Australia’s Retirement Age is headed higher

Australia is set to claim the mantle as the nation with the oldest retirement age in the developed world following Joe Hockey’s federal budget announcement on 13th May 2014. The new plan will see the retirement age for Australians born after 1966 increase from age 65 to 70 and is set to ensure that by 2035 our age pension age will have reached 70.  Australia first introduced the age pension in 1909 which was for males aged 65 years and over. At the time, the life expectancy of a male was 55.2 years making the likelihood of receiving a pension quite small. Interestingly 1909 also marked the advent of corporate income tax in Australia so where there’s a benefit payment there’s also a tax!   The qualifying age for the pension today for both men and women is 65 and the life expectancy for men is 80.6 and 84.8 for women. We are living on average 25 years longer than our ancestors of 100 years ago but the system in place & eligibility criteria is very different. Today it is possible for a couple aged 65 years and over to have assets of up $1,126,500 (excluding their family home) and be eligible to receive a part age pension. There is a key demographic shift taking place in our economy as the baby boom generation closes in on retirement. The ratio of working-age Australians to people aged over 65 currently stands at 5:1. This ratio is expected to decline to under 3:1 by 2050 as the baby boomers reach their retirement years. To give give this some global context, in Japan, a nation widely recognised for it’s ageing population, they currently has a ratio of just under 3:1. The economic reality for Australia is a lack of tax-paying workers to support the social security needs of our baby boom generation.   In addition to our immigration policies to grow the working population, the key strategy of government has been the promotion of a semi or fully self-funded retirement using superannuation as the primary retirement funding vehicle. The tax concessions available for people accumulating wealth inside super and people drawing an income from their super (both pre & post retirement) are very attractive. The maximum rate of tax on investment earnings on assets held within the super is 15% falling to 0% when a person is aged over 60 and drawing an income.   It’s important to note the key difference between the age pension age and the age at which people can access their superannuation for retirement funding. The table below illustrates that most people can access their superannuation benefits from age which is sooner than age pension age 65 (increasing to 70). Your AJ Financial Planning adviser will be able to assist you to not only maximise the tax advantages of your super assets, but also structure your affairs to provide maximum lifestyle & income flexibility both while building wealth & when drawing an income in retirement.