Pension age on fast path to 70

The pension age will be pushed out to 70 in next month’s budget and may come into effect as early as 2029.

The pension age will be pushed out to 70 in next month’s budget and may come into effect as early as 2029 under a razor-gang proposal to accelerate Labor’s plan to raise the pension age from 65 to 67.

There are no plans to cut the existing pension but consideration is being given to changing the rate of indexation for age-pension payments.

Under a “live option” being reviewed by the Abbott government’s expenditure review committee, the planned rises in entitlement age for the pension, between 2017 and 2023, would continue from 2023 to 2029. Every worker entitled to an age pension born since 1959 would be affected by the new retirement age of 70, effective in 2029.

The government is also considering the option of increasing the retirement age to 70 but using the same formula as Labor’s rate of a six-month rise every two years, which would see the retirement age of 70 ­effective in 2034. Earlier reports suggested the change would take effect by 2040.

No decision has been taken on the rate of the rise in the ­retirement age and neither scheme will have any impact on the four-year budget period from Joe Hockey’s first budget on May 13.

The emphasis in the changes is on making the aged-pension system sustainable in the long term and not delivering savings to this budget through cuts to pensions. This will allow the government, which promised before the September election to leave the pension unchanged, to put any decisions to voters before they take effect.

The Rudd government’s decision to increase the pension age from 65 to 67 — introduced in the 2008 budget — begins in 2017 with six-month rises in the qualifying age every two years.

It is estimated that the budget savings when the pension age rises to 67 in 2023 will be $6 billion a year.

In 2008, then treasurer Wayne Swan said lifting the ­retirement age for the pension would “improve the long-term sustainability” of the pension system. “To reflect improvements in life expectancy and to help counter the long-term costs of demographic change, the government will progressively increase the qualifying age for the age pension to 67 years,’’ Mr Swan said at the time.

The Rudd government also changed the pension income test by lifting the rate at which the pension was cut for each dollar of private income from 40c to 50c. This was aimed at saving $1.2bn over four years.

While the expenditure review committee is looking at the indexation rate for the pension and its relation to the inflation rate and average male weekly earnings, the emphasis is on the longer term changes rather than immediate budget cuts.

On Tuesday, Tony Abbott committed to keeping election promises on pensions.

“If there is one lesson to be learned from the political quagmire that the previous government got itself into, it is: keep your commitments. So we will keep them,’’ the Prime Minister said. “So we will be doing that but, as for pensions and pensioners, I am confident that pensioners will be better off because under this government they will lose the carbon tax, but keep the compensation.”

On Sunday Joe Hockey said the age pension was one area that had to be addressed and there needed to be a discussion on the retirement age.

“That’s certainly one of the ­issues that needs to be addressed and it will affect my generation,’’ the Treasurer told the ABC’s ­Insiders.

“This doesn’t happen overnight, but it may be the case that my generation has to work for an extra three years.

“Don’t forget that the Labor Party increased the retirement age from 65 to 67 from 2023-24 and the fact is that now, as in the United Kingdom, as is probably the case in Australia, that one in every three children born today will live to 100.

“Quite frankly, we need to redesign our systems to manage the fact, and celebrate the fact that we’re all living longer and we want to maintain a good quality of life along the way.

“We need to have a health and welfare system that appropriately deals with the changing demographics of the nation.”