The cost of the Age Pension to the economy is predicted to fall in the next few decades as the superannuation sector ‘matures’.
Treasurer Jim Chalmers will today release the Intergenerational Report, which predicts that age and service pension costs will fall from about 2.3 per cent of the economy in 2022-23 to 2 per cent by the early 2060s, despite the ageing population.
The decline in pension costs is being attributed to the maturing superannuation system, which began in 1991.
But while Age Pension costs are expected to fall, superannuation tax concessions are projected to rise substantially as a proportion of the GDP, from about 1.9 per cent in 2022-23 to 2.4 per cent in 2062-63.
It is predicted that these concessions will overtake spending on the Age Pension in the 2040s.
The ABC news claims health, aged care, NDIS, defence and interest payments on debt will account for almost half of federal government spending in 40 years’ time. These segments currently account for one-third of federal spending.
The predicted increase is partially being blamed on an ageing population, with the report estimating costs for this sector accounting for 40 per cent of the increase.
The report estimates the number of people aged over 65 will be about nine million in the 2060s. There were 4.4 million people aged over 65 in the 2021 census.
It also estimates the population will swell to about 40.5 million, or about 13.8 million more than the current population. That may seem a lot, but the growth rate will be the slowest in Australian history since federation.
“The projected growth in spending reflects growing cost pressures and demand for public services as the population ages as well as improvements in the quality of care, including from new health technologies and treatments,” an extract from the report says.
Shift in society
“While health spending is growing more slowly than NDIS, aged care or interest payments, it represents a larger share of total spending.
“As a result, health spending is expected to increase the most as a share of GDP over the next 40 years.”
Dr Chalmers said the ageing population would be “one of the most prominent shifts in society” in the next 40 years.
“Our care economy will become an even more central focus in the decades ahead,” he said in a statement.
“Whether it’s healthcare, aged care, disabilities or early childhood education, we’ll need more well-trained workers to meet the growing demand for quality care over the next 40 years.
“The care sector is where the lion’s share of opportunities in our economy will be created and we want to make sure we grab this opportunity with both hands.”
Replying to the report, a major service provider says Australia is “far from where we need to be” to meet the expected demand in the care and aged sectors.
Benevolent Society chief executive Lin Hatfield Dodds said the sector was “overworked, underfunded and overdue for structural reform”.
“We need a workforce that is paid decently and knows it is valued – it’s essential to providing quality services,” Ms Hatfield Dodds said.
“Currently, the care and support sector struggles to attract and retain sufficient workers to meet the needs of people receiving support services through the NDIS, aged care and early childhood education and care systems.
“Elevating the needs of the care and support economy – which are the needs of Australians – is a national priority.”
The Intergenerational Report expects the care economy will account for 15 per cent of GDP by 2062-63, up from 8 per cent in 2022-23.
Are you surprised that Age Pension costs are expected to decline despite an ageing population? How do you think the government should fund aged care? Why not share your opinion in the comments section below?