New age pensioners-trends in wealth1
Hazel Lim-Applegate, Peter McLean, Phil Lindenmayer and Ben Wallace
Seniors and Means Test Branch
Australian Government Department of Families, Community Services and Indigenous Affairs
- 1. Introduction
- 2. Retirement incomes policy
- 3. Research and analysis in Australia
- 4. International experience
- 5. Analysis of administrative data
- 6. Cohort analysis of new age pensioners
- 7. Longitudinal analysis of asset changes for 1999–2000 new age pensioners
- 8. Further research
- 9. Conclusions
- Appendix A
- Endnotes
- References
1. Introduction
Australia, like other Organisation for Economic Cooperation and Development (OECD) countries, is experiencing an ageing of its population, driven by declining fertility and mortality rates. Since the mid-1970s, the total fertility rate of Australian women has been well below that needed for population replacement. Over the same period, life expectancy has increased, partly due to high standards of public health (Australian Government Department of Treasury 2002).
The Australian Government's Intergenerational Report (IGR) (Australian Government Department of Treasury 2002) projected that over the next 40 years the proportion of the population aged over 65 years will almost double to around 25 per cent. A recent research report by the Productivity Commission (2005) confirmed this projection. At the same time, growth in the population of the traditional workforce age-15 to 64-is expected to slow to almost zero (Australian Government Department of Treasury 2004, p. 3).
Over time, the ageing of the country's population will result in a greater demand for Age Pensions and health and aged care spending. The IGR projected that, without changes to previous trends, spending by the Australian Government would exceed the amount it raised in taxes by around 5 per cent of Gross Domestic Product (GDP) by 2041–42. To put this into perspective, the 2003–04 budget forecast was for a surplus of $4.6 billion. A budget deficit of 5 per cent of GDP would mean that for 2003–04 the deficit would be around $40 billion (Australian Government Department of Treasury 2004, p. 3). The Productivity Commission report (2005) forecasts that by 2044–45, in the absence of policy responses, the aggregate fiscal gap will be around 6.4 per cent of GDP, with an accumulated value over the next 40 years of around $2,200 billion (in 2002–03 terms).
Between 1980 and 2005, the number of age pensioners increased from 1.3 million to 1.9 million mainly due to growth in the eligible population, partly offset by a decline in the proportion of the eligible age group receiving a pension. Growth in the eligible population and a decline in the coverage rate of Age Pension are expected to continue2 (Australian Government Department of Treasury 2002). However, the IGR also projects that the proportion of pensioners receiving a maximum Age Pension will decline, while the proportion with a part Age Pension will increase significantly. These projections reflect growing wealth for older Australians of Age Pension age and the impact of a maturing superannuation system.
Since the mid-1980s, the distribution of wealth across the Australian population has shifted markedly towards older Australians (Harding, King & Kelly 2002). The share held by those 65 or over was estimated to have increased from 17 per cent in 1986 to 27 per cent in 1997. For those aged 55 to 64, who are heading towards and on the verge of Age Pension age, the estimated average net wealth per adult by age of family head rose from just under $150,000 in 1986 to around $210,000 in 1997 (figures are in 1998 dollars and reflect real increases in wealth) (Harding, King & Kelly 2002, pp. 4–5).
In addition, the effects of Superannuation Guarantee legislation are starting to impact on the wealth of Australians at retirement. Superannuation Guarantee has been in place since 1 July 1992 and requires employers to make superannuation contributions for their employees. For the 2002–03 financial year and beyond, the Superannuation Guarantee requires employers to contribute 9 per cent of each eligible employee's earnings base to a complying superannuation fund or retirement savings account (RSA).
By 2050, with a fully mature Superannuation system, it is expected that no more than 75 per cent of people aged 65 or over will receive Age Pension (or a Service Pension equivalent) (FaCS 2003). It is also expected that around two-thirds of pensioners will receive a reduced pension because their income or assets exceed the free areas, compared with around one-third of all age pensioners in 2002–03 (FaCS 2003). Workers with superannuation are projected to have an average potential spending replacement rate of more than 66 per cent3, that is spending power in retirement that is 66 per cent of that before retirement (Australian Government Department of Treasury 2004, p. 11).
Of great interest to policy makers, and to Australians as a whole, is whether the projected trend towards greater self-reliance among age pensioners is becoming evident.
As well as the environmental changes surrounding Australia's retirement incomes system mentioned above, there is an emerging opportunity from the maturing of two key data sources:
- Centrelink SuperSTAR cubes, which provide point-in-time data on income support recipients.
