STONE the crows! The Prime Minister promises parsimony if she wins the election. Just like the last prime minister, as well as the one before him. But while her predecessors meant it, at least until the polls plummeted, we had better hope Ms Gillard sticks to her mantra of mean if she wins.

Because the days when treasurers had enormous numbers of our quids in their pockets and even finance ministers felt flush are coming to an end, however much money the new mining tax raises.

The reason is obvious to anybody who looks around them on the bus or in the shops – there are an awful lot of older Australians, around 13 per cent of us are 65 plus. And there are going to be many more, the number of people above retiring age will nearly double by mid century. And they have every intention of growing older in affluence [1].

Which they will expect the state to subsidise. Not that many people in politics will admit this. Peter Costello, who came up with the idea of the inter-generational report, used to warn us demographics was destiny but since then most ministers have tried to convince us superannuation will save us.

To which the crows say pull the other wing, it’s got bells on it.

Sure we have already socked away stupendous sums since the Hawke Government’s 1989 retirement income policy. Back then we had a $119 billion in the kitty. But, as of March, super and other forms of managed funds had grown to $1,368bn. This is an extraordinary achievement, making Australia the envy of fund managers short of a fee all over the world. And the country is better off with a trillion plus socked into funds instead of investors bidding up the price of investment flats and racehorses.[2]

But the feds are fooling themselves if they think that our super savings will save Canberra paying pensions.

There is also the Malthusian fact that trillions in savings will not pay for the health and housing of the exponentially increasing army of the aged.

What’s worse is the problem that no minister dares acknowledge, the elderly will use their numbers to vote themselves benefits, which they will want to collect on top of their own savings.

And their numbers already make them hard to argue with. Canberra loves to tinker with the superannuation rules. Ever since the Howard Government introduced the superannuation surcharge in 1996 ministers have mucked around with savings strategies. On the crows’ count, governments have made some 40 significant changes to super since 1996.[3] But most of them encouraged people to sink more into super, on ever-more generous terms.

That’s the good news for the pointy heads. The bad news is that irrespective of incentives, Australians assume super is the cream and social security is the cake, that even if they do their dough on dodgy investments the government will see them right.

As the recent Cooper Review on the super system pointed out, “the age pension both increases retirement incomes for those who experience adverse investment outcomes from their superannuation during the accumulation phase and due to the age pension taper rate, reduces the variability of retirement incomes.”[4]

There will also be an awful lot of people who will want the state to help them out with health and welfare spending.  The Productivity Commission warns the number of people 85 years and above, the group which needs the most health care and housing will grow by a factor of four by the middle of the century.[5] According to the recent Intergenerational Report, age pension payments alone will double to around 4 per cent of GDP over the next 40 years.[6]

Sure, could be worse. In western Europe, where the birth rate is low and fewer workers will pay for their parents’ pensions in the coming decades, the cost of welfare for the elderly will double to 15 per cent of GDP by mid century.[7]

But less bad than everywhere else is not good for Australia, especially as it seems it will be quite a while before most of us will be able to pay anywhere near our way in old age. Despite the stupendous size of the super sock people 40 plus have not set enough aside to support themselves in retirement.

According to the Investment and Financial Services Association, the retirement savings gap, (the difference between what return on investment will provide and 62 per cent of final salary, which is the benchmark for retirement income,) is $695 million, or $72,000 per person. And that includes the pension! Without it the shortfall is $1.5 trillion – more spondulicks than there are in the super system.[8]

Economists might assume that everybody will accept that the obvious answer is to reduce financial support for the elderly, to avoid younger workers paying ever-more tax for levels of service to the old.

This is why there are few economists in cabinet. The European experience shows what happens when governments try to cut entitlements. Until now, Greek women could retire at 52 and men at 57 on 14 months worth of pension payments a year set at a maximum of 14 per cent of final salary and indexed against wages growth[9].

If the country was not all but bankrupt the Greek government would have no hope of imposing its plan to increase the minimum pension age to 65, the average is now around 61[10]. In France the national pension fund is going broke but President Nicolas Sarkozy only dares proposing increasing the retirement age from 60 to 62 in response. This will only delay the evil day to 2020, but it was enough for the socialist opposition to promise to abolish the increase if they win the 2012 election. [11]

Even in the US, where there is not much welfare in the welfare state for anybody but the old, people over 65 have not suffered as much as everybody else in the present recession. [12]

So, if overseas is any indication, don’t expect the elderly to make do with less or work longer to pay their way. The average Australian retirement age in the last five years was just 60, a birthday when most people still had around a quarter of their life ahead of them. And by far the most common reason people retired was because they could – they had reached the qualifying age for their super or the aged pension.[13]

And the elderly bristle when anybody points out what their health and pensions cost. Sydney radio announcer Alan Jones explained it all when he got stuck into Treasurer Wayne Swan for banging on about the financial impact of our ageing population, with or without super:

Do you understand how the aged are starting to feel? I’m getting a stack of calls here and letters, and they are being made to feel by the Prime Minister’s constant reference to them that they are a problem, and we may be going to ask them to work until they drop, or at least make them feel as though they’re going to have to do more to pay their way when many of these people have paid all their health insurance for all of their lives.[14]

It’s not an especially sensible argument but as a statement of raw political power it is the shape of things to come, whoever wins the election – and the ten to follow.


[1] The Treasury, Intergenerational Report, 2010 @ recovered on July 17

[2] Parliamentary Library, “Chronology of superannuation and retirement income in Australia,” June 1 2010,, Australian Bureau of Statistics, “Managed Funds, March 2010” recovered on July 12

[3] Parl Lib, “Chronology Super” ibid

[4] Super System Review, Final Report, 195 recovered on July 13

[5] Productivity Commission, Trends in Aged Care Services (2008) recovered on July 14

[6] Treasury, The 2010 Intergenerational report@www.treasury/gov/au/igr/igr2010 recovered on July 13

[7] “Scrimp and save” The Economist, June 25 2009

[8] Annette Sampson, “More work and no play likely for many under-funded baby boomers” Sydney Morning Herald, February 6 2010

[9] Tim Colebatch, “Greek lesson in the perils of overspending”, Sydney Morning Herald, May 7 2010

[10] Associated Press, May 18

[11] The Economist, July 1, June 16

[12] Pew Research Centre, “How the great recession has changed life in America” @ recovered on July 14

[13] Australian Bureau of Statistics, “Retirement and retirement attentions, July 2008 – June 2009”

[14] Deputy Prime Minister and Treasurer, “Interview with Alan Jones, 2GB Radio, Sydney 2 February 2010” Recovered on July 16