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The case for raising the pension age

Pensions for Longer Life argues that the rise in life expectancy means Australia should do two things:

• First, gradually raise the pension age from 65 to 67 between 2015 and 2022.
• Second, abandon a fixed pension age in favour of a dynamic approach which links pension age and life expectancy.

Australia would retain its safety net; those Australians under the increased pension age who cannot work because of ill-health would be eligible to receive disability support payments.

And by announcing the change early, we would minimise the impact on Australians already nearing retirement.

Age-based superannuation rules should also be reformed and then adjusted in line with these changes.

Together, these changes would:

• alter the community's focus on the single age of 65;
• erode preconceptions about when workers are "too old" to work;
• continue the encouragement of increased labour force participation rates at older ages;
• save the federal government a possible $800 million a year in pension payments;
• reduce the call on workers' superannuation savings in retirement;
• improve the long-term sustainability of the Australian retirement income system

These are not radical changes - as Australians live longer and healthier lives, the way they work and prepare for retirement will also change. Other nations, including the United States, the United Kingdom, Germany and Denmark, are already moving their pension age to 67 or 68. There hasn't been huge controversy about a higher pension age in any of these countries.

Many other government policy measures are now encouraging greater workforce participation by older workers. One suich measure is the change in the female pension age from 60 to 65. This process began in 1995 and will finish in 2014.

Ageing isn't what it used to be

People simply live longer these days. When the Commonwealth created our national age pension in 1909, around four per cent of Australians were 65 or over. The average life expectancy for females born in 1909 was 60, and for males it was 56. But by 2001, around 15 per cent of Australians were 65 or over. Female life expectancy at birth was 83 and male life expectancy was 78.

By 2047, the Federal Treasury projected in its second Intergenerational Report, around 25 per cent of Australians will be 65 or over.

The life expectancy of 65-year-olds has soared in recent decades, especially for men, and it shows no signs of slowing. Back in 1885 a 65-year-old man could be expected to live for another 11½ years. Life expectancy for 65 year old men changed very little until the 1970s. Then life expectancies took off. By 2001 a 65-year-old man could be expected to live almost another 18 years. The story is similar for women, though less dramatic. That trend of increasing life expectancy appears to have continued since, and everything we know about medical advances suggests it will keep going.

The nature of work has also changed. The typical worker of 1909 was a labourer; today's typical worker has an office job and might be described as a "knowledge worker".