InvestSMART

Pension age would rise under business council's austerity plan

The age at which Australians receive the pension should be indexed to life expectancy: business council.
By · 20 Feb 2012
By ·
20 Feb 2012
comments Comments
The age at which Australians receive the pension should be indexed to life expectancy: business council.

THE age at which Australians receive the pension should be indexed to life expectancy, so that as the population ages, the pension age continually rises in tandem, the Business Council of Australia proposes.

The council, the lobby group for the biggest 100 companies, also wants the federal government to start putting money away now to help pay the bills an older population will impose on future taxpayers for health care, aged care and pensions.

Its budget submission, released today, urges the federal government to stick to its commitment to put the budget back in surplus in 2012-13. But it also proposes a number of new rules to lock in austerity for years to come, and to prepare for the expected costs after 2020 as baby boomers swell the numbers of the oldest Australians.

While applauding the Rudd government's move in 2010 to lift the pension age to 67 by 2023, the Business Council says it is not enough to offset the costs to the budget of rapidly increasing life expectancy.

''Based on the standard population data, and not allowing for any (future) improvements, 50 per cent of men aged 65 can expect to live to age 84 (with 25 per cent living to age 89),'' the council said.

But if one extrapolates the trend of improving life expectancy into the future, it could increase substantially. ''Under some scenarios, a 65-year-old man today may have a 50 per cent probability of living to age 93, and a 25 per cent probability of living to over 100.''

It recommends that the government should commit in principle to index the pension age to life expectancy, and order Treasury to compile an updated intergenerational report, this time looking at the costs of an ageing population for the whole economy, and not merely for the federal government.

The critical questions of how long the government should support people on average in retirement, and the details of the scheme, would be decided after Treasury reported. But it would clearly open the door for much bigger and faster rises in the pension age than either side of politics has committed to.

The council also wants the government to adopt three new fiscal rules, designed to limit future taxes, give priority to saving over new spending and start putting money aside each year in a fund earmarked to meet future health, aged care and pension costs.

Under its plan, the government would:

?Commit permanently to keep taxes below 23.7 per cent of GDP, the level in the final year of the Howard-Costello government. This is unlikely to be accepted as it would limit the government's options when the economy is on the point of boiling over.

?Adopt a target of paying off its net debt by 2021 so it would be able to inject up to 3 per cent of GDP - $42 billion in today's money - into counter-cyclical stimulus measures, as the Rudd government did in 2008-09.

?While giving priority to paying off debt, start putting money aside - ultimately about 0.6 per cent of GDP, $8 billion a year in today's money - to meet the future costs of an ageing society.

Google News
Follow us on Google News
Go to Google News, then click "Follow" button to add us.
Share this article and show your support
Free Membership
Free Membership
InvestSMART
InvestSMART
Keep on reading more articles from InvestSMART. See more articles
Join the conversation
Join the conversation...
There are comments posted so far. Join the conversation, please login or Sign up.

Frequently Asked Questions about this Article…

The Business Council proposes that the age Australians become eligible for the pension be indexed to life expectancy so the pension age would rise automatically as people live longer. It also backs the existing move to lift the pension age to 67 by 2023 but says that on its own won’t fully offset rising longevity.

The council wants the government to commit in principle to index the pension age to life expectancy and to ask Treasury to produce an updated intergenerational report. The detailed mechanics—such as how long people on average would be supported in retirement and the exact timing of increases—would be decided after Treasury’s report.

The council argues that rising life expectancy increases the long-term cost of pensions, aged care and healthcare, and indexing the pension age keeps retirement support in line with how long people now live. They point out that while half of 65‑year‑old men today can expect to live to about 84 (25% to 89), trends could push those ages much higher in future.

The council recommends three new fiscal rules: commit to keeping taxes below 23.7% of GDP (the Howard‑Costello-era level), target paying off net government debt by 2021 so the government could free up about 3% of GDP for counter‑cyclical stimulus, and start setting aside around 0.6% of GDP (roughly $8 billion a year today) into a fund for future health, aged care and pension costs.

Yes. The article notes that indexing the pension age to life expectancy could open the door to much bigger and faster rises in pension age than either side of politics has currently committed to, because future life expectancy gains could be substantial.

The council urges the government to stick to returning the budget to surplus by 2012–13 and to lock in long‑term austerity measures. Its proposals aim to limit future taxes, prioritise saving over new spending, and create a dedicated fund to meet ageing‑related costs—measures designed to reduce budget pressure as the population ages.

For everyday investors, the plan signals a push toward stronger fiscal discipline—including lower long‑term taxes and a government saving fund—which could influence economic policy, public spending priorities and confidence in long‑term government finances. Investors should note the council’s emphasis on reducing debt and preparing for ageing costs, which can affect policy choices that shape the broader investment environment.

Not necessarily. The council’s submission urges these rules, but the article says the 23.7% tax‑of‑GDP cap is unlikely to be accepted because it would limit government options during economic booms. Final decisions would rest with the government and could depend on Treasury’s updated intergenerational analysis.