Age Pension Review

One of the many reviews initiated by the Rudd Government is the review of the pension age.   This review has not attracted media attention.  However, the basic issue is whether the age pension should be increased from its current 65 (for males) and 63 to 65 (depending on the date of birth) to a higher figure – say 67 or even 70.

The immediate questions in relation to the age pension are why 65 and what is happening elsewhere.

To a certain extent it is merely an arbitrary selection of an age.  One suggestion (by us) of the origin of 65 as the “retirement age” is that this age was selected as life expectancy for the likely recipients was considerably less than 65.  The first state pensions were introduced in 1889 in Wilhelmine, Germany, by Count Otto von Bismarck, with an eligibility age of 70 (life expectancy was then about 48 for labourers).  New Zealand shortly thereafter introduced state pensions with an eligibility age of 65.  Both state pensions provided very modest payments and were only intended to remove penury in old age.  Things have changed since then.

Other countries are in fact increasing the age at which state pensions commence.  The US is increasing the pension age from 65 to 66 and then to 67.  (This increase will be phased in over an extended period of 20 years).   In Germany, the age pension is increasing from 65 to 67. (This increase also occurring over an extended phase in period of 20 years).

It will be a bold decision for any Government to increase the age pension.  The possible response will be to maintain the present age of 65 (female age pension age will harmonise with the male age pension age by 2014) but to offer financial incentives for eligible persons to defer commencing the pension.

The financial incentives could be a higher age pension rate or to provide a lump sum for each year by which age pension commencent is deferred.

Offering financial incentives to defer applying for age pensions will also avoid having to face the problems which would arise if the age pension were increased.  These include the linkage between age pension age and early retirement age/preservation age (if one goes up, should the early retirement/preservation age also be increased?) and the problem of unemployment for post-age 65-year-olds – if they are not eligible for an age pension, does that mean that they will be entitled to another pension/benefit in lieu of the age pension?