Need to write about retirement problems and solution in Australia.
The Australian government has tried to balance the budget and find out better ways for rising the retirement age of the employees to 67. The government has reaffirmed that it will be introduce a commitment policy that was proposed in 2014 and this will boost up the retirement age to 70 in 2025-2035. The employees who will be born after June 1966 will fall under this legislation. It can be said that Australia has one of the oldest pension policy among the developed countries (Humanrights, 2018). This paper will highlight the problems and challenges faced that are likely to be faced for increasing the retirement age, pension costs and economic productivity of the employees
2.1 Increase in the dependency ratio
There will be increase in the dependency ratio of the individuals who are not working compared to the individuals who are working. If the number of pensioners is very high, there will be rise in the dependency ratio. This will arise the problem as there will be large number of benefit recipients to the tax payers.
2.2 Inequality for the low income workers
The low income workers will be affected to a great extent when the Government of Australia increases the retirement age to 67. This is because the employees will face difficulty in saving for saving their private pensions. The high income workers will find it much easier to take up the option of private pension and thus they can also take up voluntary retirement before the Government allows them to take the state pension.
2.3 Reduce labour supply and other benefits due to better benefits in the pension system
This is mainly due to the increased earning of the people and the higher preferences for leisure and it is considered to be a problem for the state government. There will be distortions in the supply of labour and thus this will be considered as a problematic situation. This is likely to reduce the labour supply and the living standards of the individual. The problem is considered to be more relevant with the ageing of population and people will be more affected in this particular age group (Brett et al., 2009).
This will encourage the workers to remain in the workforce for a longer span of time and this might be due to fiscal pressure and macroeconomic challenges. The phased-in retirement scheme will allow the individuals or the old workers to choose the time schedule for a shorter span of time as they will not be willing to remain engaged in the workforce for a longer span of time (Joyce, et al., 2010)
The increase in the retirement age of the low income workers will motivate them to save and thus take up the policy of private pension. This will also benefit the government and thus it will be beneficial for both the individuals as well as the government. The delayed retirement will raise the level of output and thereby increase the available resources that are available for consumption process. On the other hand, it can be said that the individuals will not save more if the retirement age does not increase and thus it will lead to lower capital ratio.
There will be generosity of public pensions and at the same time, it will enhance the role of private pensions. There will be reduction in the debt level of the government and thus the interest payments will try to create space for the future public spending. The delay in the retirement age will also increase the wage base and thus the social security contributions will increase due to increase in the employment tenacity.
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It can be said that working for longer durations will lead to improvement in the health conditions of the employees. The government of Australia will also be benefitted if the retirement age increases and thus there will be an increase in the real value of the pension. It will also help in eliminating poverty from the country and thus benefit the individuals to a great extent. The people may also expect that they will get a decent amount of pension after working for long hours and they will get more benefited due to increase in the tenacity of the working period.. It will also reduce the supply of capital leading to reduction in the investment opportunities (Wheeler et al., 2012).
It can be said that the ageing population and the increase in the retirement age will also affect the economic growth of the country. There will be withdrawal of workers from the particular labour force and thus it needs adequate support in the process of capital deepening. This will also lead to decline in the primary measure of capital i.e. the GDP of a particular country. Thus, there will be slowdown in the economic growth of a particular country and this will affect Australia to a great extent. There will be no such effect on the monetary policy of the country and therefore, it can be said that major effect will be on the fiscal policy of Australia. The people of Australia will not be heavily taxed and thus they will not be affected by the international standards.
It can be said that there must be proper alternative to the increase in the income tax of a particular country. This will force the companies to pay higher taxes and thus it will increase the revenue of a particular country. The government must also try to increase the amount of expenditure and thus the older people will demand for better health services and policies due to increase in the retirement tenacity.
Therefore, the aging population will help in the reduction of the available supply of capital and this will restrict investment and growth. When the population will move into the retirement age, they will try to be dependent on their savings. Thus, this will lead to decline in the public savings because the ageing population will help in increasing the government expenditure and decrease in the amount of taxation receipts
Brett, T. D., Arnold-Reed, D. E., Hince, D. A., Wood, I. K., & Moorhead, R. G. (2009). Retirement intentions of general practitioners aged 45-65 years. Med J Aust, 191(2), 75-77.
Humanrights. (2018). Humanrights.gov. Retrieved 7 April 2018, from https://www.humanrights.gov.au/
Joyce, C. M., Scott, A., Jeon, S. H., Humphreys, J., Kalb, G., Witt, J., & Leahy, A. (2010). The" Medicine in Australia: Balancing Employment and Life (MABEL)" longitudinal survey-Protocol and baseline data for a prospective cohort study of Australian doctors' workforce participation. BMC health services research, 10(1), 50.
Wheeler, S., Bjornlund, H., Zuo, A., & Edwards, J. (2012). Handing down the farm? The increasing uncertainty of irrigated farm succession in Australia. Journal of Rural Studies, 28(3), 266-275.