For Australians born on or after January 1957, the new pension age of 67 years kicks in on 1 July this year.
A plan to increase the pension age to 70 years was unveiled by the Liberal party at the 2014 Federal Budget but later abandoned by the Morrison Government. In a paper published in the Australian and New Zealand Journal of Statistics, Macquarie University statistician Professor Hanlin Shang and his co-authors recommend the pension age should be raised to age 70 by the year 2050, 15 years after the original Liberal plan by 2035.
Co-director of Macquarie University Data X Consilience Centre Professor Shang and Monash University Professors Rob J. Hyndman and Yijun Zeng conducted a statistical analysis that revealed an increase to 70 years of age by 2035 is too rapid and more consideration is needed.
Pension reforms in France have hit the global headlines this year after the French Government announced it would increase the pension age from 62 years to 64 years.
In protest, almost one million people took part in strikes and massive riots across the country. The unpopular reform has triggered more than 250 separate demonstrations since the start of 2023.
French President Emmanuel Macron's bill says the increase is necessary to ensure the viability of the country's pension system.
Sustaining an aging population and pension
Professor Shang says Australia’s low birth rate is one of the key factors impacting the number of workers into the future. These are the workers who will sustain an aging population.
“Less people in the working group and more in retirement will make the old age dependency ratio (OADR) higher. What this means is there is less working people to support elderly people. And with more elderly people in the population, this will create a burden for the government pension system,” Professor Shang says.
The results from the trio's analysis suggest the Australian pension age should be increased to 68 years by 2030, 69 years by 2036 and 70 years by 2050, in order to maintain the old-age dependency ratio at 23 per cent.
Who would have ever thought there would be so many centenarians? As people live longer, there is a longevity risk and they’ll consume more pension from the government.
Explaining the importance of a 23 per cent ratio, Professor Shang says:
“The ratio comprises of two elements. Firstly it’s the number of people aged over the pension age and in retirement divided by the number of working people aged between 15 years old and retirement age.”
In order to sustain the pension age and the current pension system without any additional input from the Australian Federal Government, the most recent data for the OADR was set at 23 per cent back in 2018.
“While it’s great that we are living longer, it may not be good for the government pension system. Who would have ever thought there would be so many centenarians? As people live longer, there is a longevity risk and they’ll consume more pension from the government.”
The Australian Government Treasury office reports in 2021 there were 3700 centenarians and this is expected to hit 50 000 by 2050.
Professor Shang says the figures from his research paper, Forecasting the Old-Age Dependency Ratio to Determine a Sustainable Pension Age, are projections based on best estimates using historical data and are useful for planning.
Protests: the unpopular decision to raise the pension age in France has triggered more than 250 separate demonstrations across the nation since the start of 2023.
Turning to the riots in France, Shang believes the reforms were imposed too quickly.
“The increase was sudden. Those close to retirement now have to work an extra two years and they’re unhappy. The reality is the government pension system is not sustainable at 62 years. France has to increase it for the same reasons as Australia. A gradual trajectory increase would have been a better approach.”
The pension age hasn’t moved in 100 years
Over a century ago, the pension age for males was set at 65 years. Life expectancy for females born in 1921 was 63.8 years and for males 59.1 years.
In 2020, life expectancy for females is 85.69 years and for men 81.63 years.
“Thanks to advancements in medicine and technology, people are living longer, although not necessarily healthier. The number of people working is decreasing, and birth rates are low. In 1961, the total birth rate was 3.5 babies per female. In 2020, this was 1.58," Professor Shang says.
More people required in the workforce
To increase the number of working Australians, Professor Shang says one solution is to increase the total fertility rate through government policies as recently seen in Canada, South Korea and Singapore.
“The Canadian Government provides affordable child-care at $10 a day. The South Korean Government offers new parents $10,500 and in the recent Singapore Budget 2023, to encourage higher birth rates, parents will receive an additional $3000 baby bonus, paid paternity leave and tax relief for working mothers.”
The other solution is to increase the number of migrants into Australia, Professor Shang said.
Professor Hanlin Shang is a statistician in the Macquarie Business School's Department of Actuarial Studies and Business Analytics and the Co-director of Macquarie University Data Consilience Centre.
