Will you still feed me when I'm 75?
Apr 11th 2005, 9:24 am
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Will you still feed me when I'm 75?
The Howard Government's leading economic think tank says that, without reforms, the budget cost of an ageing population will grow to 6.4 per cent of the economy by 2044, or a total of $2200 billion over the next 40 years.
In a report released today, the Productivity Commission points to evidence that lifting the pension age above 65 would even keep more people in their late 50s in the workforce.
Lifting the retirement age also would counter the trend for Australians to spend a quarter or more of their lives on the aged pension courtesy of the taxpayer.
"The paradox of retirement incentives is that among developed countries, average life expectancy has increased significantly over the last century, while incentives have generally favoured earlier exit from the labour market," the Productivity Commission says.
"As a consequence, people are spending a much greater share of their lives on state pensions."
The report notes that Mercer Human Resource Consulting proposed gradually lifting the eligibility age for the aged pension to 67 by 2022.
More radically, the Securities Institute suggested raising it to 70 over the next 10 years, then lifting it to 75 over the following decade.
The Productivity Commission does not recommend how high the pension age should be increased, but notes that any move up would have a "treble effect" on cutting government spending on pensions.
First it would cut pension spending proportional to the increase in the retirement age. Second, the longer working life would allow more people to save enough to privately fund their own retirement without the need for the aged pension.
Third it would increase savings for those who wished to retire earlier than the delayed pension age, further reducing entitlement to the pension. The reform blueprint is contained in a study of the economic implications of Australia's ageing population which will be released this morning. "Early intervention will avoid the need for inefficient or inequitable big-bang interventions, such as excessive tax increases or service rationing," the report says.
"Population ageing can only be conceived as a crisis if we let it become one."
Getting rid of bracket creep by regularly increasing tax thresholds to keep pace with inflation would dramatically boost labour productivity and in the process, more than halve the so-called "fiscal gap" caused by surging demand for health services and welfare benefits over the next 40 years.
Treasurer Peter Costello last night said the Government welcomed the report's finding that boosting workplace participation was the key to dealing with rising costs of an ageing population.
"The proportion of older people will rise as a consequence of falling fertility rates and better health care.
"We need to make provision to cope with this looming issue.
"We must encourage participation in the workforce and set our health arrangements on a secure base.
"All policies must be framed with a view to the long-term implications, and the way in which they respond to this challenge."
The commission rejects the notion that the shift in demographics or the steady increase in the proportion of Australians over 50 is a "generational storm on the horizon" - and it forecasts dramatic improvements in income, life expectancy and quality of life over the next 40 years.
But it says tough policy decisions have to be taken to address the downsides of an older population.
The commission forecasts a significant drop in labour force participation as the workforce greys - and a halving of economic growth to 1.25 per cent a year by the mid-2020s.
Ageing will also drive a significant increase in health expenditure. Health costs are forecast to rise by 4.5 per cent of GDP by 2044-45.
It recommends pressing on with measures to increase labour force participation - such as redesigning pensions, encouraging workers to improve their skills, increasing incentives for employers to retain older workers, and allowing more scope for part-time work as a transition to retirement.
It also calls for a significant overhaul of health services to ensure taxpayers get value for money by monitoring investments in new technology, breaking down "inflexible demarcation rules" between health professionals and focusing on prevention.
New push for older workers
In a report released today, the Productivity Commission points to evidence that lifting the pension age above 65 would even keep more people in their late 50s in the workforce.
Lifting the retirement age also would counter the trend for Australians to spend a quarter or more of their lives on the aged pension courtesy of the taxpayer.
"The paradox of retirement incentives is that among developed countries, average life expectancy has increased significantly over the last century, while incentives have generally favoured earlier exit from the labour market," the Productivity Commission says.
"As a consequence, people are spending a much greater share of their lives on state pensions."
The report notes that Mercer Human Resource Consulting proposed gradually lifting the eligibility age for the aged pension to 67 by 2022.
More radically, the Securities Institute suggested raising it to 70 over the next 10 years, then lifting it to 75 over the following decade.
The Productivity Commission does not recommend how high the pension age should be increased, but notes that any move up would have a "treble effect" on cutting government spending on pensions.
First it would cut pension spending proportional to the increase in the retirement age. Second, the longer working life would allow more people to save enough to privately fund their own retirement without the need for the aged pension.
Third it would increase savings for those who wished to retire earlier than the delayed pension age, further reducing entitlement to the pension. The reform blueprint is contained in a study of the economic implications of Australia's ageing population which will be released this morning. "Early intervention will avoid the need for inefficient or inequitable big-bang interventions, such as excessive tax increases or service rationing," the report says.
"Population ageing can only be conceived as a crisis if we let it become one."
Getting rid of bracket creep by regularly increasing tax thresholds to keep pace with inflation would dramatically boost labour productivity and in the process, more than halve the so-called "fiscal gap" caused by surging demand for health services and welfare benefits over the next 40 years.
Treasurer Peter Costello last night said the Government welcomed the report's finding that boosting workplace participation was the key to dealing with rising costs of an ageing population.
"The proportion of older people will rise as a consequence of falling fertility rates and better health care.
"We need to make provision to cope with this looming issue.
"We must encourage participation in the workforce and set our health arrangements on a secure base.
"All policies must be framed with a view to the long-term implications, and the way in which they respond to this challenge."
The commission rejects the notion that the shift in demographics or the steady increase in the proportion of Australians over 50 is a "generational storm on the horizon" - and it forecasts dramatic improvements in income, life expectancy and quality of life over the next 40 years.
But it says tough policy decisions have to be taken to address the downsides of an older population.
The commission forecasts a significant drop in labour force participation as the workforce greys - and a halving of economic growth to 1.25 per cent a year by the mid-2020s.
Ageing will also drive a significant increase in health expenditure. Health costs are forecast to rise by 4.5 per cent of GDP by 2044-45.
It recommends pressing on with measures to increase labour force participation - such as redesigning pensions, encouraging workers to improve their skills, increasing incentives for employers to retain older workers, and allowing more scope for part-time work as a transition to retirement.
It also calls for a significant overhaul of health services to ensure taxpayers get value for money by monitoring investments in new technology, breaking down "inflexible demarcation rules" between health professionals and focusing on prevention.
New push for older workers
