Age pension age to increase to 70 by 2035
The Budget confirmed the Treasurer’s earlier announcement that the age pension age will increase to age 70 by the year 2035. This means that those born on or after 1 January 1966 (currently 48 years of age or younger) will have to wait until they are 70 before they are eligible for the age pension.
While the current pension age for both men and women is 65, it has been legislated that from 1 July 2017, the qualifying age for Age Pension will increase from 65 years to 65.5 years for both men and women. The qualifying age will then rise by six months every two years, reaching 67 by 1 July 2023. See table below.
|
Date of birth |
Qualifying age at |
Commencing from |
|
1 July 1952 to 31 December 1953 |
65.5 |
1 July 2017 |
|
1 January 1954 to 30 June 1955 |
66 |
1 July 2019 |
|
1 July 1955 to 31 December 1956 |
66.5 |
1 July 2021 |
|
From 1 January 1957 |
67 |
1 July 2023 |
The changes proposed in the Budget will continue the propose increase in the pension age as follows:
|
Date of birth |
Qualifying age at |
Commencing from |
|
1 July 1958 to 31 December 1959 |
67.5 |
1 July 2025 |
|
1 January 1960 to 30 June 1961 |
68 |
1 July 2027 |
|
1 July 1961 to 31 December 1962 |
68.5 |
1 July 2029 |
|
1 January 1963 to 30 June 1964 |
69 |
1 July 2031 |
|
1 July 1964 to 31 December 1965 |
69.5 |
1 July 2033 |
|
1 January 1966 onwards |
70 |
1 July 2035 |
GEM Capital Comment
Whilst the policy intention is to encourage people to continue working until age 70, the reality is many people will be unable to continue working. This means there will likely be a gap between when someone retires and when they qualify for the age pension.
How much additional superannuation will be required to fund this gap? A person who is currently 48 (born 1 January 1966) who wishes to retire at age 65, will require approximately $96,432 to generate the equivalent of the maximum age pension currently $21,912 p.a. (for singles) to fund the five-year gap. For members of a couple, they require approximately $72,689 each to fund the five year gap.
This is a substantial amount to accumulate over the next 16 1⁄2 years. To close this gap, a 48 year old today will need to make additional pre-tax contributions of approx. $5,232 p.a. (for singles) or $3,943 p.a. (for members of a couple) every year for the next 16 1⁄2 years.
Assumptions:
Figures are shown in today’s dollars; rate of inflation of 3% p.a. Centrelink rates for the period between 20 March 2014 and 30 June 2014. Pensions are indexed at 3.0% p.a. An account based pension is to be commenced at age 65 with rate of return of 7% p.a. Contributions tax of 15%, rate of return on investment in accumulation phase is 6.0% p.a. net of taxes and fees. Super contributions will increase by 3.5% p.a.