Speech by The Hon Jenny Macklin MP

Addressing the challenges of an ageing Australia

Location: Sydney Institute, Sydney

*** Check Against Delivery ***

I would like to acknowledge the traditional owners of the land where we are meeting tonight.

It’s almost a month since the Budget – delivered in the middle of a global recession that’s wiped away $210 billion in revenue – but framed for the future and the challenges of an ageing population.

This is the Budget that tackles the intergenerational challenges we’ve been hearing about for so long.

Reforming the pension system to make it adequate for the millions of age and disability pensioners, carers and veterans who depend on it.

Offsetting the cost of pension increases with savings measures to make the pension system sustainable over the long term.

And building a labour force capable of supporting the ageing population – including a comprehensive paid parental leave scheme to encourage women’s participation in the workforce.

I want to start tonight by asking you to think about Australia as it would have been without these Budget decisions.

It’s an unchallenged demographic fact that by 2050 the balance between the old and the young will have changed significantly.

One in four Australians will be 65 or older compared to around one in eight today.

And we can expect to live into our nineties.

This is all a given.

But I’d like you to consider what Australia would be like if we hadn’t planned for the demographic shift.

Hadn’t made the pension adequate.

Hadn’t made tough decisions on spending priorities.

In this scenario, older Australians would struggle to make ends meet with fewer people in the workforce to support them.

Fewer people paying the taxes needed to fund the increasing number and range of services that older people need.

Government budgets would be at breaking point.

Without action to boost workforce participation; without action to build an income support system that is both adequate and sustainable, this would have been the untenable position of Australia in the middle of the 21st century.

Of course this isn’t new.

We’ve known about it for years. The previous Government conducted two comprehensive intergenerational reports on this very subject.

We had a former Treasurer who devoted entire speeches to it.

But that’s where it began and ended.

Now, after 12 years of a government that sat on its hands, there is a lot of catching up to do.

Including catching up with the rest of the world by introducing a comprehensive paid parental leave scheme.

A scheme which supports women to maintain their connection with the workforce during their childbearing years.

Because while Australia has the ninth highest rate of employment for mothers with children over the age of six, participation falls for mothers of younger children.

Encouraging women to stay in paid employment is vital to boost workforce participation. So too is increasing the age pension age – and I’ll have more to say about that later.

Increasing workforce participation is one side of the ageing population equation.

The other side is building a framework of retirement support which is both adequate and sustainable.

A system which is built on three pillars.

First, and oldest, the age pension – the foundation of our targeted, means tested and non-contributory social security system.

Second, the compulsory superannuation guarantee, introduced by Labor in the early 1990s, so working Australians have private savings in retirement.

Third, voluntary private savings supported and encouraged through generous tax concessions and other incentives.

The age pension will always be there to support Australians who need it as they grow older.

Currently, nearly three out of four Australians over the age of 65 are on the age pension.

Projections are that this proportion will remain fairly constant over the next fifty years.

Today, sixty per cent of pensioners are on the maximum rate of pension.

This will decline over time – but slowly – assisted by growth in private retirement savings from the superannuation guarantee.

By 2017, around half of all Australians over pension age will still be on the maximum rate of pension.

And it’s only by the mid 2030s that there will be more older Australians on a part pension than the full pension, and then only just.

Which demonstrates why the long-term adequacy of the pension is so critical.

But pension adequacy and sustainability are inter-dependent.

You can’t have one without the other.

Turning first to adequacy.

Tonight I want to provide you with the latest analysis which confirms that over the years living on the age pension had become more of a struggle.

The Household Income and Labour Dynamics in Australia survey, or HILDA as it’s more commonly known, is the most comprehensive longitudinal study of Australians.

In its latest statistical report to be published tomorrow it’s revealed that:

  • Between 2001 and 2006, rates of income poverty were consistently highest among the elderly, particularly single-person elderly households, and that one in three elderly people living alone spent all of these years in poverty;
  • 20 per cent of the persistently poor were over 65 years of age, compared with 11 per cent of the non-poor; and
  • Income mobility is considerably lower for elderly people than for the non-elderly and any mobility that does exist is more likely to be in a downward than upward direction.

So at a time when the mining boom was delivering windfall revenue to the former Government, older Australians were not given the pension increases they needed.
So it was left to this Government – in the most difficult of economic times – to reform the pension system.

To make the tough policy decisions necessary to provide an adequate level of support, offset by savings to underpin the long-term sustainability of the system.

To ensure adequacy the Government is providing an additional $32.49 a week, or $1,689 a year, to full rate single age and disability pensioners, carers and veterans and $10.14 a week, or $527 a year, to full rate couples combined.

And to make sure these pensions keep pace with rising costs, we are developing a new price index which more accurately reflects the items that pensioners typically purchase.