- FaCSIA Administrative Longitudinal Data Set (LDS), which provides longitudinal data on a sample of income support recipients.
This allows a closer look at this question. These data sources contain information drawn from the systems managed by Centrelink that administer the provision of income support to Australians. The LDS now contains confidentialised detailed information about asset holdings for age pensioners from 1999–2000 to the present. These five years of longitudinal data are sufficient to allow some analysis of change over time. This paper uses the LDS 1% sample (covering 1 per cent of the pensioner population).
Of equal interest to the issue of the wealth of Australians reaching Age Pension age is the complementary issues of whether, or how quickly, age pensioners draw on their savings in retirement.
The LDS provides a similar valuable source of information on this issue, allowing analysis of change over time in the asset holdings of age pensioners.
This paper draws on the early stages of research into wealth trends for senior Australians. The broader research plan is outlined under 'Further Research' (Section 8).
This paper seeks to answer two main questions:
- Are Australians reaching retirement with greater wealth than in the past?
- Are Australians drawing down their wealth in retirement, and (if so) how quickly?
Both questions are explored in detail using data drawn from the LDS 1% sample and some supporting and contextual information drawn from Centrelink SuperSTAR cubes.
The relevant group for which there is detailed information held in the LDS is senior Australians receiving Age Pension, either maximum rate or part rate. However the LDS more accurately captures changes in the assets of part-rate pensioners than maximum-rate pensioners. Pensioners on the maximum rate are only affected by changes if their income and/or assets increase above the relevant thresholds. As a result, income and assets information for maximum-rate pensioners is rarely updated and therefore not reliable. Part-rate pensioners, however, have their rate affected by income and asset changes, and are required to update their information regularly and have their wealth information verified under Centrelink's ongoing compliance mechanisms. Part-rate pensioners also have an additional incentive to advise promptly of asset draw down, as it increases their pension rate. As a result, income and asset information for part-rate pensioners is highly reliable and of high quality in the LDS.
With part-rate pensioners expected to make up the majority of the Age Pension population over the next 40 year period4, their aggregate behaviour will best indicate the future sustainability prospects of Australia's income support system.
The Australian Government has a strong need to understand the circumstances of age pensioners over time, as they are the group that calls most heavily on the income support system and, particularly for part-raters, the group where increasing wealth over time would have the greatest potential to reduce demands on public expenditure.
Age pensioners also form a high proportion of senior Australians, with roughly 78 per cent of all Australians of Age Pension age eligible for at least a part-rate pension (or Service Pension equivalent).5
There is some information on the LDS, although there is no detail on the types of asset holdings for moderate-wealth, self-funded seniors. These seniors are eligible for the Commonwealth Seniors Health Card (CSHC) and certain other benefits and incentives in recognition of their funding their own retirement. FaCSIA's Seniors and Means Test Branch has conducted a project examining the characteristics of this group (McAlister, Lindenmayer & McLean 2005).
There is no data on the LDS for high-wealth retirees, as they are not eligible for financial support under Australia's Age Pension means testing framework (explained in more detail below) and are therefore not included in Centrelink's data stores. However, these high-wealth, self-funded retirees will only impact on public expenditure if, later in life, through reducing income or assets, they become eligible for the CSHC or income support. At this point, they would be captured by Centrelink's systems and included in relevant data sets.
Other key data sources, such as the Household Incomes and Labour Dynamics Australia (HILDA) survey wealth module, provide point-in-time data covering the wealth holdings for the whole Australian population, and therefore information on the highest wealth groups. Longitudinal data will become available when the wealth module gets repeated in the HILDA survey (run by the Melbourne Institute of Applied Economic and Social Research and funded by the Australian Government Department of Families, Community Services and Indigenous Affairs [FaCSIA]).
There are significant technical issues related to the methodology for this project which are explained in Appendix A.
2. Retirement incomes policy
Australia's retirement income system provides a strong basis to generate sustainable and adequate income for all Australians in retirement. It combines a publicly-funded pension, compulsory superannuation and incentives for people to provide for themselves in retirement.
Australia's system comprises three complementary pillars:
- The Age Pension-a publicly-funded, means-tested payment providing a modest but adequate income (or income supplement) for people in retirement. The Age Pension is a flat–rate payment, set at least at 25 per cent of Male Total Average Weekly Earnings (MTAWE).6 Currently almost 78 per cent of people of Age Pension age receive the maximum or a part-rate Age Pension (or Service Pension equivalent).
