Pension backflip

Furthermore, one of Scott Morrison's first acts last year as Prime Minister was to backflip on the Abbott government's scheduled incremental rise in the pension age to 70, reverting to the existing 67.

Raising the pension age would reflect that people are living longer and generally are healthier so often able to work longer, as much as they might not want to.

Morrison also pledged not to change generous superannuation tax concessions during the May federal election campaign.

He is ostensibly still scarred by the Liberal Party supporter base's reaction to his super-tax crackdown on wealthy retirees when he was treasurer.

Along with then superannuation minister Kelly O'Dwyer, Morrison limited non-concessional (after-tax) contributions to super funds with balances less than $1.6 million and reduced the annual non-concessional contributions cap to $100,000, from $180,000 per year.

Many traditional Liberal voters were outraged.

Despite the government commissioning a retirement income review, Finance Minister Mathias Cormann said last month it wouldn’t lead to any super or pension changes because voters had sent a "loud and clear" message that they were sick of "fiddling" by governments.


Hopefully Frydenberg can muster the courage to convince his colleagues that reforms to the retirement income system are required for long-term budget sustainability and intergenerational equity.

Reverse mortgages

Unlocking liquidity from the family home via reverse-mortgage type arrangements, better designed annuity-style retirement income products and pension taper rates should all be part of a sensible discussion.

Frydenberg says he wants to help older people retrain their skills to potentially stay in the workforce longer, to boost participation and productivity.

That should be more feasible as jobs become less labour-intensive, with the economy set to transition to more services-related employment.

Of course, the current generation approaching retirement, who have worked for decades in physically demanding jobs, will be worried their bodies won't allow them to keep labouring into their late 60s or early 70s.

Labor was quick to seize on Frydenberg's speech, warning that the government had a plan to force people to "work till they drop".


Workforce participation among over-65s has increased from 12.3 per cent to 14.6 per cent in the past five years.

That may be because people are healthier and more women are engaged in work. It could also be a symptom of higher household debt levels, slower wage growth and people taking longer to pay off their mortgage later in life.

The last Intergenerational Report, set to be revised next year, warned that by 2055 there will be only 2.7 people aged between 15 and 64 to support every Australian aged over 65.

In 1975, there were 7.3 working-age people to support people of retirement age, and it has already fallen to a ratio of about 4.5.

The well-trotted argument that older people have worked and pay tax "all their life" is powerfully emotive. But it is not an economically coherent reason for a person in their twilight years to not contribute financially to the budget.

In a past era, it may have been reasonable for an almost tax-free existence for people who retired at 60 or 65, given life expectancy was only a few years beyond that.

But life expectancy has significantly risen.

An Australian male born in 1890 was expected to live to 47. By 1962, life expectancy for men had increased to 68. By 2014, it had reached 80.


So elderly people will be living much longer – leaving a larger tax burden on a smaller share of the working population.

That inevitably means more tax being paid for the ageing population – including for rising subsidised healthcare costs – by younger working Australians, probably through stealth bracket creep.

Bracket creep

The best thing the government has done to ameliorate this is the $302 billion in income tax cuts over a decade.

Though it won’t entirely make up for years of bracket creep, it will force the government to be fiscally disciplined and constrain even more government largesse on the cosseted Boomer generation.

Labor at the election opposed the bulk of the tax cuts and wanted to spend billions on free dental care for pensioners and other social spending for the elderly.

Aged care and health costs are already one of the fastest-growing spending areas in the budget.


Cormann has tried to rein this in by trimming the future growth in spending on the pharmaceutical benefits scheme, veterans' support and the disability support pension, partly through tighter means testing and eligibility requirements.

Nevertheless, spending on aged care will still be the third-fastest area of spending over the next decade, behind the National Disability Insurance Scheme and defence, according to the Parliamentary Budget Office.

Federal aged care spending will rise to $42 billion a year in 2029-30, double the $20 billion in 2018-19 in nominal terms, the PBO projects.

Many older voters will not realise they are benefiting from these government subsidies, as they are not direct pension payments or tax concessions.

Politically, the Coalition's re-election prospects hinge on older voters, such as self-funded retirees.

The government’s form to date does not instil confidence that it will make tough fiscal decisions on the ageing population.

If they fail to do so, younger working Australians will increasingly shoulder more of the tax burden.