Keeping Australia's older workers in the labour force. A policy perspective

Australian Journal of Social Issues, Winter, 2008 by Maggie Walter, Natalie Jackson, Bruce Felmingham

Introduction

As in other western industrialised countries the proportion of older Australians is rising. While structural ageing is not yet as pronounced as it is in Europe, this changing demographic profile has significant labour market implications. Population projections indicate that over the next 25 years around seven million Australians will exit the labour market through retirement, to be barely replaced by those at labour market 'entry age'; that is, those turning 18 years. These figures are inclusive of international migration gains of 110,000 per annum (ABS 2003). To put this scenario into perspective, in the previous 25 years, less than four million Australian retirees were replaced by seven million labour market entrants (Jackson & Felmingham 2004).

The Policy Context

In response to the fiscal and labour market implications of population ageing the Australian government is now anxious to maintain older workers in the labour force. In a similar fashion to the governments of other industrialised nations (see van Dalen & Henkens 2002) a range of policy initiatives have been introduced over the last decade to persuade older workers to abandon early retirement plans and/or remain in the workforce past traditional retirement ages. Three specific Australian policy initiatives are relevant to this paper. One, the Pension Bonus Scheme (PBS), introduced in 1998, is a direct financial incentive which encourages workforce participation past the age of 65 via a lump sum tax free bonus to those who defer claiming (and are entitled to claim) an Age Pension (Centrelink 2007b). The other two policies revolve around the simplifying and changing of superannuation access and taxation arrangements. The first of these is the Retirement Transition Measures whereby, from July 2005, an employee, once they reach their 'preservation' age (e.g. for those born before July 1 1960, the age is 55), can reduce their working hours while still maintaining their income by accessing superannuation benefits through an 'income stream'. Second are the Budget May 2006 measures that remove the 15 percent tax on superannuation payments for workers retiring after the age of 60.

This overt policy encouragement for longer workforce participation is a marked contrast to that operating previously. In the 1980s and early 1990s early retirement for older workers was perceived as alleviating unemployment among the young and facilitating the exit of those workers affected by labour market structural adjustment. As van Dalen and Henkens (2002) note, during this period, early retirement, often around age 55, became almost standard practice for workers in the industrialised world. In Australia, for example, the Mature Age Allowance was introduced to cater specifically for unemployed workers aged over 50 facing difficulties in a tight labour market (Lim-Applegate 2004). With different reporting and 'mutual obligation' requirements the Mature Age allowance treated these workers as likely to be permanently out of the labour market, in contrast, the current policy direction offers incentives to longer workforce participation and removes disincentives to participation, in the case of the Mature Age Allowance eligibility changes occurred through the late 1990s and the payment is now effectively cancelled with no new claims permitted since September 2003 (Centrelink 2007a).

The Determinants of Retirement

Retirement is not a single dimensional decision; both push and pull factors influence the when, where, how and why of retirement (Jackson, Walter, Felmingham & Spinaze 2006). Theorising its determinants is complicated by the rapid pace of economic, social cultural and political change around the concept and the act, but it clear that retirement is a multiple factor event, not all of them determined by the individual. Many of these have been identified to a greater or lesser extent in retirement research literature in Australia and other western countries. Monetary or financial aspects are the most commonly examined, focusing on the financial preparedness, or unpreparedness, for retirement of older workers and the interaction of public and private pension arrangements, age and labour market policies. The age of pension entitlement commonly acts as proxy retirement age, with this tendency strengthened by the existence of financial disincentives to continue labour market participation past these ages (Kune 2003; Gruber & Wise 2005). A growing body of literature also indicates that non-monetary aspects such as health, lifestyle and leisure factors, social relationships and job satisfaction also influence retirement outcomes, as do social and labour market pressured to retire. Employers' attitudes towards older workers, understandings of 'appropriate' retirement ages and the attitudes and the wishes and retirement decision of partners are also all highly significant in retirement decisions (Henkens 1999; Taylor, Tillsley, Beausoleil, Wilson &Walker 2000; Henkens and Van Solinge 2002; Shacklock and Brunetto 2005). For example, recent Australian retirement data finds that retirement for a substantial proportion of older workers is involuntary, preceded by ill-health or redundancy (ABS 1998; 2006; Warren 2006). The orientation of older works to work and retirement has also been identified as a key determinant in retirement decisions (Taylor et al. 2000). This last facet is especially relevant for this study in its location of the more intangible retirement motivations and the tendency of these to be overlooked in current policy measures.