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67 is the new 65

67 is the new 65 - the retirement age is increasing

Over the last 20 years, since 1999, the percentage of Australians aged 65 or over increased from 12.3% to 15.9%.

This group is projected to increase rapidly over the next decade, as more baby boomers (people born between 1946 and 1964) turn 651. So, what is the Government’s response to tackle the changing demographic landscape in Australia?

The superannuation system as we know it today was introduced in 1992. People retiring this year would have received compulsory super for about 28 years. This means that by 2040, they may have been making compulsory super contributions for their entire working life, which could be up to 50 years2.

For the Government, an ageing population means fewer people in the workforce to generate revenue through income tax and that means more people in need of government support, such as the Age Pension.

To reduce the cost of an ageing population on society, there are several policies the Government has proposed or implemented.

Increase in the Age Pension age

To encourage people to stay in the workforce longer and save more for retirement, the Government has commenced an incremental increase to the Age Pension age from 65 to 67. This began in the 2017/2018 financial year, with the qualifying Age Pension age to increase to age 67 by 2023/2024. A further increase to age 70 was proposed in the 2018/2019 Federal Budget but the Government did not go ahead with this increase.

Your birth date

Your Age Pension age

Date the change starts

1 January 1954 to 30 June 1955

66 years

1 July 2019

1 July 1955 to 31 December 1956

66 years and 6 months

1 July 2021

On or after 1 January 1957

67 years

1 July 2023

Increase to employers’ compulsory super obligation

The Government has legislated for the compulsory superannuation contribution (the Superannuation Guarantee made by employers) to be increased from 9.5% to 12% by 2025.

This will result in increasing average super balances for Australians over the coming decades, potentially taking the pressure off government resources and taxpayer funding.

Extension to the work test age requirement

The Government has also proposed increasing the age that people can make a voluntary contribution to super without satisfying the ‘work test’ or work test exemption. This brings it in line with the new Age Pension age of 66.

To satisfy the work test exemption, you need to have worked a minimum of 40 hours over a 30-day period in the previous financial year. You must also have a total super balance of less than $300,000 as at the end of the last financial year.

You may be affected by the increase in the retirement age, so if you’d like more advice or information about preparing for your retirement, talk to our Financial Planning team.

 

1 ABS, Australian Demographic Statistics, June 2019, “Twenty years of population change”.

2 Reference: Parliamentary Budget Office, Australia’s Ageing population: Understanding the fiscal impacts over the next decade

Source: Portfolio Watch, a Bridges publication

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