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The economic potential of older people

Discrimination Age Discrimination

The economic potential of older Australians is huge.

If and when we tackle the discrimination that forces people out of work years before they want to leave, the potential will be even greater. I refer to the well documented capacity of older Australians to continue to work, to pay taxes and to accumulate their super savings well beyond the current retirement ages of 58.2 for men and 51.5 for women.

This is where the potential lies.

Individuals who are able to keep working,(and there are increasing numbers of them) at least to age pension age or a few years beyond , not only make important additional contributions to the national economy, they increase their own capacity to consume products of all kinds and purchase a diversity of services . Thus they directly contribute to employment growth across all sectors.

Already Australians over 55 own more than half of the nation’s assets. This fact is usually ignored in the plethora of fear mongering about the alleged burdens of our ageing population. Of course it is not ignored by members of this audience.

You will already be aware of the massive benefits of people continuing to work and save, as an alternative to struggling by on benefits, in or near poverty. You will already be aware of the aggregate of super savings, and of the extent of home ownership that go to make up the strong asset base of our senior cohorts.

What we do need is more creative and relevant work by the financial services industry so that this huge potential is actually realised, to the benefit of older people themselves, and the national economy generally. Assets locked up unproductively, or squirrelled away to gift the next generation are assets failing to realise their economic potential.

This situation is one of the real challenges of the ageing population.

There are other real challenges and I wouldn’t wish to dismiss them. The Intergenerational Reports set out how Australia faces long-term budget implications of ever rising numbers of individuals living for more years on the age pension and public health, during a period in which the working population younger than 65 years is declining. Without policy change, the outlook for the next forty years is daunting.

My point is this: we can change direction. In fact the signs of a different outlook for an Australia in 2055 when around a quarter of its citizens will be over 65 are starting to appear.

A new positive finding came with last week’s release of the ABS Retirement and Retirement Intentions survey.

According to this data, Australians aged 45 years and over are intending to work longer than ever before. The latest data from the 2014-15 survey show that 71% of persons intended to retire at the age of 65 years, up from 66% in the last survey of 2012 13 and 48% in 2004-05. More people are also intending to retire at older ages – 23% of persons aged 45 years and over indicated they intended to retire at the age of 70 years or over compared with only 8% in 2004-05.

The increase in people intending to stay in the workforce has implications for superannuation and financial planning. There will be an increase in the demand for financial services.

The additional demand will also come from the growing numbers of people who see their main source of income in retirement coming not from the government, but from private savings. For example, of the persons aged 45 years and over who had retired, 47% reported ‘government pension or allowance’ as their main source of income at retirement. However, only 27% of persons aged 45 years and over who were intending to retire indicated that this would be their main expected source of income at retirement.

But obstacles to this more rational approach to retirement planning remain. While the past few decades have seen a steady increase in participation of older Australians in the labour force, older workers , mainly because of age discrimination remain relatively more vulnerable to under employment, long periods of involuntary unemployment and are over-represented in long term unemployment benefit statistics.

A key challenge therefore, is how do we as a society support older workers to remain in the workforce for as long as they are willing and able to do so?

From my perspective as Age and Disability Discrimination Commissioner, I believe the financial services industry plays a significant role in supporting the wellbeing of older Australians who are living and working longer, through product design and provision of sound financial advice. But more needs to be done.

A few comments about the National Inquiry:

In March last year, the Attorney-General George Brandis referred the National Inquiry into Employment Discrimination against Older Australians and Australians with Disability to the Australian Human Rights Commission. We called it “Willing to Work”.

The terms of reference required us to enquire into and report on practices, attitudes and Commonwealth laws that deny or diminish equal participation in employment of older Australians and Australians with disability. We will also make recommendations about any Commonwealth laws that should be made or amended and any other action that should be taken.

At its heart the Inquiry examines what more can be done to protect the right of older people and people with disability to work free from discrimination.

If we look at the ever growing cohort of Australians over 55 we see that in November 2015, 73.8% of Australians aged 55-59 were working; 56.5% of 60-64 year olds were still there; but just 12.7% of those aged 65 and over were participating in the labour force. Labour force participation declines very steeply with age. It does not need to decline so rapidly and steeply.

Overwhelmingly, the evidence to my inquiry indicates that older people themselves want and need to keep on working up to age pension age and beyond. About two thirds of them currently are blocked from doing this.

The denial of work to older people is highly damaging to them. As well, we all as taxpayers bear the brunt of this exclusion. A modest increase in workforce participation by over 55s would bring billions more to our national economy and massively reduce the burgeoning public expenditure on age pensions and health.

From a diverse range of contributions to the inquiry we learned a great deal more about the barriers. As well, we discovered some effective and inspirational initiatives some employers are using the get rid of these barriers.

Our Willing to Work Report will be released sometime in May, depending on the ever changing parliamentary landscape.

Implications for the national economy of boosting mature age employment.

It is clear that there are huge benefits to the economy from employing older workers.

In the Australian context, several studies reveal significant gains are potentially available to the economy.

The 2012 Grattan Institute report Game-Changers: Economic reform priorities for Australia states:

With respect to the economic impact of older people’s participation, the Grattan Institute report estimates that a 7% increase in mature age labour force participation rate (to a level still less than New Zealand) would raise GDP in 2022 by about 1.4%, or $25 billion in 2010 dollars.

