Oct 13

Will there always be an age pension?

123rf - age pensionWith all of the talk about the need to be self-sufficient in retirement it’s not surprising that many people assume that the government-funded age pension will be phased out altogether sometime in the future. But will it?

Both sides of politics have committed to retaining the age pension “for those in need”. The age pension is means tested using both an income and an assets test – the test that pays the lowest pension is the one that is used.


Conclusion – The age pension will remain, but not for everyone

There are two other aspects to the government’s retirement income policy – compulsory superannuation and tax-concessional voluntary superannuation. As you build more super, you will qualify for less age pension.

Statistics below show the predicted impact of superannuation on the age pension. These figures are for people of age pension age:

  People on the full age pension People on the part age pension Self funded retirees
2007 55% 25% 20%
2047   38% 37% 25%


Conclusion – Fewer people will qualify for the age pension in the future

One aspect that people don’t consider is the age when a pension becomes payable. Historically, it has always been age 65 for men, and since 1995 the qualifying age for women has been progressively extended to age 65.

With people now living longer lives, the age pension may be payable for 20 to 30 years – a very long-term commitment for governments. This raises the question “why 65?”

The answer to this question suggests another key issue in the provision of the age pension. It all goes back to Otto von Bismark, the German Chancellor in the 1880s. He introduced state funded “accident and old age insurance” – the first pension scheme in the world. This standard was followed throughout the rest of Europe and eventually the world.

His actuaries nominated age 65 as when the “old age insurance” would be payable. This was at a time when the average life expectancy of a German male was 44. A very small percentage of the population could expect to receive the pension and they were not likely to receive it for long.

In 2010 the government considered the question of ‘why 65?” and the age pension age was increased. The qualifying age for both men and women will be increased by six months every two years starting from 1 July 2017. From 1 July 2023, the qualifying age will be 67. Four years later in the 2014/15 Federal Budget, the government has proposed increasing the qualifying age further to 70 by 2035. The legislation to implement this change is yet to be passed.

With increasing “grey power” as our population ages, it would be political suicide for any government to even consider abandoning the age pension. Instead, fewer people are likely to qualify at a later age for a shorter period.

This is all the more reason to continue to build your own superannuation nest egg and become self-sufficient in retirement.

www.rim.treasury.gov.au Inquiry into Superannuation and Standards of Living in Retirement
demographics.treasury.gov.au A More Flexible and Adaptable Retirement Income System
www.agedcare.org.au An Ageing Australia – (Saul Eslake, 2008)


If you wish to discuss the age pension with our expert and award winning financial planning team please call (02) 4926 2300 or email us.

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