Wednesday, October 10, 2007

Retirement at 65 is old hat! Let's raise the pension age... then raise it again.

Looking forward to retirement at the age of 65? Or perhaps just before 55 if you are a public servant taking advantage of the peculiarities of your defined benefit super scheme?

If a debate to be kicked off today by the Committee for the Economic Development of Australia gets off the ground the pension age will climb to 67 and there will be no retirement age.

CEDA will today launch a report entitled Pensions for Longer Life which argues that Australia should phase in a pension age of 67 between 2015 and 2022 to take into account of our longer lifespans and greater health, and less physically demanding jobs.

After that it should index the pension age to Australians’ life expectancy, lifting it as the expected lifespan grows.

The report’s author Dr David Knox, formerly the Professor of a Actuarial Studies at Melbourne University and now with the superannuation consultancy Mercer told the Canberra Times that retirement at the age 65 was “no longer a good use of human capital”...

“Australia’s pension age has been 65 for men for around 100 years, but we are now much healthier at 65 than we were 100 years ago,” he said.

The United States and Germany have announced plans to lift their pension ages to 67, and the UK plans to lift it to 68.

But Canberra appeared to be an anomaly, with for much of the public service a “defacto retirement age of 55.”

“It’s the 54-11 problem. Public servants who are members of the defined benefit schemes can often get a higher monthly pension if they retire at the age of 54 years and 11 months than if they retire after 55.”

Dr Knox said the problem should eventually wither away because the Commonwealth has closed the CSS and the first PSS schemes to new members.

Amending the rules for existing members to remove the anomaly would difficult or expensive.

“When you amend a scheme, either there are winners and losers, and the losers will squeal, or everybody’s a winner, in which case it is going to be costly,” Dr Knox said.

In the future there was no reason why Australia’s pension age could not be lifted beyond 65. Australia’s pension age for women was already being lifted from the age of 60.

When it hits 65 in 2014 Dr Knox wants to begin lifting the age for both genders toward 67.

“These days someone who is 70 is these days likely to be as healthy as someone who younger used to be. Fewer people are doing manual work, and there fewer strains on the body than there used to be,” he said.

But it would important to maintain Australia’s system disability support pensions to assist people who became genuinely unable to work because of the physical nature of their jobs Dr Knox said.