Australia is adjusting the access ages for the two sticks. But the access age for tax-free superannuation is stuck at 60. Once the standard superannuation age reaches 60, in 2024, the carrot will have lost its crunch.
Increasing the tax-free superannuation access age is seen as challenging by governments. It was ruled out of the terms of reference for the Henry Tax Review, and is generally viewed as too politically costly to adjust.
The social cost of this policy paralysis is very high. In a just-released CEPAR Research Brief, Rafal Chomik and I calculate that GDP would be 4% higher if our mature age participation rates were like New Zealand’s.
But there are other costs too. Mature age unemployment is lower than among the young, but duration in unemployment is much longer. Nearly half of the unemployed in their early 60s have been unemployed more than a year.
It follows that once you leave the labour force at a mature age, re-entry is likely to be difficult. Labour force attachment is worth much more than just the wage you get. People may wish to re-enter because, having retired, their circumstances change, or they find they have miscalculated their finances. These hazards will occur much more frequently when there is a seven-year gap between tax-free superannuation and the age pension, which is where we’re heading on current settings.
Relative to 40 years ago, current mature-age workers are healthier, and can expect to live much longer. And for the most part, the work they do is less physically demanding. Retiring should be happening later, not earlier. And we should use the policy levers we have to make this happen.
John Piggott is director of the ARC Centre of Excellence in Population Ageing Research (CEPAR), and Scientia Professor of Economics at the University of New South Wales.
