Kai Swoboda, Economics
The decision to retire is typically made with reference to age-based thresholds for access to the means tested Age Pension and superannuation. Changes to these thresholds need to consider a range of issues, including how demographic changes impact on the economy and government finances as well as broader social impacts.
What is retirement?
Retirement is generally viewed as a withdrawal from
the labour market and/or paid employment. Retirement can also be viewed as a
process, whereby an individual scales down employment—such as by transitioning
to part-time employment or unpaid/volunteer activities—and moves into a period
of leisure that is a ‘reward’ or ‘benefit’ earned through participation in employment
or as a contribution to society.
Statistics on the age of ‘effective retirement’—the
average age at which people withdraw from the workforce—show two, distinct
periods of trends in the average retirement age in Australia since 1970. The
first period, which ended in the early to mid–1990s, saw the average retirement
age falling (Figure 1). However, since this time, the broad trend has been for the
average retirement age to increase. While this trend is replicated in most
other OECD countries, the average effective retirement age for men and women in
Australia is lower than in New Zealand.
Figure 1: Effective retirement ages for men
and women in Australia, 1970 to 2014
Source: OECD, ‘Ageing
and employment policies - statistics on average effective age of retirement’,
Broader impacts of retirement
Individual decisions to retire have broader
economic and societal impacts including:
- the loss of skilled employees to the economy
- the ability of retirees to devote more time to (unpaid) caring
- for tourism and leisure businesses that provide goods and services
to people in retirement, and
- the funding of retirement by superannuation funds and/or governments.
These broader impacts are of particular relevance
given the significant ageing of the Australian population due to the decline in
fertility rates and increase in life expectancy—changes that are occurring
across most advanced economies. Most of the concerns about the impact of ageing
have related to the sustainability of government finances due to increasing
health, aged care and pension expenditures.
Reasons for retirement and changes in the age at
which people retire
There are a number of factors that affect
retirement decisions including health status, involuntary redundancy and
accumulated savings. For those who have already retired in Australia, the most
common reason given in a recent
survey by the Australian Bureau of Statistics was having reached eligibility age to access
the age pension or superannuation. This was followed by sickness, injury or
disability, and being retrenched or dismissed with no other work being available.
Age-based thresholds influencing retirement
Key policy levers regarding the age pension and
superannuation that frame the retirement decision are:
- the eligibility age for access to the means-tested Age Pension—currently
65, increasing to 67 between 2017 and 2023 (Social Security Act 1991)
- the superannuation preservation age (the age at which superannuation
savings can generally be accessed)—currently 55 increasing to 60 between 2015
and 2024 (regulations under the Superannuation Industry (Supervision) Act
- the age at which superannuation benefits can generally be accessed
tax free—currently 60 (Income Tax Assessment Act 1997).
During the previous parliament, the Government introduced
legislation to further lift the eligibility age for the age pension to 70, to
take effect between 2025 and 2035. However, this proposal did not pass into
A number of OECD countries have also increased the
eligibility age for public pensions in recent years. For example, Belgium and
Canada have lifted the eligibility age to 67. Some OECD countries have taken
the further step of directly linking eligibility to life expectancy. These
include the Netherlands and Portugal.
There have been a number of proposals to change the
superannuation preservation age, including increases to align it with the Age Pension
Addressing other reasons that can lead to early
Apart from changing the age-based thresholds
mentioned above, policies to encourage later retirement need to address the
other factors that influence retirement decisions. For example, addressing
retirement decisions based on matters that may be outside an individual’s control—such
as their own poor health or retrenchment—require more complex policy responses
that may include programs to address specific barriers or labour market issues
that prevent many Australians from continuing to work as they age.
Productivity Commission, Superannuation policy for post-retirement, volume 1, 7 July 2015.
OECD, Pensions at a glance 2015: OECD and G20 indicators, December 2015.
M Klapdor, Social Services and Other Legislation Amendment (2014 Budget Measures No. 2) Bill 2014
, Bills digest, 16, 2014–15, Parliamentary Library, Canberra, August 2014.
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