No pension till age 70?

There’s been plenty of talk about the effect Australia’s aging population will have on our federal budget, and for good reason. When the age pension was originally introduced in 1909, a 65 year-old Australian could expect to spend between 11 and 12.9 years in retirement. Nowadays, men of the same age can expect to live for another 19 years, while 65 year-old women are likely to live for another 22 years[1]. And with the number of Australians aged over 65 set to increase from 2.4 million in 2007 to over 4 million in 2022, the Government is thinking carefully about the best ways to support an increasing population of retirees[2].

The challenges of supporting an aging population aren’t going away, so it makes sense to be prepared.

Putting in more hours

To cope with the economic pressures of an aging population, the Productivity Commission recently recommended that the Government increase the age by which people can access the pension from 65 to 70 by 2035. Already, the pension age is set to rise to 67 in 2023.

A similar solution was proposed by a think tank, the Grattan Institute, which suggested increasing the eligibility age for both the age pension and super by six months a year until it reaches 70 in 2025[3].

The Government says it has no plans to action either recommendation in its efforts to contain the budget. But it’s worth thinking about what you would do if you needed to work for longer – and the most cost-effective ways you could move from your working life into your retirement.

Become a part time pensioner

Some Australians eligible for an age pension continue to work or have another source of income, and receive a part pension.

A part pension can be valuable, even if it only brings in a few dollars a fortnight, since it may entitle you to other benefits such as discounted medicine under the Pharmaceutical Benefits Scheme. Some doctors also bulk bill pensioners, so you could save here too.

With a part pension you can also enjoy other concessions, depending on which state or territory you live in. These include discounted energy bills and property and water rates, cheaper public transport – even discounted car registration.

Ease into retirement

If the pension age does rise and you find yourself working for longer, you might consider a transition to retirement (TTR) strategy.

Once you’ve reached your super preservation age (between 55 and 60, depending on when you were born), a TTR strategy allows you to keep working, while drawing a TTR pension from your super savings.

Any income you get from your pension is currently taxed at your marginal tax rate with a 15% tax offset until you’re 60, when it becomes tax-free. At the same time, you could be able to salary sacrifice some of your income into your super, which reduces the amount of tax you have to pay. Best of all, once you start accessing your pension, any earnings your pension makes will be tax free.

So be prepared and consider talking to your financial adviser now about arranging your finances so you can access the benefits you're entitled to.

[1] abs.gov.au/AUSSTATS/abs@.nsf/Lookup/4102.0Main+Features10Mar+2011

[2] abs.gov.au/AUSSTATS/abs@.nsf/Lookup/4102.0Main+Features10March%202009

[3] grattan.edu.au/publications/reports/post/balancing-budgets-tough-choices-we-need/

This article is intended to provide general information only and does not take into account your individual objectives, financial situation or needs.

Taxation considerations are general and based on present taxation laws and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information.