Push to raise pension age above 67

AUSTRALIA must consider raising the pension age beyond the planned new qualifying limit of 67, as our ageing population places the economy under extraordinary pressure.

AUSTRALIA must consider raising the pension age beyond the planned new qualifying limit of 67, as our ageing population places the economy under extraordinary pressure.

The chairman of the new Australian Institute for Population Ageing Research, Marc de Cure, said yesterday the Rudd government's move to lift the qualifying age for the pension did not go far enough.

"People need to stop thinking about retiring at 65," Mr de Cure said. "Yes, you may reduce your participation, yes, you may work fewer hours, but I don't think we can afford for people to stop working altogether.

"If we do, we just won't have enough people paying taxes."

His call came as Treasury modelling showed the government is counting on its increase in the pension age to deliver a big increase in the number of people working into their late-60s.

The modelling shows that of people in their mid-40s now, 41per cent of men and 22 per cent of women will still be working at age 67, according to documents obtained by The Weekend Australian.

This compares with 26 per cent of men and 12 per cent of women aged 67 who are working now.

Wayne Swan, who launched the population research centre at the University of NSW in Sydney yesterday, said the move in the May budget to lift the pension age from 65 to 67 years between 2017 and 2023 was one of the hardest decisions he has made.

He yesterday ruled out a further increase, saying:" No, we're not going to do that again."

However Mr Swan said governments needed to adapt to changing demographic trends.

By keeping people in the workforce longer, not only is there a saving in pension payments, the government gets more tax revenue.

When former treasurer Peter Costello introduced tax benefits for older people remaining in the workforce, he was lampooned by Labor as encouraging voters to "work till you drop".

The Treasury documents show how the rise in the pension age was among several measures designed to cover the high and increasing cost of raising the amount paid to age pensioners.

That measure adds $3.3 billion to the budget cost in 2010-11, while the new payment to carers adds $432 million.

The Treasury modelling shows the cost of these two measures will rise from 0.35 per cent of GDP next year to 0.4 per cent of GDP by 2030 and 0.47 per cent of GDP by 2060.

The increase in the pension age will claw back about .06 per cent of the extra cost. The biggest contribution to paying for the pension rise was intended to come from means-testing the private health insurance rebate. This was designed to save 0.06per cent of GDP in the first few years, rising to 0.1 per cent of GDP by 2030 and 0.28 per cent by 2060, reflecting the growing cost of healthcare as the population ages.

However, this measure was blocked by the opposition in the Senate last week.

Mr Swan said all future reforms requiring additional spending by the government would be accompanied by savings to offset their long-term cost.

The modelling shows people were working longer in any case. In the past 10 years, there has been a 10-percentage-point increase in the number of men working to the age of 67, and a four-percentage-point increase in the number of women.

There is an international trend to raise the pension age, with Britain increasing it to 68 between 2024 and 2046. Other countries lifting the pension age to 67 or more include Germany, the US and Denmark.

Latest Treasury population figures show Australia's population will hit 35 million in 40 years' time, with a higher than expected birth rate and rapid migration numbers driving up the rate of population growth.

The proportion of people aged 65 and over is projected to rise to 22 per cent in 2049, compared with about 13 per cent today, and 8 per cent in 1969.

Australia's fertility rate has been rising during the past two years, from 1.79 births per woman to 1.93 -- a level not seen since the early 1980s.

But Mr de Cure said population growth was not the answer to coping with the pressures of an ageing population.

"The increase in the birthrate is only a temporary change," hesaid.

"The world can't sustain that population growth -- it just doesn't have the fiscal capacity to grow exponentially. So I think we have to learn to deal with a lower birthrate."

Mr de Cure said Australia needed to increase its taxation base, change consumption habits, encourage people to work past the current retirement age and develop a more resource-efficient health system.