The study by Deloitte Access Economics Increasing participation among older workers: The grey army advances, commissioned by the Australian Human Rights Commission, also reveals significant potential economic gains, up to a $32 billion impact on the economy with an increase of just 3% of over 55s.

More recently, PwC’s modelling, based on federal Treasury’s Intergenerational Report, projects the economy out to 2050 and shows that increasing participation among mature aged workers to New Zealand levels will, at that time:
• Increase GDP by 4.7% or $198 billion at today’s value
• Improve the Commonwealth and state/territory budgets by 1.7% of GDP
• Reduce net debt by 11% of GDP in 2050.

And, let’s not forget that there are other significant benefits to employing older workers: benefits to business; benefits to productivity; benefits of a healthier workforce; and benefits to business of recruiting to reflect the changing age profile of the consumer base. I won’t be able to cover these issues here today, but they will be covered in the Willing to Work Inquiry Final Report.

The National Disability Insurance Scheme: its role and impact in creating economic potential.

In similar vein to the economic benefits associated with increased mature age employment, research shows that greater employment of people with disability can also unlock significant economic potential.

A 2011 report by PwC estimates that almost $50 billion in GDP (an additional 1.4%) could be added to Australia’s economy in 2050 if Australia moved into the top eight OECD countries in employment of people with disability.

Research commissioned by the Australian Network on Disability and conducted by Deloitte Access Economics has modelled the impact of increased employment participation for people with disability.

This modelling suggested that if the labour force participation rate increased by 10 percentage points above of the 2009 figure of 54% of working age Australians with disability participating in the labour force to 64%, Australia’s GDP would be boosted by $40 billion over a decade.

ABS Survey on Disability and Carers (SDAC) data show that around 200,000 people who are currently not in the labour force with disability indicate they could work with support.

Flow on effects of these employment gains were $9.6bn, and potential revenue offsets to the Government in the order 25% of the proposed cost of the NDIS.

The NDIS represents a massive commitment of public funds to assist and support people with significant disability to integrate more into community life and into our economic life.

Already with only a partial roll out of the scheme, individuals receiving assistance are in many cases already able to aspire to employment, a hope previously beyond them.

It is our task as employers and policy makers to ensure that we reduce discrimination in the workplace and help to make sure that when these newly job ready people apply for a position they are given a fair go.

How can the financial services industry evolve to support older Australian’s who are living and working longer?

As the recent ABS survey shows, the community is increasingly aware of the pressures building on public finances and slowly coming to the realisation that private savings are likely to play a greater role in their own retirement incomes.

I say slowly because many people are not aware how small their superannuation balances are, and the implications of this when their retirement will last over two, maybe three decades.

We hear a lot of public discussion about what level of retirement income is needed for a ‘comfortable retirement’.

I’m sure everyone here today is familiar with the $1 million nest egg figure that has been quoted as the benchmark that will (or will not) be required to guarantee a comfortable retirement.

In my view, projections of the $1 million figure aren’t always helpful and are confusing the issue for among many older Australians.

Of course there is also the subjectiveness of level of ‘comfort’.

But within this diversity of values and expectations, and incomes, it would help to shift the public’s focus on superannuation from lump sum payouts toward setting up reliable income streams. They shouldn’t be distracted by what is for many an unachievable lump sum figure.

Income streams supplemented by the age pension will provide a good option for many individuals.

As new products, including variations on income streams come to market, people need to be able to make informed financial decisions. They need financial advice that is sound, personalised and cost-effective. This is especially important in the context of providing protections against financial elder abuse.

Australia is fortunate to have has high levels of home ownership. For many Australians, the family home represents a significant portion of their retirement nest egg. But at present many do not use it to support their retirement income streams.

There are some home equity release products already on the market but these are generally not well known or understood by the general public. Further developments in these kind of products by the financial services industry could help more Australians unlock the significant value in their homes, where appropriate.

At present suspicion and fear of losing control of this major asset deter people from even considering how accessing the value of their home could help them to have more retirement income, or later, more appropriate aged care, in their own homes or in a residential facility.

Similarly, the use of annuities to provide security over the longer term in retirement is very low. Again, suspicions and lack of information underlie the reluctance to consider what could be helpful products for some people.

The industry has a huge challenge here, not only in designing such products, but in producing clear and helpful product information, and accessible financial advice, that can be relied as independent and comprehensive.

Major superfunds are leading the way these days with in house advisers available to assist members as they retire. Matters of conflict of interest may still exist in the open market but industry fund members now have better alternatives.

The 2015 Intergenerational Report sets out massive projections for Australia’s population over the next 40 years. The number of Australians aged 65 and over is projected to more than double by 2055. . Life expectancy continues to increase. In 2055, men can expect to live on average to 95.1 and women to 96.6 .

In order to prepare for these massive changes and make sure they are the positives for humanity they should be, we must remove existing barriers that stop older Australians from remaining in paid employment for many more years.

Then we want to support them to live their long post retirement years in good health, well connected with their communities, and with economic security.

I am certain that the financial services industry will contribute immensely to achieving these goals.

The Hon Susan Ryan AO, Age Discrimination Commissioner