May 14 2009
Among all the mixed messages on retirement flowing from the budget, the biggest policy development is the decision to extend the working age for Australians to 67. Without doubt, this change will be the enduring legacy of this budget, certainly for future retirees, and for the country as a whole.
The first thing to note is that it hardly affects the wealthy at all. The rich, unsurprisingly, can and do retire when they like. Extremely generous tax concessions from such lurks as voluntary superannuation and dividend imputation have been reduced, but not slashed. As the Greens leader, Bob Brown noted, the rich were hit, but with a feather duster.
Instead, the effects of this budget on retirement are directed squarely at wage and salary earners.
When compulsory superannuation began in the early 1990s, people were told the deferred wages that went into superannuation would help to top up the age pension. We would be living a better and more secure retirement. At least, that was the promise.
Today, superannuation is not a top-up, but is fast becoming the core of how we finance retirement. And the age pension is now becoming a safety net for those who do not save enough from their super.
Even on its own terms, superannuation has not lived up to its promise of either funding retirement or delivering that notion of retirement security. It turns out that most people will depend on the age pension for a large part of their retirement income. For most people, their super contributions are not going to help build a better retirement. The global financial crisis has brought home that privately managed defined contribution schemes are a risky and pretty costly way to pay for people's life after work.
Extending the age for pension entitlement signals that superannuation is in crisis, and it is to the age pension that reform is now turning. What are we to make of the increased age?
Thanks to the advances in nutrition, health care and disease control, people are living longer and finding themselves in better health when they get there. We should not deny our increasing longevity, but we need to think about what we do with that trend.
Continuing the policy of self-funding retirement and extending the working age is justified by the idea of the looming crisis of the ageing population. It says that because people are living longer, we won't be able to pay for so many pensions. But increasing longevity is a long-term issue, and considering it as a looming crisis is alarmist, simple-minded and may lead us into panicked responses.
A population ages slowly, and not even inexorably. It doesn't have to present itself as a future fiscal crisis. Economists and demographers alike have become increasingly sceptical about the use of this predicted fiscal crisis to justify undermining pension entitlements. It is now seen by some economists - including Nicholas Barr and Joseph Stiglitz - as one of the great myths of retirement policy.
There is nothing magical about passing a particular age which suddenly makes someone no longer able to contribute to society. For many people, work offers an important way of being socially active as well as an income, and it provides a sense of self-worth. Having the choice to work in older age is not really objectionable.
What is objectionable is that Australians already work some of the longest weekly hours in the Western world, and the budget is now demanding that those workers spend longer in the workforce - working longer than they would in other rich countries - as well.
This policy may help to give superannuation balances two more years to accumulate, and it will also mean the age pension will be relieved of calls to supplement super for another two years.
But extending the working age by two years is equivalent to making people work about an hour a day more.
Effectively, rather than opening up a debate about how we might restructure our working lives to offer more choice about our free time both now and later in life, we are being presented with longer and more stressful work today, and an increasingly dystopian world of retirement further in the future.
Australia is already a wealthy society, and it is becoming more productive all the time. We should focus on how that wealth - and the opportunities it presents - can be better shared, not on how to penalise people for living longer.
In its own way, increasing the retirement age shows we have not reconciled a deep social dilemma about how a wealthy country like Australia deals with the opportunities already in our midst. Instead, an issue of predicted intergenerational fiscal imbalance is now being used to undermine retirement security and entitlements. Economic debate in this country is in danger of becoming all tip and no iceberg.