The context

The ageing population—a public policy challenge

Australia’s population is ageing. The Productivity Commission described it as ‘the quiet transformation, because it is gradual, but also unremitting and ultimately pervasive’.^[2] It estimated that by 2044–45, almost one in four Australians will be aged 65 years and over;^[3] and in every year between 2012–2028, ‘the aged share of the Australian population is projected to increase by more than 0.35 percentage points—an increase around 4 times the long-term average’.^[4]

The effect that the ageing of the population may have on ‘economic growth, living standards and the sustainability of government finances’ has been identified as a major public policy concern.^[5] The Productivity Commission described the economic implications of an ageing Australia as ‘far-reaching’:

It will slow Australia’s workforce and economic growth, at the very time that burgeoning demands are placed on Australia’s health and aged care systems. Unless offsetting action is taken, a gap will open between Government revenue and spending that will need to be closed.^[6]

The Productivity Commission also found that ageing pressures were accelerating as the baby boomer generation retires and that ageing ‘will reduce economic growth at the same time that it intensifies demands for public services, such as health, aged care and the age pension’:

With present policy settings, age-related spending will exceed the growth of tax revenue. This will open a fiscal gap equal to around 6½ per cent of GDP by 2044–45.^[7]

The December 2011 report, Ageing and the Barriers to Labour Force Participation in Australia, stated that the demographic shift in Australia’s population ‘implies a greater role for mature age Australians both economically and in society more generally’.^[8] A report prepared by Deloitte Access Economics for the Australian Human Rights Commission and released on 3 September 2012 (the Deloitte report) estimated the value of mature age participation in economic terms:

An extra 3 percentage points on participation among workers aged 55 and over would result in a $33 billion boost to GDP—or around 1.6% of national income.

A 5 percentage point lift in participation among this group would see around $48 billion in extra GDP—or 2.4% of national income.^[9]

The report concluded that ‘mature age participation can play a key role in tipping the balance between the number of future retirees and the number of workers available to support them’. The report also stated that effective policies aimed at promoting increased workforce participation of older Australians ‘are likely to be among the most cost effective tools available to lift national incomes and living standards in coming decades’.^[10]

Australia’s present retirement income system is based on three pillars: a means-tested Age Pension; compulsory saving through employer superannuation contributions (the ‘Superannuation Guarantee’); and voluntary superannuation contributions.^[11] If mature age workforce participation is increased, the balance between welfare costs through the Age Pension and related benefits, on the one hand, and superannuation and other retirement savings, on the other, may change:

By remaining in employment longer, older Australians can not only increase their current income, but can also save more to support themselves once they do decide to retire. In turn, improving retirement incomes not only raises living standards for future retirees, but can also assist in reducing welfare costs for future governments.^[12]

The shifting demographic requires consideration of the policy settings in each area. Asking the ALRC to conduct an inquiry into barriers to workforce participation for mature age persons forms part of the Australian Government’s response to population ageing. The Terms of Reference require consideration of the ‘three pillars’, together with a number of other specific legal areas, including: family assistance, child support and social security laws; employment law; insurance law; and compensation laws.

What is retirement?

The concept of ‘retirement’ is increasingly difficult to define. While life cycles are usually divided into ‘childhood, working age and retirement’,^[13] it can be difficult to place dividing lines between working age and retirement. National Seniors described the ‘emergence of a work-retirement continuum’ as ‘one of the most significant social changes in recent years’:

Increasingly, people no longer work full-time, and then leave the workforce completely, becoming fully retired. For up to 20 years, a person’s level of engagement in the workforce may cycle between periods of no paid work, full-time work and various levels of part-time paid work.^[14]

The ‘work-retirement continuum’ includes not only a continuum of time in the paid workforce and time out of the paid workforce as people age, but also time out of the paid workforce which cannot be considered as ‘not working’. The recognition of ‘other productive work’ in the Terms of Reference for this Inquiry suggests that the idea of ‘work’ and ‘non-work’ is as blurry as the distinction between ‘work’ and ‘retirement’.

In addition to the unclear distinctions of work/non-work and work/retirement, the delineation between unemployment and retirement can also be ‘problematic’.^[15] This is particularly the case in industries or sectors where continuous work is not the norm. For example, in the construction industry, employment is often ‘defined by a discrete project’. This may affect older workers’ opportunities for continued employment:

Employees need to be hired and re-hired many times throughout the economic cycle. In a market where physical ability is a significant factor in recruitment, it is probable that younger workers will be preferred over older workers. In normal labour market conditions where there is some excess supply, older workers will be amongst the last to obtain work.^[16]

In this Inquiry the ALRC uses the term ‘retirement income system’ in a general sense, given its common usage in this context, but acknowledges the fluid notion of work in terms of ‘work’ as both paid and unpaid across a lifetime. Notwithstanding this fluidity, in the legal areas examined in this Inquiry, there are certain legislative points or ages that—when reached—enable a person to access retirement income and consequently cease paid work. They are the point, or age, at which a person is eligible for the Age Pension; and the points, or ages, at which a person may (conditionally or unconditionally) access superannuation benefits.