Productivity Commission sends out a signal to save

The Productivity Commission's raising of the possibility of lifting the age pension threshold to 70 is a warning to get serious about saving for retirement.

You may be in your 30s or 40s and think it does not concern you because retirement is a long way off.

For most people the "oh my god" moment comes in their 50s, and it is then that they get serious about saving for retirement. But leaving it to then is a recipe for an impoverished retirement.

An ageing population means that, one way or another, the ballooning government outlays to fund retirement are going to be pared back. The process has already started with the age pension on its way to 67 from 65, but earlier for women born before January 1, 1949.

The qualifying age will gradually increase so that by July 1, 2023, it will be 67 for men and women. That means an age pension age of 67 for anyone younger than their mid-50s.

The increase to age 67 is a big deal given retirees overwhelmingly rely on the age pension. About two-thirds of those in retirement claim at least a part age pension.

And the benefit is not only the pension itself, but the range of pensioner discounts it gives access to. That is why financial planners put so much effort into structuring their finances in such as way as to get a least a small age pension for those they advise.

At the moment, retirees are able to make tax-free withdrawals from super from age 60. But the direction of the thinking of government and its advisers is clear enough. It is likely that, at some point, government will require retirees to take some of their retirement savings as an income stream.

The obvious solution to having to wait longer for the age pension is to work for longer - even more so given that we are living for longer and have longer retirements to fund.

A recent report by the Actuaries Institute estimates that one in three of those aged 65 now will live past 90. And with the advances in medicine and further improvements in longevity, the institute says it is quite possible that in coming years, half of all 65-year-olds could live beyond 100.

A lucky few will be able to work well into their 60s. But working for longer is not an option for most blue-collar workers with physically demanding jobs. Then there is the casualisation of the workforce and general job insecurity.

The upshot is that workers must take saving for their retirement seriously, even though it may seem a long way off. Making the most of sacrificing salary into superannuation as early as possible is the best way of insuring against the further tightening of accessibility to the age pension.