- Compulsory superannuation contributions under the Superannuation Guarantee, an earnings-related scheme providing benefits in retirement greater than Age Pension can provide. Superannuation Guarantee savings are supported by taxation concessions.
- Private savings, including voluntary superannuation supported by taxation concessions, private investments and other savings (including investment in the home).
This paper characterises Australians as passing through three stages relating to retirement income.
- The accumulation stage. During an individual's working life they may contribute to superannuation and accumulate other savings, including, for many, the purchase of a home. This is reinforced by policies aimed at boosting workforce participation, by taxation concessions for superannuation, and by incentives to remain in the workforce after reaching Age Pension age.7 Throughout this stage an individual is generally self-funded and only calls on government assistance in times of financial stress.
- The transition from the accumulation stage to the draw down stage. This may entail a complete or phased withdrawal from the workforce and the beginning of a reliance on superannuation and other savings. Some people who do not need Age Pension and begin retirement as fully self-funded retirees may qualify for the CSHC, while others may qualify for Age Pension immediately.
- An increasing reliance on the Age Pension (for some individuals). This may entail a progressive transition to higher part-rate or to maximum-rate Age Pension as superannuation and other private savings are drawn down or as other income reduces.8
This paper examines the 'destination' of age pensioners at the second stage in terms of their level of wealth and provides initial analysis of the third stage.
3. Research and analysis in Australia
Trends in wealth
Incomes
Whiteford and Bond (2000) analysed trends in the cash incomes of older people over at least 15 years, using published results from the Australian Bureau of Statistics (ABS) surveys of income distribution. They report that from 1982 to 1997–98 the real average income of older couples in Australia increased by 5.7 per cent, while the real average income of older single Australians increased by 6.7 per cent, compared to a real increase of 4 per cent for the population as a whole. As a result, the average incomes of older Australians increased as a proportion of average incomes of the Australian population as a whole (Whiteford & Bond 2000, p. 23).
Over the same period, there was a significant decline in the proportion of older couples for whom government benefits were the principal source of income and corresponding increase in the role of other private income (for example, property and investments) (Whiteford & Bond 2000, p. 23). For older couples, the proportion for which government benefits were the principal source of income dropped from 74.7 per cent to 65.4 per cent; while for older singles the reduction was from 82.1 per cent to 79.7 per cent (Whiteford & Bond 2000, pp. 26–27).
Assets
The pension assets test was introduced in 1985 to better target assistance to those with greater needs and to ensure the effective operation of the income test (Whiteford & Bond 2000, p. 18). The rate of pension is calculated under both income and assets tests, with the test that results in the lower rate being applied. While the majority of pensioners have payments assessed under the income test, the proportion directly assessed under the assets test increased from under 2 per cent in the late 1980s to just over 6 per cent in 1999 (Whiteford & Bond 2000, p. 18).9 From 1999 to 2002, the proportion of age pensioners assessed under the assets test remained relatively stable. In 2003 it rose to 7.5 per cent, and then to 8.5 per cent in 2005 (sourced from the Centrelink SuperSTAR Pensions Database 1999–2005).
It is important to acknowledge the interaction between social security income and assets tests and fluctuations in the rate of returns on investments may influence the test which is applied to an individual's pension. However, it is interesting to note that the increased proportion of age pensioners assessed under the assets test, from 1985 to 1999, corresponds with a shift in the distribution of wealth across the Australian population towards older Australians. The share of wealth held by Australians 65 or over was estimated to have increased from 17 per cent in 1986 to 27 per cent in 1997 (Harding, King & Kelly 2002).10 Over the same period, the proportion of the Australian population aged 65 or over increased from 10.5 per cent to 12.1 per cent.11 For Australians heading towards and on the verge of Age Pension age (55 to 64) the estimated average net wealth per adult by age of family head rose from just under $150,000 in 1986 to around $210,000 in 1997 (figures are in 1998 dollars and reflect real increases in wealth) (Harding, King & Kelly 2002, pp. 4–5).
