You can’t run an economy on the pension crisis
The World Economic Forum (WEF) has warned without proactive measures, Australia is one of eight countries facing a looming pension crisis thanks to increases in the longevity and scale of our ageing population[i]. By 2035, almost a fifth of the population will be over the age of 65, but in certain parts of regional Australia, this is already a reality. Increased longevity means the potential to have longer, healthier working lives, but Australia needs a cohesive strategy to reap the rewards of this longevity dividend.
The Age Pension makes up the biggest share of Australia’s social services budget each year, accounting for $45 billion in 2016-17. By 2021, it’s estimated to increase to just over $51 billion[ii]. Driven by our growing older population, it is a preview of what the WEF describes as a widening retirement savings gap – where the expectations of average annual retirement income needs won’t be met by our current system.
When looking at the magnitude of this demographic shift, this shouldn’t be surprising. Someone retiring today can expect almost 30 years out of the workforce[iii]. Moreover, in 2015 there were just over 3.5 million Australians above the age of 65. By 2035, it’s estimated this will double to roughly 6.4 million[iv].
Regional Australia is ageing faster than Australia as a whole. The 2016 census revealed that now 1 in 6 Australians are over the age of 65. In regional Australia it’s 1 in 5[v]. In places like Ballina and the Fraser Coast, those over the age of 65 already account for more than 25 per cent of the local population.
This leads to the pension becoming a significant factor in local economies. Of the top 100 LGAs with the largest proportion of pensions recipients, 99 were regional. In places like Victor Harbor, Great Lakes, Central Goldfields and Eurobodalla, more than 20% of the local population already relies on some level of aged pension payment.
It’s not just national budgets that will be affected by this trend. For many of these regional economies, a growing number of people on the age pension and in retirement will have significant impacts. A shrinking local labour force means a smaller pool of talent for local businesses to draw upon, as well as lower levels of local consumer spending, with Australians typically saving much more of their weekly income once retired. To mitigate against these impacts, the most effective strategy is better engaging older workers and their experience in the workforce.
Currently, older Australians are one of the most underutilised sections of the labour force. Making mature age workers a priority will be crucial to stop a looming pension crisis, but also unlock an otherwise untapped asset in regions across the country.
For more information on this topic, check out our latest report on Ageing and work in Regional Australia.
[v] ABS 2016 Census of Population and Housing