HomeHealthAged CareWhy the old-age dependency ratio matters

Why the old-age dependency ratio matters

The Australian Treasury last month released the 2023 Intergenerational Report, just two years after the last one in 2021, which projects the outlook for the Australian economy over the next 40 years.

The report looks at a number of factors to help budget for our future. Those factors include health spending, climate change impact and workforce numbers. It also includes and uses a measurement that some say is now outdated, known as the ‘old-age dependency ratio’.

Used in all Intergenerational Reports since the first in 2002, the old-age dependency ratio is simply the number of people aged 65 or over per 100 people of working age. Convention and tradition, defines ‘working age’ as between 15 and 64.

This number is then used to make economic predictions, and to craft policies based on those predictions. If you’ve been listening to any of those predictions, it’s that the ratio of people ‘too old’ to work and those of working age is growing, and that spells trouble for the economy.

But that age range is now outdated, and the economic doom and gloom overblown, according to one of Australia’s leading actuaries, and he is calling for change. He says more older Aussies are working longer than ever and are not the economic burden they are made out to be.

David Knox, senior partner and senior actuary at Mercer Australia, says that age range no longer reflects reality.

“The measurement of our future ageing population needs to be more dynamic than the use of static ratios,” he says.

“It must recognise that there are likely to be ongoing changes in the labour force and life expectencies.”

The problem with the current old-age dependency ratio

Those words come from Mercer’s own report, written by Mr Knox, Recalculating Australia’s Ageing Population.

To support the case for change, he highlights issues with both sides of the ratio. First, he believes the bottom half of the ratio (the denominator) shouldn’t use the number of Australians of working age.

Rather, it should use the number of Australians aged 15-64 that are actually in the workforce. “Many of these individuals [aged 15-64] are not in the workforce due to a range of reasons,” Dr Knox says.

Second, the top half of the ratio should allow for the significant increase in the Australians over 65 still working.

In 2006, only 1.99 per cent of the total labour force was aged over 65. By 2022, that figure had risen to 4.94 per cent, and shows no signs of slowing down. “This trend is expected to continue in future years,” Dr Knox says.

Given that life expectancy in Australia continues to rise, it’s hard to argue with that assertion.

Why is this a problem?

The purpose of the Intergenerational Report is twofold – to project the outlook of the economy and use those projections to improve public policy settings. However, basing the report on inaccurate data will likely comprise the quality of those improvements.

That includes inaccuracies in the old-age dependency ratio.

Adjusting both sides of the equation reveals a measurable change in ratio. Using the traditional calculation, the ratio (number of working age persons for every person aged 65-plus) decreased from 6.6 in 1982 to 3.8 in 2022.

Dr Knox’s method shows the decrease has been much slower, going from 4.5 in 1982 to 3.0 in 2022.

To many, these numbers will mean little, but they convey important information to policymakers. Given that those in the workforce will be contributing to at least some of the living costs of those who are not, accuracy matters.

Occasionally, some news is good news

Dr Knox suggests one further adjustment to the old-age dependency ratio – a gradual increase from 65 to the upper end of the workforce range.

Doing so will not only further enhance accuracy, he says, but also delivers some rare good news. The greater number of Australians over 65 working will likely help, rather than hinder the economy.

In conclusion, Dr Knox says: “Mercer does not deny that Australia’s population is ageing. That is a fact, but the consequences are not as alarming as some would suggest.”

In a world seemingly full of alarming news, that makes a welcome change.

Do you expect to be working beyond age 65? Is that an attractive proposition to you? Why not share your thoughts in the comments section below?

Also read: How to embrace ageing positively

Disclaimer: All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to aspects that affect your financial and legal circumstances.

Andrew Gigacz
Andrew Gigaczhttps://www.patreon.com/AndrewGigacz
Andrew has developed knowledge of the retirement landscape, including retirement income and government entitlements, as well as issues affecting older Australians moving into or living in retirement. He's an accomplished writer with a passion for health and human stories.


  1. I am now 83 and hoping for still more years ahead. I worked until I was 75 as I was still fit and active, and I am now supported by my superannuation. Many others that I know are in much the same situation, so I don’t feel as though I am creating any burden on anyone. Superannuation has provided me with a comfortable life albeit without major luxuries, and is something to be encouraged for wage earners into the future.

  2. Here we go, again. The myopia of those in the position to forecast our future without look at the basic problem of our current situation. When we were growing up, our university fees were not as a burden as the current HECS Fees. The government believed in investing in the younger human resources. These days, the younger generations have to put up with HECS Fees repayments through the tax system plus the mortgage repayments for a roof above their heads. Can anyone tell us how these young families survive under these circumstances. How the intergenerational report to acknowledge these factors, our kids are not being given a fair chance. there is no such thing as affordable housing, when you put them behind the eight ball before they can start to look after themselves, let alone looking after the oldies. To blame it all on the baby boomers, it is out right ridiculous. My message is, no one can draw equitable returns without investment in human resources. That is why we have mum and dad banks and grown-up children living at home, now. Wake-up Australia!

  3. I was working until 2016 and am now approaching 91. In my last few years of working I was able to work from home most of the time, doing work that helped improve the productivity of those still working full time. Although the wage was smaller compared to my previous position, it did make life a little easier, kept my mind turning over kept me in tune with modern communication and helped maintain my fitness, both physically and mentally.

    Although I am lucky to have had good health, I have several friends in their 80s and some close to 90 – most of them go to the local gym regularly, even if the exercise is less vigorous and the weights much lighter. Most of them would appreciate having a few hours of work to help with the rising costs of living, but many potential employers regard old age as degenerative mental ability.

    The whole description and profiles of age should be revised to be similar to the points made by Dr Knox. Centrelink payments will never be able to keep up with the financial needs of many Australians and if Government review and amend the desecration of “Working Age”, the benefits would be felt all around, including the GDP.

  4. Governments seem to be rather confused about what’s good for the future of younger people. There is concern that future generations will be worse off than their parents but at the same time are critical that retiree parents will leave their children significant inheritances from their savings and superannuation. When parents can foresee the future of younger generations better than government economists, why should government discourage it?

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