Most Australians fear that the age pension won’t exist by the time they retire. It’s a view shared by more than half of Australians, and almost two-thirds of those aged under 55 years. They should relax.
The federal government’s retirement income review, released late last year, shows that the pension is going to remain affordable for the government and that most seniors will still rely on it into the distant future. Meanwhile, an ageing Australia means that any political party that tries to reduce or abolish the pension can expect to be punished at the ballot box.
The review’s projections show that the government’s spending on the pension is likely to fall, not rise, as a share of the economy, over the next 40 years.
In 2001, the pension cost 2.2 per cent of GDP. It’s now about 2.5 per cent, and the review projects a fall to 2.3 per cent by 2060. That’s despite the ageing of the population which will mean that a growing share of Australians become eligible for the pension, but there will be fewer Australians in work to pay for it. Nor will only the poorest Australians rely on the pension in the future. About three in five people will still qualify for the pension in retirement in four decades’ time, regardless of whether compulsory super rises to 12 per cent of wages as legislated, or stays at 9.5 per cent as we at Grattan Institute believe it should.