Ageing population: Why older Australians are part of the solution
In last year’s Federal Budget, Joe Hockey made drastic cuts to the eligibility criteria for the part Age Pension. Consider the couple with a family home and an additional $823,000 in assets. From January 2017 they will forego around $13,524 per year in part Age Pension payments while a single pensioner with $547,000 will lose $9,403 per year. That’s a hefty pay cut. In other words, where the Government believes you have sufficient financial means, you are now on your own.
Last night Treasurer Scott Morrison continued this theme by making sweeping changes to super and pension rules that target the top end and limit the amount wealthier Australians will accumulate in super over their lifetime.
Hockey’s reforms were about reducing growth in government spending on social security benefits, while last night’s budget was about limiting tax concessions on our retirement savings in order to save the federal budget $2.8 billion over 4 years.
Both measures are a response to the financial impact of Australia’s ageing population.
All too often, references to the population ageing describe the demographic shift in negative terms. The proliferation of older Australians is frequently described as a ‘problem’ or a ‘burden’ on the economy based on the outdated assumption that ageing is synonymous with complete cessation of work, subsequent dependence on Centrelink benefits and the absence of any further contribution to the tax base.
The reality is that more than ever, older Australians are a significant and increasingly willing part of the solution to the financial challenges of an ageing population.
I hold hundreds of conversations with over-60s clients every year and there is a noticeable trend away from the traditional notion of retirement at a pre-determined point in time (age 60 or 65) in favour of a more fulfilling and flexible progression from full-time to part-time work that may span an indefinite number of years – often well past age 65.
This is encouraging in light of a recent report prepared by Deloitte Access Economics for Chartered Accountants of Australia and New Zealand that found that a 5% increase in the participation rate amongst over-55s would lead to higher tax receipts, reduced Age Pension spending and a boost to the Australian economy of around $48 billion per year. In the context of the ongoing budget repair effort, that’s a material number!
Last month the Australian Bureau of Statistics confirmed that the this trend is already underway with 66% of 55-64 year olds and 13% of over 65s in work (or seeking work) and these participation rates have been gradually rising over the years. Not surprisingly, a significant number of those in work are employed on a part-time basis which allows them to continue to work while making time for other lifestyle activities.
The motivations clients describe for engaging in part-time work beyond retirement age vary greatly and include the following:
- Preference for lifestyle flexibility that allows for a balanced combination of work, family caring commitments, travel, hobbies and other community activities.
- Financial necessity whereby clients may not yet feel they have adequate savings to allow them to stop working.
- Desire for regular social interaction.
- Need for ongoing mental stimulation and intellectual challenge.
- Structure and routine is often highly valued.
- Some still feel their identity is very much associated with their job.
- A continuing passion for work or business subject matter.
- Ceasing work simply feels unnatural or undesirable.
- Fear of boredom.
While there are many motivations for working past traditional retirement age, many older Australians are willing to continue to work in some capacity provided two pre-conditions are met:
- Sufficient work opportunities are available – this is easier said than done and is problematic for those in labour-intensive industries. There are far too many over 60s who are willing and able to work who are unable to secure employment.
- Working conditions are flexible enough to allow them to work on their terms.
There is a lot riding on the creation of new employment opportunities for older Australians. The age of eligibility for the Age Pension is increasing to 67 which means government and the private sector must work together to come up with smarter ways to ensure those who want to work or run their own businesses are able to do so.
Age discrimination is alive and well and while incentives to employ older Australians exist, more creative thinking is needed to ensure a greater number of businesses are motivated to hire workers in their 60s across a range of industries.
As the Treasurer reminded us overnight, Australia’s economic future is at stake. Where older Australians have more opportunities to work on their terms, the size of the prize is up to $48 billion every year.
Now that’s what I call budget repair.