Wednesday, May 27, 2009

The retirement age of consent

The 12 May federal Budget’s announcement that the age-pension eligibility age was going to be raised from 65 to 67 incrementally between 2017 and 2023 was a shock in one major respect – baby boomers, born between 1952 and 1957 slap-bang in the middle of their generation, are going to be first in line to experience the full force of the changes.

However, that’s only if you believe that the announced changes have put the pension-age issue to bed for another two decades at least, i.e. when Xers start to turn 67. February’s Harmer pension review (not to be confused with the concomitant Henry review), kept under wraps by the government until Budget day and little reported since, recommended a phased-in increase, between 2014 and either 2021 or 2029, of the age-pension eligibility age from 65 to either 67 or 69. Not to be outdone, the Henry review then endorsed this proposal, but added to it
a suggested further review in 2020, to consider whether it would be appropriate then to increase the pension-age further still; i.e. presumably beyond 69. So much for boomers, for once, being at the pointy end of a sharp stick.

One aspect of the Harmer review has already been ditched, though – the proposed 2014 start date. While there were logical reasons for this choice – it is the year when the arduous, one-year-in-four taper increase in the female age-pension eligibility age to 65 will finally be achieved – the government presumably decided that 2014 was simply too soon for the electorate to wear. A later start date of 2017 has consequently meant that the taper increase has been changed to one-year-in-three. Ominously for Xers, the tweaked 2017 start date and the shortened one-year-in-three taper increase dovetail perfectly with the Harmer review’s original 69-in-2029 worst-case scenario. If this does transpire, then consider yourself warned here first, Xers (and Gen Y) – it would surely then be a shame, c. 2025, to interrupt the neat pattern of increase set between 2017 and 2029, so you might want to pencil in that the pension-age is right now mathematically scheduled to hit 70 in 2032, 71 in 2035, etc.

Taper increases are funny beasts – a sharp taper, like one-year-in-one, takes a surprisingly long time to be put to bed. This can conveniently be seen with the virulently anti-Xer, and so impeccably bipartisan, changes to the superannuation preservation-age, first announced by Treasurer John Dawkins in his 30 June 1992 “Security in Retirement” statement (RTF), but only made law by the Howard government in 1998, effective from 1 July 1999. This one-year-in-one taper goes from 55 to 60 for those born between 30 June 1960 and 1 July 1964 (therefore seemingly exactly demarcating the Boomer/Xer divide at the mid-1962 born), but its implementation actually stretches from 2015 to 2024. Note that for every second year during this period, starting 1 July 2015 to 30 June 2016, there will be no one at all hitting preservation age.

I have blogged before on the generational injustice of this taper increase. As well as the (announced to legislated) 23-to-17 year lead-time being ludicrously long – a point now reinforced by the mere 8-year lead-time for the pension-age increase – its direction, of taper increase not decrease, is illogical. Boomers have often loudly complained that the introduction of compulsory superannuation in 1992 came well into their working lives. Point taken, so why shouldn’t boomers’ preservation-age be higher than for Xers; i.e. that the legislated taper goes from 60 to 55 for those born between 30 June 1960 and 1 July 1964?

Predictably, ex-PM and Paul Keating and ex-ACTU leader Bill Kelty, presumed original architects of the anti-Xer superannuation preservation-age taper, and also of the anti-Xer HECS in 1989, have lately been concerned that their vision of comprehensive generational apartheid, now 20 years old, and long since bipartisan in practice, might be getting meddled with, in the wash-up to the age-pension changes. Certainly, both the Harmer and Henry reviews explicitly recommended an alignment between the age-pension eligibility age and the superannuation preservation-age. Keating said such a move would make superannuation “pointless”, while Kelty, not to be out-exaggerated, said it would be would be “an abrogation of the fundamentals” (same URL) of compulsory superannuation.

Now, don’t get me wrong here: the super preservation-age for Xers (born 1 July 1962 to 1976) is currently 58 to 60, and aligning it with our recently-increased pension age of 67, (and then possibly 69, and so on), is not in Xers’ interests, in principle. But the taper needed to achieve a massive 7-to-9 year increase in Xers’ super preservation-age from 2024-on works in our favour, for once. Unless such a taper broke entirely new ground for implementation speed (which can’t be ruled out, of course), Xers will, by 2030, either be scraping in on the favourable side of the taper (older Xers like me), or otherwise be a pig-in-the-python – an uncomfortable lump for the retirement system to digest painfully over two decades (the youngest Xers don’t turn 70 until 2046). So bring it on, and soon, I say – and to Keating, Kelty and Dawkins: sit on your “Security in Retirement”, and spin.

Sidebar: How and why can the government tie up Xers’ Money?

“Without preservation, superannuation savings would be in danger of degenerating into a form of deferred remuneration scheme, providing a concessionally taxed windfall payment whenever a person changes employment and becomes eligible to withdraw their accumulated superannuation. However, it is still the case [in 1997] that a very large proportion (around 65 per cent) of superannuation savings in Australia are not preserved [and so can be accessed at any age].” (RTF)

Compulsory superannuation, since it began in 1992, has always been “preserved”. Prior to this, preserved superannuation mainly attached to certain tax-concessional, voluntary super arrangements. For voluntary super, indeed, no general preservation requirement was enacted until 1999 (same URL). That is, prior to 1999, if you didn’t want to lock your (volunteered) money up until preservation-age (55 for everybody, also until 1999) you paid more tax. Which sounds fair enough – you not only got the choice to save, or not, for your retirement, you also got a between-now-and-55 further option, or insurance policy – as long as you paid the premium, of more tax, up front, your money wasn’t locked away until 55, but could be accessed at any time, for any reason.

Instead of this double choice (which of course boomers working in the 1980s and 90s, were prime placed to enjoy), Xers got double compulsion in our superannuation arrangements. Most iniquitously, low-income employed Xers pay a 15% superannuation (contributions) tax equal to, if not higher than, our ordinary-income marginal tax rate, but our garnished super pin-money* is nonetheless locked away tighter, and for longer, than that of any boomer under the most tax-advantageous possible scheme.

* My superannuation balance at the end of 2007 (last contribution) was about $6,000, my current balance is about $4,000. No voluntary or government co- contributions ever made/received, “balanced” option throughout, industry fund, total cumulative investment returns in “good” years (i.e. excluding loss years) of less than $1,000. Mmmn - and with only 15 years to go, under current arrangements, before I can access this incredible shrinking nest-egg of "security".

Update 29 April 2014

* Re tapers, I got my math wrong.  Here’s my projection of what the 13 May 2014 Budget will bring, if it continues the taper set in 2009 – the age of 70 won’t be bedded down until July 2035.  Note that the first six-months for each taper increase are “downtime”, when no one will actually become eligible.  Hence, the lucky Xers born on 1 January 1966 will become eligible for the age pension (if it still exists) when they turn 70 on 1 January 2036.     

Pension age for those born on or after 1 July 1952

Affects those born (both dates inclusive)
Pension age
01/07/1952 to 31/12/1953
65 years and 6 months
01/01/1954 to 30/06/1955
66 years
01/07/1955 to 31/12/1956
66 years and 6 months
01/01/1957 to 30/06/1958
67 years
01/07/1958 to 31/12/1959
67 years and 6 months
01/01/1960 to 30/06/1961
68 years
01/07/1961 to 31/12/1962
68 years and 6 months
01/01/1963 to 30/06/1964
69 years
01/07/1964 to 31/12/1965
69 years and 6 months
01/01/1966 to  . . . ?
70 years

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