Good and bad in lifting pension age
While many Australians will resent a Federal Budget which includes a lifting of the pension age to 70, such a move is likely to generate plenty of business and new products in the financial services industry.
If, as is being widely speculated, the Federal Government lifts the age at which Australians can access the age pension to 70, there will be serious implications for financial planners and the strategies they have provided to their clients.
It is a measure of just how seriously the Abbott Government is approaching the age pension issue that the Treasurer, Joe Hockey, set the debate running less than two months after taking over the portfolio and has assiduously used speeches and interviews to fuel the discussion thereafter.
The former Federal Labor Government had, of course, moved to raise the pension access age to 67 by 2023, albeit that it would remain at age 65 for those born before 1952.
The issue, therefore, is not so much that the Abbott Government will be lifting the age pension but the conditions and timetable under which the exercise occurs.
As well, any Government policy initiative impacting the age pension will be incomplete if it does not, at the same time, address the age at which people can access their superannuation entitlements – something which has been made clear by the Financial Services Council (FSC).
It is on this basis that financial planners can expect to become busy in the aftermath of the Federal Budget as clients aged over 50 seek to come to terms with the implications of an increase in the pension access age and possible changes to the rules governing when they can access their superannuation entitlements.
If one were to assume a continuum of the formula under which the increase to age 67 was to occur, then it follows that those born on or before 1954/55 will be exempt from any new benchmark and that the age for access to superannuation entitlements will also be adjusted accordingly.
But, as media reports have already made clear, there are a number of other factors which will need to be taken into account including the ability of those employed in industries requiring heavy manual labour to continue to work beyond age 55 and their ability to obtain and retain employment even if they can.
There is abundant evidence that while lifting the pension access age is an easily achieved policy step, it cannot be taken in isolation to putting policies in place capable of ensuring that people aged over 50 are not the subject of some of the employment discrimination which has become particularly evident in Australia.
While the former Labor Government provided nearly a decade for the transition to a pensionable age of 67, it remains to be seen what time-span Treasurer Hockey has in mind for the shift to age 70; but he must contemplate whether, in the absence of policies aimed at keeping people in the workplace longer, he is simply placing pressure on other areas of the social welfare budget.
Putting aside the challenges which will confront financial advisers in readjusting clients’ strategies around new rules pertaining to both superannuation and the age pension, there will be pressure on the broader financial services industry to develop products capable of allowing Australians to span the widening gap between when they want to retire and when they can access their retirement savings and the age pension.
Given the economic stringency surrounding the delivery of the Abbott Government’s first Budget this month there will be few give-aways to the financial services sector, but if the pensionable age is lifted to 70 then financial planners can thank Treasurer Hockey for lifting their workloads while financial services firms can give thanks for a change which increases the scope for the development of new products.
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