In Australia today the average retirement age is 60 and the average life expectancy for men is 79 and 84 for women. And the starting age of the old age pension for working Australian men in 2010? 65. So when Wayne Swan handed down the third Intergenerational Report in February, he had a blunt message. Australia simply cannot afford to pay the bill for baby boomers in retirement, so we’re all going to have to work longer. The Government’s response to the Henry tax review recognised that retirement incomes need of reform – we hope the Government’s objective of helping Australians to attain adequate retirement savings will be passed by the Parliament. The size of the challenge is startling. Intergenerational public finances will be placed under unsustainable pressure as the number of Australians in work paying tax reduces, and the number in retirement not paying tax increases.
The IGR predicts that between 2010 and 2050 the percentage of Australians aged 65-84 will double and the percentage of people aged 85 and over will quadruple. And despite nearly 20 years of compulsory superannuation, most baby boomers will not retire with enough money. Many of the solutions are familiar – increase compulsory superannuation contributions levels, increase co-contributions or control the amount drawn down in retirement. However these solutions will add little to the challenge of increasing the retirement incomes for those retiring in the next 10 to 15 years. For this cohort it is too late for compulsory superannuation alone to deliver them an adequate retirement. So now the Government has recognised the superannuation guarantee should be 12 per cent which is a good start. We also need a revolution in work culture in Australia. A revolution as significant and important as the increasing participation of women in the paid workforce and maternity leave. This revolution will see Australians working longer – but in a very different way.
Traditionally most Australians end their working lives abruptly. We must remove from our lexicon the concept of full-time retirement. We must embrace phased retirement. Older Australians must be encouraged and given incentives to apply their skills beyond the traditional retirement age. Increased participation will stretch retirement incomes by supplementing superannuation through part-time work and require smaller amounts to be drawn down. We cannot underestimate the size of the change required. Australia ranks poorly when it comes to older workforce participation – 7.6 per cent compared to the OECD average of 11.3 per cent. The benefit of working longer is not restricted to better individual retirement incomes and less stress on public finances. Australians remaining in the workforce for longer periods will lessen our skills shortage.