The cost of the age pension is growing so rapidly that it risks breaking Australia's intergenerational social contract, warns a new report.
The report, 'The myths of the intergenerational bargain' by the Centre for Independent Studies (CIS), says that the real cost of the age pension per recipient is rising. This will place huge pressure on future government budgets and, by extension, future taxpayers who will, by necessity, be younger people.
These increases in the age pension costs are over and above the impact of longevity, notes the report. "Each successive generation is asking more of the next generation than they were willing to contribute to past generations," it said.
According to the CIS report, the percentage of people of retirement age receiving the age pension more than doubled over the past century as has the real (post inflation) cost of each age pension. The time spent in retirement has also doubled from 10 years in 1933 to 20 years in 2011.
These rising costs severely shift the obligation to fund aggregate age pensions onto younger people who are likely to have more restrictive age pension access.
"The average worker is now expected to contribute $3,500 a year to everyone else's retirement, but only $6,270 to their own," the report said.
The CIS said this fiscal pressure means the retirement age should adjust in line with increasing life expectancy, going up by six months every four years. The preservation age should also be lifted so that it is no more five years below the pension age.
The CIS's proposal regarding raising the preservation age reinforces similar proposals made by the Financial Services Council (FSC).
The National Seniors lobby group has unsurprisingly rejected the CIS recommendations saying the "the report's findings are divisive and inconsistent with international perspectives of the Australian system."
National Seniors chief executive, Michael O'Neill, rejected the CIS recommendation that the family home be included in the pension assets test. "The family home defines who we are and what we aspire to as a nation," he said.
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