Trends in asset holdings and draw down
Table 1 details the average value of assets held by age pensioners at June 1998 and the proportion of those with assets who owned their own home (Whiteford & Bond 2000). The table shows that the average value of assets held begins to decline around age 70 to 74 and continues to be less for each age category until 85 to 89, where average asset holdings again increase (Whiteford & Bond 2000, p. 19).
| Age | Home owners (%) | Mean assets of those with positive assets ($) |
Mean assets of all pensioners ($) |
Median assets of those with positive assets ($) |
|---|---|---|---|---|
| 60–64 | 78 | 45,300 | 42,500 | 31,100 |
| 65–69 | 78 | 46,100 | 43,300 | 32,100 |
| 70–74 | 75 | 40,300 | 37,400 | 24,600 |
| 75–79 | 69 | 34,200 | 31,000 | 17,800 |
| 80–84 | 61 | 34,000 | 30,500 | 15,300 |
| 85–89 | 50 | 37,600 | 33,600 | 15,800 |
| 90+ | 33 | 44,000 | 38,700 | 18,400 |
| Total | 67 | 40,800 | 37,600 |
Understanding trends in this area is important for retirement incomes policy. The wealth module of Wave 2 HILDA survey provides the opportunity to examine more closely the overall financial circumstances, and particularly the asset holdings, of senior Australians.
Table 2 shows the mean values of assets held and household income for senior Australian households in 2002. HILDA survey data shows a similar trend to the Age Pension data in Table 1. The average value of assets held tends to decline around Age Pension age with small but noticeable upturns, in some assets, in later years. The upturn in asset wealth for the older age cohorts shown in Tables 1 and 2 is most likely due to an increased prevalence of single senior Australians, through mortality, and resultant asset transfers.12
| Age | Home equity | Bank accounts | Superannuation | Shares, managed funds, property trusts |
Other non-home equity |
Household final year income |
|---|---|---|---|---|---|---|
| 50–54 | 235,916 | 26,669 | 141,896 | 43,161 | 150,417 | 73,827 |
| 55–59 | 236,809 | 37,399 | 138,829 | 63,649 | 178,910 | 62,376 |
| 60–64 | 245,146 | 31,918 | 132,536 | 66,909 | 170,928 | 44,878 |
| 65–69 | 253,346 | 34,728 | 89,443 | 76,589 | 110,568 | 35,915 |
| 70–74 | 226,389 | 35,993 | 49,015 | 53,789 | 72,212 | 26,447 |
| 75–79 | 187,805 | 38,212 | 27,137 | 41,725 | 61,228 | 24,618 |
| 80–84 | 201,159 | 39,174 | 6,532 | 52,945 | 29,860 | 19,319 |
| 85+ | 183,505 | 45,313 | 4,391 | 28,986 | 20,893 | 16,766 |
| Total | 229,837 | 34,277 | 96,766 | 56,383 | 123,179 | 45,940 |
Figure 1 expresses the same data graphically and shows the cohort differences clearly.
Figure 1: Mean values of selected wealth variables for older households by age
These data provide some insight into the mechanisms that senior Australians choose to hold their wealth and how assets may be drawn down during retirement. Any conclusion or finding of this nature is caveated by the fact that this is point-in-time data and not longitudinal. It is not possible to analyse wealth draw-down dynamics using cross-cohort data at a point-in-time-differences in wealth holdings between younger cohorts and older cohorts may reflect both the draw down of wealth holdings as people age and differences in initial wealth holdings of the cohorts (cohort effect). As an example of the cohort effect, older senior Australians may have had less opportunity or inclination to accumulate wealth and to participate in superannuation schemes. Following only one cohort longitudinally, on the other hand, removes the confounding influence of the cohort effect from the analysis of draw-down dynamics in wealth holdings.
4. International experience
Extensive searching revealed little recent international longitudinal research on the wealth of seniors, especially on the relationship between trends in assets holdings and the subsequent draw down in retirement.
Ando, Guiso and Terlizzese (1993) studied asset 'decumulation' by the elderly, finding that the decumulation rate was much lower than 'would be implied by a life-cycle model without uncertainty or bequests'. The life-cycle model implies that the elderly should decumulate assets at a rate sufficient to achieve zero wealth by the time of death (Ando, Guiso & Terlizzese 1993, p.2). In other words, the pace of decumulation is too slow to be accounted for by death uncertainty alone. Ando, Guiso and Terlizzese also cite similar findings reported by Modigliani (1986), Kotlikoff (1988), Brugiavini (1987), and Ando and Kennickell (1987). While these studies varied in the reasons for the observed slowness of decumulation, they indicate that older people decumulate in a rational fashion. However, these studies are more than 10 years old and do not inform current trends.
