

The rise in pension age has set financial associations firmly on differing sides of the fence.

The Actuaries Institute released a white paper Australia’s Longevity Tsunami a couple of years ago that addressed many of the issues the upcoming federal budget will need to deal with.

The report emphasised the idea that underestimating how long people are now living will have major implications for retirement income policy, and suggested a number of changes, including increasing the pension age to fall more in line with life expectancy.

Other suggestions included providing greater incentives for people to take the majority of their retirement benefits as an income stream, increasing the preservation age to three to five years less than the age pension age, extending the MySuper regime to include post-retirement solutions with ‘intelligent defaults’ that provide retirees with secure income streams, and removing the impediments (such as the age limits on superannuation payments) that discourage older people who want to work.

Actuaries Institute CEO David Bell told Wealth Professional that if we’re going to ask people to work for longer we need to provide them with support.

“It’s all very well to raise the age but other things have to happen as well, and the most important thing is that you have to encourage people to work,” he said.

Other groups like the Financial Services Council (FSC) and the Association of Superannuation Funds Australia (ASFA) agree that the retirement age needs to go up to bring federal spending under control.

ASFA CEO Pauline Vamos told Wealth Professional that what we need to do now is make sure older workers will have access to further training, job flexibility, support, and career counselling.

An in-depth impact assessment of the consequences of raising the age pension needs to be undertaken so we can alleviate any potential ramifications in advance, she said.

ASFA would also like to see the development of a special accreditation that advisers who wish to provide age advice would be required to have.

The FSC said it’s time to end the idea of full-time retirement.

“By 2050 there will be 2.7 working Australians for every citizen over 65. We need to end the concept of full-time retirement. Australian’s remaining in the workforce for longer periods will stretch retirement incomes by supplementing superannuation through part-time work as well as reduce our nation’s skill shortage,” said CEO John Brogden.

But the SMSF Professionals’ Association of Australia (SPAA) question if there really is a need for Australia to have the highest pension age in the OECD.

Increasing the preservation age beyond the current graduated increase to age 60 by 2024 and aligning it with the age pension age will mean there will be more pressure on cost of social security, said director of technical and professional standards Graeme Colley.

“An increase in the pension age will mean those in labour intensive jobs whose physical condition is likely to fall behind those in less physical jobs may need to access Newstart, or some other type of social benefit to survive.”

SEE MORE:

Why should Australia have highest OECD retirement age?

Pension funds growing too big for Australian market

Accreditation to provide age advice should be required: ASFA

  • Innocent Observer on 5/05/2014 10:51:28 AM

    I thought I'd get in here early before too many others go in half-cocked.

    Having read the CoA, and in particular it's assessment and recommendations on the retirement savings, pension entitlements and superannuation, I must say that the conclusions and recommendations are perfectly reasonable.

    For example, the levels of pension and age at which the Age Pension becomes available used to share a relationship with average weekly earnings and average life expectancy.

    The fact that both of these measures have got out of whack is perhaps an error in judgment by previous policy-makers, but it shouldn't in and of itself justify keeping the goalposts where they currently stand, especially as we see the flow-through of retirees who have been brought up in the age of compulsory super.

    At any rate, for the average punter who wants to retire at 60 or 65, well if you've worked the best part of 40 years with compulsory SG then chances are you'll have enough in the kitty to fill the gaps until the tax payer gives you a hand-out. For those who haven't saved or taken any steps to safeguard their financial future, and are going to self-pity for having their retirement pushed out another year or two, well cry me a river….

    By the way, one area that I haven't seen covered anywhere in the media, is the proposal to increase the superannuation preservation age. Stuff relating to the costs and recommendations on the Age Pension (etc) are contained in the CoA Phase 1 report.

  • Mossman on 6/05/2014 4:49:19 PM

    It's hard to take the CoA seriously though.

    The BCA are a lobby group on behalf of big business (mostly international) who lobby the Government seeking to influence policies to favor their members, ie, pay less tax, gain more taxpayer funded assistance etc.

    The BCA and their members make substantial donations to the Coalition. In return they requested the ability to complete a COA, as a way of advising the Government on what should be done. They were granted this right.

    Unsurprisingly, the COA is designed to benefit the BCA and it's members. The fact that much of the COA recommends cutting back funding to our most vulnerable and those with no voice, the extensive corporate welfare is suspiciously absent, and most of the recommendations also 'coincidentally' assist or redirect funds towards big business, is of no surprise - the BCA have done their job.

    The fact that the Government treat the report as an independent, professional, and unbiased report, and might use it as a basis for any of their decisions, is frightening.

  • Innocent Observer on 7/05/2014 10:08:02 AM

    Yes, I can see your point.

    However many (in fact overwhelmingly) the recommendations seem to be on the right course: massive rationalisation of bureaucracy and a focus on simplification and efficiency.

    There is also I suppose the issue of who, if not councils or advisory bodies from within the industry, should be conducting investigations like the CoA. I'm not sure. I would have thought some past and present BCA members might add value to the discussion (much like having financial advisers involved in the discussion and design of FoFA would have saved us from the mess we have now).

    Although there were quite a few proposals that I don't agree with there was a lot of good in the CoA. In some ways it actually reminds me of similar consultation papers put forward by "think tank" groups such as the Centre for Policy Development (CPD). All in all it's good to have these discussions, and it's great to see so many people talking about it. Hopefully, for the benefit of us all, the discussion continues and we see the political process working together for the people, and not for their own factional agendas.

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