Brian Howe – Raising the Retirement Age

The Labor Government planned to lift age of eligibility for the aged pension from 65 to 67 between 2017 and 2023 and now the conservatives are considering raising it to 70 by 2029. Unless there are very big changes in the demand for older workers these changes must increase numbers on other payments such as Newstart or the Disability Pension. In the case of case of Newstart it would add to the hundreds of thousands of people living at least twenty percent below the poverty line.

Several years ago a panel (Advisory Panel on the Economic Potential of Senior Australians) chaired by Everald Compton, and established by the Gillard government reported to that government on the potential of older Australians to make a larger contribution to the economy given the fact that people for various reasons (higher living standards, medical breakthroughs) were on average living longer. (2011)

Successive federal Treasury reports had tended to emphasize coming pressures on budgets generated by an ageing population, but there is a more positive story that might be told.

‘Australia’s ageing population brings real opportunity-opportunity for the nation, for industry and for individuals. Not only are Australians living longer. Australians born in 1950 will live on average almost ten years longer than those born in 1910 but changes in society are creating unprecedented opportunity. Advances in health, education and technology provide an enormous scope for the nation and individuals to make better and more informed choices about the contribution of seniors in the workplace and the broader Australian community’

The Advisory Panel saw extended lives, especially extended middle years, as being especially significant for the active aged. It also recognized that in Australia there were formidable constraints/barriers that would need to be overcome if that potential was to be full realized.

  • the persistence of outdated stereotypes and discriminatory attitudes towards older people
  • the lack of vision and understanding on the part of individuals, organisations, industry and governments about how to capture the potential of older Australians through creating more flexible and responsive workplaces
  • the constraints of the built environment that limit older Australians living the most fulfilling and creative lives, (very limited housing and transport choices)
  • the potential of poor lifestyle and health choices, including those that increase chronic health problems such as obesity and diabetes that threaten to undermine the health advances of previous generations. (G Hugo)

The consequence of this analysis is that simplistic approaches to ageing by increasing retirement ages whether to 67 or 70 may impacts on future trend in social security expenditure but do not address any of the key issues that the Panel considered

Discrimination

For example, the Human Rights and Equal Opportunity Commission (HEROC) has identified a significant problem in the discriminatory attitude of many employers who discriminate in favour of the young and educated, especially where they have some work experience, when putting on new employees. They may also encourage older workers to ‘take the package’ often another way of terminating workers whose skills may be getting rusty rather than offering redeployment or retraining. It is very unusual for older workers in a modern economy to be kept on if they are seen to be unproductive or be offered a transition plan that will enable that person to gradually phase from paid work into retirement. Similarly older women who have caring responsibilities outside of their paid workplace may have great difficulty in nominating the hours in which they work or having the flexibility to leave work when there are special demands at home. This may be especially the case when women are working casually and have very little protections in the form of an award. Discrimination tends to affect most acutely people doing physical work e.g., cleaners, and construction workers.

A Different Labour Market

It is very important that there be public recognition of the very different labour market we have today to that which existed a generation ago. Along which the shift from an industrial to knowledge/service economy (80% of jobs today are in the service economy) there has been created a very different and much more dynamic and diverse labour market. This has resulted in a comprehensive movement way from standard employment contracts. There have been increasing variation in working times, working lives of working contracts.  Also there is a shift away from large employers with life time commitment to an employee to the increasing fragmentation of employment and labour markets where people are much more reliant on maintaining their personal skills to survive in today’s labour market. The rapid pace of change implies high rate of ‘technological obsolescence’ along with a redefinition of work with for many their ‘skill set ’ no longer relevant. These changes place special pressures on older people who if they do choose to remain in paid work may have to learn new skills set or create a new business or job. It is for this reason that life long learning is so important but of course that requires time and space well in advance of so called ‘retirement ages’. For most people working longer will often mean creating a new career either in the paid workforce or in the voluntary sector. The delayed retirement age suggests that there is an employer to keep an employee on. Security of employment is no longer a part of the work contract.

