Will retirement age in Australia increase?
Interestingly, there is no official ‘retirement age’ legislated for in Australia. That being said, there are certain age based rules in respect of both Superannuation and also Social Security benefits, that may help to determine when someone chooses to retire, otherwise you can retire whenever you are financially able to do so.
The question of whether an effective retirement age in Australia exists and if this will increase over time is worth considering.
Whilst true for some, but not for all, we can see that many people’s retirement age in Australia, has been closely linked to the age of their eligibility for the Age Pension.
Looking back, it was over a century ago, in 1909 for men and 1910 for women, when the Age Pension first commenced and at the time, the age at which you became eligible for this benefit was 65. This qualification age remained the same until the Federal Budget of 2009, in which a progressive change to age 67 was first announced.
Under these measures, people born between 1 July 1952 and 31 December 1956, were to progressively have their qualifying age increase from 65 to 67 years of age. In fact, from 1 July 2023, the Age Pension Age will have increased to 67 for all Australians. So is this fair?
Taking a step back to 1909, we note that the average life expectancy of a male was only 55 years and for a female, it was slightly higher at 59. This meant that the vast majority of people would not have lived long enough to actually receive the Age Pension support that had been legislated and as such, it would represent a much lower financial responsibility for the Government to support.
Fast forward to today and our life expectancies have increased to 81.3 years for a male and 85.4 years for a female (based on the 2019-2021 Life Expectancy Tables). Essentially, we are expected to live approximately 26 years longer than we did over 100 years ago and more importantly, we may on average receive part or all of the Age pension for 14 years for a male and 18 years for a female. As you appreciate, this represents a much greater financial responsibility for the Government to support.
With our ageing population set to further increase demand for the Age Pension, various health and aged care services, whilst at the same time, realising a decline in the proportion of workers relative to the number of people requiring government support payments, it was no surprise that the Age Pension Age needed to lift to 67.
Plans to further raise this qualifying age to 70 were initially introduced in the 2014 Federal Budget, but these were abandoned in 2018. Based on Australia’s demographic data and recognising that the Age Pension is funded through taxes, the ultimate need to extend the Age Pension Age further will simply be a function of not having enough people working to fund the system. It seems highly unlikely that this issue will not be brought back to the table at some stage soon.
Aged based rules relating to when you can access your superannuation benefits have also been a major determinant for many people as to when they will retire. In this regard, reaching ‘Preservation Age’ is one of the basic requirements before you can determine your eligibility to access your super benefits. For people born before 1 July 1960, this was reached at age 55 and for people born after 1 July 1960 and before 1 July 1964, the age was progressively increased to age 60, which is now the minimum age for accessing super.
As many retirees will need to depend upon their superannuation benefits to provide them with an income in retirement, preservation age of 60, is yet another determinant in working out when you might retire.
According to the Government’s Retirement Income Review released in November 2020, the average age of retirement in Australia was then between the ages of 62 and 65. This clearly sits well between superannuation preservation age of 60 and the Age Pension qualifying age of 67, suggesting that people’s retirement plans have been well implemented and in particular, that four decades of having the superannuation guarantee contributions applied progressively across Australia’s workforce, has made a significant difference to Australian’s retirement savings.
That being said, in the same Retirement Income Review we saw that the workforce participation rate for people aged 65 or more had doubled from 6.1% in 2000 to 15.5% in December 2022. Why? There are many reasons no doubt, which may include:-
- The need to save more for retirement given we are living longer;
- Greater health and increased lifestyle expectations;
- Greater flexibility in the workforce allowing many people to gradually transition into retirement;
- Sustained enjoyment in working;
- Children leaving home later and so, it may take longer to achieve desired retirement savings; and
- Carrying a mortgage or debt later in life.
At an individual level, perhaps the best questions to ask are “When can I afford to retire?” and “When should I retire?”
At a broader economic level, we do see that it will become necessary for the Age Pension qualifying age to increase beyond 67 over time and it is also highly likely that with our life expectancy set to continue increasing, that the preservation age for Super will also likely be extended beyond age 60.
If you would like to work towards positioning yourself well for retirement, the Team at Profile is ready to help.
