While retirement was arbitrarily deemed to be age 65 (for men[i]) upon the introduction of the concept in 1909 when the government-funded age pension was first introduced, ‘retirement’ from the workforce can occur at any age and may be influenced by a range of factors, rarely just financial. For example, eligibility for the age pension is incrementally being increased to 67 years for both men and women by 2017 (however, pension age will remain age 65 for anyone born prior to 1 July 1952). Regardless, the introduction of personal and employer superannuation contributions from the early 1970s initiated an additional interpretation of retirement to one equivalent to the age when private superannuation investments are accessible.[ii]
Essentially, Australia has two retirement ages – the eligibility age for access to private superannuation savings and the age pension age.
Current discussions regarding increasing the age at which people can access the age pension and therefore prolong their participation in the labour market need to be taken in the context of the policy framework governing both employment and retirement income systems.
Labour force participation and retirement decisions are influenced by a range of factors; educational attainment, health, wealth, relationships, home ownership, indebtedness, workplace arrangements, economic climate, and care responsibilities in addition to the policy framework governing both employment and retirement income systems. Furthermore, there are other alternative routes to retirement including unemployment, disability and partner’s employment status. In fact, only around 40 per cent of the retired population are not involuntarily retired.
Essentially, the factors associated with early retirement (less than age pension age) are all characteristics of Australia’s current retirement system and therefore efforts to increase labour force participation by mature age workers may be ineffective and costly.
Four issues will prevent the government achieve its objectives; the access age of private superannuation, the tax concession for private superannuation funds and their income, phased-in retirement schemes and stock market performance.
Furthermore, given that historic labour force participation rate increases have been driven by female participation offsetting a decline in participation by men, and that these historic increases are the result of cohort, period and age effects, the increases are not expected to continue at the same rate.
According to the ABS Survey of Retirement and Retirement Intentions the average age for recent retirees (those who retired in the five years prior to 2010/11) was 61.4 years, or 62.5 years of age for men and 60.3 for women. Evident from this data is that the average age of retirement is below that of the age pension age. Furthermore, almost half of those aged 60 to 64 years are not participating in the labour force at all, dropping 20 percentage points compared with those aged 55 to 59 years. In March 2014, 53.5 per cent of 60 to 64 years olds were participating in the labour market compared with 73.5 per cent of 55 to 59 year olds. This then dropped to 12 per cent for those aged over 65 (ABS, Labour Force, March 2014). This indicates that access to the age pension is not critical, although people in these age groups may be the recipient of other welfare benefits or pensions (e.g. disability support pension, carer’s payment etc).
Research in attitudes to retirement shows that higher wealth is positively correlated with earlier retirement and that insufficient financial resources extend an individual's actual retirement age beyond the preferred retirement age. Contradictory findings of analysis of labour force behaviour suggest that the greater the educational attainment, the greater the proportion of the age group participating in the labour force and the later retirement age. Furthermore, the least educated are also likely to remain in the labour force longer. This suggests that the main determinant of remaining in the workforce is either choice or necessity.
As such it is questionable as to whether the current (and proposed) policy framework will achieve its intended objective of increasing labour force participation rates of older people or the number of hours worked to justify the costs of the policy initiative in the long run.
Evidence suggests that efforts to increase the intrinsic value of work and the workforce would be more effective in postponing retirement. These intrinsic factors are influenced by family and personal circumstances including health, ability and caring responsibilities and extend to job satisfaction, connectedness and flexibility as well as financial need.
[i] In 1910, women were deemed eligible for the age pension from age 60. This is currently being incrementally increased to 65 by 2014 and then to 67 in line with men.
[ii] Personal superannuation contributions can be accessed from the age of 55 for anyone born prior to 1 July 1960 (a large majority of the baby boomers), progressively increasing to age 60 for all those born after 1 July 1964 (the rest of the generations), provided the individual is no longer in the workforce. There are a number of factors which may enable early access to superannuation, however, including hardship.