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Retirement policies need to change now to avert a crisis


Australia’s demographic shifts have been apparent for decades, but government inaction means the country faces an urgent need for policy change, writes Andrea Michaels.

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Finally, we’re seeing some moves to address one of the biggest issues facing our community right now: the rapidly ageing population.

Over the next decade, more of us are likely to be over 60 than under it. Federal Treasurer Josh Frydenberg has announced Australia’s first major review into retirement income system in 30 years. What the report will say and how it will be dealt with by Government is yet to be seen, but we can’t afford to wait any longer before enacting policy change.

Australian men and women now have some of the longest life expectancy rates in the world. In fact, we officially top the charts in the rankings of OECD countries, according to a new study from the Australian National University. All going well, most of us can expect to live well into our 80s.

But it’s not all good news. While living longer is a bonus, it’s not much fun if you’re broke. A Human Rights Commission report has found already one in four older Australians are living in poverty.

Despite numerous studies over the years raising the alarm bells about the ageing population dilemma, nothing much has happened in terms of real decision-making or new policy directions arguably since Paul Keating introduced compulsory superannuation. This is a big problem because the costs of providing current social security and services to so many people may be simply unaffordable.

Despite fears of a public outcry, we have no choice now but to look at all the options, including structural changes to the pension and tax policies and seriously re-evaluating common attitudes to older workers.

Our demographic crisis

With so many people approaching the traditional retirement age, soon there will be fewer people in the workforce than out of it. That means a loss of revenue from the reduced number of taxpayers and increasing cost pressures on the aged pension and health system.

Many people will need to keep working beyond what’s traditionally considered “working age”. How will our systems and social attitudes accommodate that shift? Most of our workplace policies and superannuation planning has been aimed at those retiring at around 60 years old, not 67. That’s a lot of years out in the cold.

Age discrimination at work needs to stop

We say we want to encourage people to work for longer, but what happens to people who lose their jobs in their 50s? Or to a woman needing to get back into the workforce after divorce?

Applying for a new job when you are in your 50s or 60s is still viewed as out of the ordinary, especially in the private sector. Despite our modern workplace policies and legislation, age discrimination is real.

We need more publicity and positive role models of people working later in life to help leaders change the way they think about these issues. Private industry needs to accept flexible work models as the norm for all, not just for parents but for older workers too who will need, or want, to work in a different manner.

Changes are also needed to make sure income protection insurance and other insurances will cover those over 60 and even over 70, as many insurance policies currently don’t.

We also need to simplify the pension regulations around working part-time because we want to encourage people to continue to work as they age, not disincentivise them.

A new world: ‘Renters for life’, late-life mortgage stress

Research from the Australian Housing and Urban Research Institute this year found that between 1987 and 2015, the real mortgage debt of Australians aged 55+ blew out by 600 per cent. Many will now be carrying big housing debts into their twilight years.

Those who don’t own a home will face life-long renting. The Grattan Institute predicts there will be a 20 per cent increase in people aged over 65 who will be renting by 2056. With so many people unable to afford to own their own home, there will be less ability to draw down on a housing asset to fund a place in a retirement village or aged-care facility, as is often currently the case.

This change will also require a shift in government rent assistance for the elderly as recommended by the Henry Tax Review way back in 2010. State governments and local councils will also need to work on planning and development policies to encourage developers to build age-friendly accommodation with appropriate facilities that are available as long-term rentals.

Systemic changes needed now

Selling the kind of systemic change required to address the ageing crisis is tricky. That’s why nobody has done anything much to date and the Government review now underway has been carefully worded to suggest it will only be a summary of the situation – it’s not likely to include specific recommendations. Polling on some of the past suggestions has not been pretty. But no matter which way you go, these tough decisions will have to be made soon.

In 2019-20, Federal Government estimates show spending of around $191.8 billion on social security and welfare. Aged care expenditure will grow from 0.9 per cent to 1.1 per cent of GDP by 2025-26. Expenditure on the age pension is expected to grow in nominal terms to $72 billion. Expenditure on carer payments will also rise. We must find sources of revenue to keep the system running, and that means finding savings from elsewhere.

Raising the pension age so people will need to work for longer before they qualify is obvious. In Australia, by 2023 the pension age will be increased to 67. There was a Coalition policy to raise that even further to 70 but that move has since been abandoned. Any further extension has been ruled out by the Treasurer in announcing the retirement incomes review last week.

In moving down the path to 67, we need to be careful not to cause hardship to people doing physical work who might not be able to continue much past 60 or 65.

Where to from here?

Treasurer Frydenberg has also ruled out including the family home residence in the assets test for the aged pension in the future. This idea was flagged in the 2013 Australian Productivity Commission Report, An Ageing Australia: Preparing for the Future. This is a policy that would be so unpopular the government won’t even consider it.

One idea floated is to give people several years of advanced notice so they can make plans and have a policy that gives some options for people. For example, some economists have suggested a policy where people could elect to get the full pension income and stay at home, with a percentage paid back to the government if they sell their home. This contentious debate will no doubt continue.

Horror stories of people waiting months for their in-home care packages because of a lack funding, elderly renters facing the prospect of living below the poverty line, or older people with mortgages still struggling to find work are reasons we need to act now.

We need to make the big changes quickly or face severe cost blow-outs and budget cuts in the future. Significant policy and workplace changes are no longer options – they are now urgent necessities.

Andrea Michaels is the managing director of NDA Law and state Labor MP for Enfield.

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