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.”