Finance Retirement Advisor: Who’s hit hardest by retirement reform?

Advisor: Who’s hit hardest by retirement reform?

Construction workers are at risk of underpayment. Photo:Getty
Twitter Facebook Reddit Pinterest Email

Raising the pension age makes a lot of sense to actuaries and assorted financial industry types. The average Australian is living longer and, with the average 65 year-old now expected to enjoy at least another two decades, it is placing unsustainable pressure on the government’s budget.

Unfortunately millions of Australians aren’t so lucky. They have been largely forgotten among the plans to raise the age pension eligibility from 65 to 70 years of age over the next two decades.

Among them are Aboriginal and Torres Strait Islanders – a male born today can expect to live to 69.1 years and a woman to 73.7 years, according to the Australian Bureau of Statistics (ABS). The government’s National Commission of Audit acknowledged that the life expectancy gap to non-Indigenous Australians (currently about a decade) was not closing fast enough; however, it still recommended raising the age pension eligibility to 70.

It effectively cuts an entire sector of the community’s most disadvantaged from the age pension. Keeping them company will be those Australians working in riskier jobs – anything generally beyond the confines of an office job that requires manual labour.

It effectively cuts an entire sector of the community’s most disadvantaged from the age pension

The ABS does not collect life expectancy by occupation, but there are clear signs that their average life expectancy is significantly lower (although likely still above 70).

The experience of elderly workers in France gives some indication: In 2010, the minimum age for receiving a full pension was raised from 60 to 62 years of age for those who have entered the workforce early and 67 years of age for those who did not. However, research published in the Demographic Research journal in 2011 found a life expectancy gap of about five years between 50 year-old male highly-qualified workers and manual workers.

“For those who cannot remain in the labour force until the legal retirement age, it means exclusion from the regular system for a longer period and an increasing risk of low pensions and social precariousness,” the research paper said.

Worse yet, their health deteriorated faster. Manual workers at 50 years of age had on average less than nine years’ good health left, while those in highly-qualified occupations had, at the same age, more than 12 years. It’s another way of saying there aren’t many 70 year-old brickies going around.

There aren't many 70 year-old bricklayers around. Source: AAP.
There aren’t many 70 year-old bricklayers around. Source: AAP.

Maria Racionero, research director and associate professor at the ANU Centre for Economic Policy, says that these factors need to be considered when forming retirement policies, as there is a clear link between occupation and life expectancy (although the nature of the link needs to be further studied).

“A policy that increases the aged pension eligibility age to 70 on the basis of increases in average life expectancy may harm disproportionately more particular individuals (when there are significant differences in life expectancy) if that legal eligibility age is effectively enforced.”

These people have often already been forced out of the workforce before the current age pension eligibility age of 65, she warns. In such cases, they simply move to disability pensions or unemployment benefits, raising issues of transparency and efficiency.

They will bear a greater proportion of the cost savings the government will deliver by effectively curbing pension payment growth – but how much is difficult to assess with so little public information.

Neither the government’s Budget documents nor the National Commission of Audit make any mention of the impact that raising the age pension eligibility age will have on manual workers. The Department of Treasury, which provides detailed modelling to government, refused to answer any questions on the matter.

An Australian government research paper released in 2005 confirmed that mortality rates for males in manual occupations was 60 per cent higher than for males in non-manual occupations in 2001. While overall mortality rates had fallen for both groups since 1966, the gap was just 20 per cent at that time (although the paper also paradoxically states that the gap remained essentially the same over the period).

One more insight can be gleaned from the price of group life insurance. (Australian life insurers have decades of customer data to draw on when pricing risk, but they do not reveal it publicly.)

Manual workers at 50 years of age had on average less than nine years’ good health left, while those in highly-qualified occupations had, at the same age, more than 12 years

The insurer behind AustralianSuper (one of the country’s biggest super funds and also an investor in The New Daily) follows standard practice and charges those who don’t have the good fortune to work in a professional office job significantly more for their life insurance.

A young person aged between 15-24 years of age working in a riskier job will pay more than double for the same amount of life insurance coverage as an office worker who does not have to perform manual labour. There is a similar disparity through an entire working life (it only falls to slightly less than double from 60 years of age).

Half of all OECD countries already give certain people in public pension schemes early retirement privileges (or more generous accrual rates in private pension schemes) based on job, occupation, or sector. Perhaps Australia should consider why it is not one of them before raising the age pension eligibility age.

Brendan Swift is a journalist who has been writing about superannuation and financial services for a decade

View Comments