Changing Cities

Of course the changes in the economy have spatial implications in that the new economy is now focused increasingly in those places where there is the most concentrated investment taking place in the new economy and where there are maximum opportunities for creative communication. Older people are increasingly rejecting ‘sea change’ and ‘tree change’ and seeking to ‘hold’ their places in cities but with the flexibility sought by younger childless households.  The higher costs of energy are turning cities inside out and thus the importance of holding position. But for many older people there will be the demand for new housing choices whereas the market has been slow to realize the opportunity and scale of the aged housing market.  Furthermore governments have tax and social security rules that reflect a period in which older people either did not need or were not encouraged to participate in the more cosmopolitan city. Governments are still giving the highest priority to new freeways whereas for older people wanting to be active the key will increasingly be public transport. For older people the 20-minute city makes sense as they are less mobile but want to be engaged.

Wellbeing

Perhaps there has been a too easy assumption that aging baby boomers are all fit and well whereas they may be much less fit than we imagine perhaps for reasons that have to do with a too comfortable life style. On the other hand they will not be served well by ageist assumptions that consign older people to a retreat from life. The good news associated with ageing is certainly that maintaining activity and involvement is consistent with good health. On the other hand there are constraints that need to be addressed. Exercise does need organization and an enabling environment.

Conclusion

The most important message is that advancing the age at which people are able to access income support may have a limited impact on social security expenditures. However it will do very little to increase employment for older people often facing discrimination and exclusion from a labour market increasingly favouring the well and more recently educated.  The most likely impact on the aged of deferring the pension will be increasing the numbers on Disability support pensions and on Newstart, thus creating a cohort of aged people living well below the poverty line while minimizing savings to budgets.

 

Brian Howe AO is a former Deputy Prime Minister. More recently he was a member of the Gillard Government’s Advisory Panel on positive ageing. This panel has been disbanded by the Coalition Government.

 

 

 

 

 

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One Response to Brian Howe – Raising the Retirement Age

  1. Michael Keating says:

    Brian Howe is absolutely right to question the impact of increasing the age at which the pension can be accessed on total social security expenditures. Indeed it will be interesting to see how the Department of Finance costs this possible Budget measure and how that Department justifies that estimate, which should be closely scrutinised by the Parliament.

    Furthermore, beyond the reasons advanced by Brian Howe, I think there are other additional reasons for being sceptical that increasing the age pension age will prove to be a source of significant budget savings.

    First who are the people accessing the age pension in their retirement? In 2011 just over one quarter of the 3.1 million people aged 45-59 had left school before completing Year 12 and subsequently had not gained any further qualification. These are the people with low skills who are most likely to go onto a full age pension, but already before they have even reached age 60 they are struggling to maintain or find employment. Indeed their rate of employment participation is only 64.5%, compared to the rate of 85.2% for the rest of their age cohort; that is their rate of employment is more than 20 percentage points lower than their peers. So already even before they reach the age of 60, one third of the relevant age cohort cannot gain employment, and these are the people who will be most affected by any increase in the age for accessing the age pension.

    Second, many people in that age cohort who are working when they presently become eligible for an age pension or part-pension also typically have some superannuation.entitlement, and that superannuation entitlement presently reduces the expenditure on the public pension. But if the age at which the public pension can be accessed is increased, then a likely common reaction will not be to continue working for longer, but instead to retire and live off the superannuation entitlement and use most or all of it up before age 70. Indeed dissipation of superannuation entitlements already means that they don’t reduce public expenditures as effectively as they might, but increasing the age pension age will greatly exacerbate this problem.

    In short if the government really wants to reduce outlays on the aged, ti would be better off looking at the rules and subsidies affecting superannuation rather than targeting savings that affect the most vulnerable members of our older generation.

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