These increases will endure because we are lifting the pension benchmark from 25 per cent to 27.7 per cent of male total average weekly earnings.

Maintaining adequacy is a huge impost on the Budget bottom line.

Next year, our payments for age and disability pensioners, carers and veterans will cost $4 billion more as the result of our increases.

Which brings me to sustainability.

The Government is introducing targeted measures to accumulate savings over the long-term to assist in making pension increases cost neutral.

These include changes to family payments, reducing some of the generous tax concessions on superannuation, and means testing the private health insurance rebate.

And increasing the age pension age progressively to 67 by 2023.

As the Prime Minister has said this was not an easy decision.

But even the Opposition agrees it has to happen – now.

Although when they were in Government it was a tough decision they chose to avoid.

As the CEO of National Seniors Michael O’Neill says:

“Whether we like it or not, the number of people who will be over 65 is going to be twice what they are now, in 2040 … Someone’s got to pay for that, someone’s got to pay for the economy to keep going.”

The United States, Germany, Iceland, and Norway have also recognised the need to increase the age pension age – they’ve either increased it to 67 or are moving towards it.

The United Kingdom is increasing its pension age to 68.

But raising the age pension age does not automatically reduce the number of years people receive the pension.

In 1986, a man going on to the pension at the qualifying age of 65, on average would receive the pension for 15 years. By 2010, this will reach around 21 years.

But even in 2023, when the qualifying age reaches 67, with improved life expectancy it’s expected the time spent on the pension will be 22 years.

Nor does raising the age pension age mean the Government is dictating when people can retire.

As financial adviser Noel Whittaker put it: “All the Government is doing is raising the age at which you can apply for a pension from 65 to 67 … (those) affected have at least 15 years to prepare for it.”

And by 2023 when the new pension age is fully implemented, working Australians will have had thirty years of the superannuation guarantee to build their own private retirement savings.

Quite understandably, increasing the pension age has raised concerns about the impact on people in their fifties and sixties who’ve worked in physically demanding jobs all their lives.

They ask how we can expect a man of 67 to work as a labourer on a building site.

Of course no one expects a person of 67, 60 or 55 to continue hard manual labour if their body is no longer strong.

The point is that years of hard physical work don’t suddenly take their toll at age 65 or 67. It affects people differently.

Take for example 66-year-old Bruce Cavender who, after decades working in heavy industry, now runs a handyman business in Adelaide.

He has no intention of hanging up his work boots yet saying, “if a person’s healthy enough to do it, then continue on. Next year I’ll be 67 and I’ll still be doing it.”

People like Bruce underscore how important it is for governments to encourage and support workforce participation by people of age pension age.

That’s why we’re offering new incentives to encourage them to continue working part-time – introducing a Work Bonus which treats the employment income earned by age pensioners more generously.

We also need new approaches which support mature age workers plan ahead and prepare for a time when they feel they can no longer continue in their current job.

There are already some innovative programs in place.

For example, in South Australia, the State Government is working with industry bodies to ‘transition’ trade workers into jobs as trainers, mentors and workplace assessors.

And vocational rehabilitation services provider CRS Australia, is retraining trades people to take up retail jobs at Bunnings – where they can use their trades skills and experience to advise customers.

Access to training and re-skilling is particularly important for people who want change how they work when their occupations are physically demanding.

My colleague Brendan O’Connor, the Minister for Employment Participation is putting particular focus on this issue.

This includes supporting mature age workers who’ve been made redundant as a result of the global recession with immediate, intensive job search assistance.

And recognising that many workers now change the type of work they do over their careers, the Government is also investing $2 billion in its Productivity Places Program which includes 392,000 training places to help re-train workers.

As part of the program, training and re-skilling opportunities are offered to people moving from physically demanding jobs to less arduous work.

As Minister O’Connor has indicated, it is essential to work with the community to increase workforce participation by mature age Australians.

This includes developing a workplace culture which values older people, flexible training and retraining and new options for career pathway planning.

The Minister is committed to a consultation process with employers, unions and seniors groups on mature age employment issues, as we transition to the new pension age.

Like Val French – the convenor of Older People Speak Out – the Government recognises the great contribution older Australians already make … and can continue to make.

As Val says:

“Implementing the change in the age at which one can get the pension to 67 is a long way off…but an excellent measure. At this stage in an ageing society, we need the public blessing of government for older people who wish to remain in the workforce. This should help reduce workplace discrimination and acknowledge the value of seniors.”

Finally, I want to go briefly back to the future.

Again 41 years down the track.

To the 2050 this Government has resolutely in its sights.

Australia in 2050 – where a fair and adequate safety net of income support is there for those who need it, when they need it.

An Australia where this vital safety net doesn’t break the budget.

Outcomes achieved because in 2009 this Government, in the most difficult of economic times, was prepared to make tough but essential decisions in the national interest.