Australia may be ageing at a slower rate than most developed countries, but our reliance on the Age Pension system and poverty among older people is much higher than other OECD countries.
An OECD report released last week revealed that the number of people in Australia per 100 who are aged 65 and over is 25, but will increase to 41 by 2050. That is much lower than the global old-age dependency ratio, which is 28 and 53 respectively.
While that may sound promising, around three quarters of those aged 65 and over are reliant on the Age Pension, compared with the one quarter average in other OECD countries.
And our poverty rate among older people is dismal, with over a quarter of those aged 65 and over below the income poverty rate compared to around 13 per cent in other countries.
The good news is that our public expenditure on the Age Pension is currently four per cent and will remain that way in 2050, compared to the rest of the OECD, which will grow from nine per cent to 10 per cent.
You can thank Australia’s strong net in migration rate and increasing numbers of women entering the workforce for easing the burden on the pension system.
According to the OECD report: “Growth in the working-age population has been the main driver of labour force growth for most advanced economies over the past decade. Australia has seen particularly robust growth in its working-age population of 1.75 per cent each year over the past decade. Strong net migration has been a major contributor to this growth.”
And the increasing workforce participation rate of Australian women has simultaneously “largely made up for the demographic effects of ageing”.
Also promising is that once Australia’s compulsory superannuation system reaches maturity, we should see fewer people reliant on a full Age Pension and living below the poverty line.
Currently, the number of retirees taking their superannuation as a lump sum has left them with little income in later life, prompting suggestions that annuities may be the solution to extending private retirement income.
The report also highlighted the merits of making retirement more flexible, in particular, working prospects for older people.
This could be an alternative to raising the retirement age, which is a reform that is highly contested although seemingly necessary, should other reforms not be considered.
“Population ageing and financial stability concerns have created pressures on policy makers to raise the retirement age, even if most people do not like this,” said the OECD report.
“Older workers are a diverse group; people have different preferences on how and when to move from work to retirement. Some are able and motivated to work for longer, perhaps for the income, or the social interactions that work brings, or simply because they like their job.
“Employers should be encouraged to provide more flexible work solutions to workers wishing to prolong their career at older ages. In the context of population ageing and looming labour shortages in some countries this need is urgent.”
This type of flexibility could have wider positive effects on our ageing population and economy. Many health experts claim that working later in life could also be beneficial to health and wellbeing – which would, in turn, reduce the nation’s health and aged care expenditure.
Read the Global Pensions at a Glance report
Given the chance, would you be happy to work later in life? Would you appreciate the flexibility to return to the labour market? Were you aware that migrants were providing financial support for your Age Pension? Is it time that the gender gap was addressed, considering women are bolstering support for the Age Pension?