Haider et al. (2000) also examined trends in 'dissaving' (decumulation) in the 1980s and early 1990s by population characteristics-marital status, age, education, health, initial wealth, and others. Changes in wealth were fairly flat in the 1980s. Mean wealth grew by just under 1 per cent a year for the nine years of the sample period, while median wealth declined by about one-quarter of a per cent a year. For a relatively young sample (61 to 69 years) wealth stayed relatively constant. Other data showed dissaving does not begin until after 70, and the age at which dissaving commences appears to have risen over time. The 1990s data showed sample members on average had increases in wealth, possibly due to a dramatic rise in stock prices for the two years of the sample period. Overall there was heterogeneity in dissaving patterns across households. Less well-off households, whether measured by wealth, income, education or health, dissaved more rapidly than better-off households.
Importantly for this paper, there was a substantial shifting of assets by older persons from housing wealth to equities. This finding provides evidence that older investors do not passively spend their wealth but actively manage their portfolios (Haider et al. 2000). The study concluded that many important economic trends affecting the general population over the period had a similar impact on older persons (Haider et al. 2000).
Pedersen (2004), in a study of the interplay between public and private components in the income packages of pensioners in OECD countries, used data from the Luxembourg Income Study (LIS) databank between 1980 and 1995 to examine, as one component of the research, whether it was possible to identify a general trend over time towards an increasing share of private income. Although Pedersen's research concentrated on slightly different aspects of retirement wealth to those appearing in this paper, the findings inform the question on trends towards greater self-reliance in retirement.
While acknowledging that there are significant problems comparing different pension regimes across different countries, Pedersen (2004) showed that from 1980 to 1995 there was a general reduction in the proportion of pensioners' income from public transfers (public pensions), and an increase in the proportion from private income (consisting of capital income, earnings and occupational pensions [superannuation]). As the countries compared have different pension systems (some with and some without means-tested benefits) it is not possible to say categorically that this shows each generation of pensioners is successively wealthier than the last, but it does indicate a general trend towards greater self-reliance. Australia, for reasons explained later in this paper, along with Denmark and Canada, appear to be exceptions to this trend.
Canada experienced a very different development to most other countries over the 15 year period-a consistent decline in the proportion of private income. Pedersen (2004) cites the continued maturation of the second-tier of earnings-related public pensions (The Canada and Quebec Pension Plans) as the probable explanation for this.
For Australia, there does not appear to have been a general trend in either direction. Pedersen (2004) notes that in Australia there is a preference for private sector occupational pensions to be paid as lump sums rather than annuities, and lump sum payments are not recorded in the LIS. Lump sum payments will only indirectly affect the data if the money is invested in financial assets or converted into a private annuity. Therefore, the LIS data tends to strongly underestimate the role played by occupational pensions in the Australian retirement system.
Different findings about the make up of seniors' incomes and the trend towards privatisation were reported in the United States by Hungerford et al. (2002). Despite finding that income from assets was the second most prevalent source of retirement income and made up the second largest share of aggregate income for the elderly, they also found a general upturn in the level of dependence on social security by the elderly between 1990 and 2000.
However, Hungerford et al. (2002) say the elderly's reliance on social security shows that other sources of retirement income have not kept pace with social security benefits. Hungerford et al. (2002) found that the proportion of the elderly receiving asset income increased from 56 per cent to 68 per cent between 1976 and 1984, but fell to 59 per cent in 2000. A similar picture emerged with the make up of aggregate income for the elderly. Asset income grew in importance until 1984-increasing from 18 per cent to 28 per cent of aggregate income-before falling back to 18 per cent by 2000.
Hungerford et al. (2002) cite portfolio experts as saying that, in the United States, older people invest more heavily in safe, interest-bearing assets, such as bonds, than in assets with higher but more variable returns, such as stocks. Accordingly, it appears older people's private savings are sensitive to fluctuations in interest rates. Part of the explanation for patterns in the receipt and importance of asset income may be fluctuations in nominal bond yields over the period studied. Nominal interest rates and bond yields were high in the early 1980s and relatively low in the 1990s. The yield for 30-year Treasury bonds was about 12 per cent in 1984 and 6 per cent in 1999 and corporate bond yields followed a similar trend (Hungerford et al. 2002). The receipt and importance of asset income to the elderly increased in the early 1980s and declined over the mid-1990s when interest rates were low.
Draw down of assets-international concerns
In New Zealand there is growing concern about how current and future retirees will access their accumulated wealth (St. John 2004). According to St. John, the decumulation or draw-down phase has been relatively ignored in discussions on retirement in New Zealand. St. John says New Zealand has few mechanisms for annuitisation of accumulated capital or for the release of home equity. This is beginning to be addressed but only by the private sector and only in the form of new home equity release products (St. John 2004, p. 3). The primary worry for New Zealanders, according to St. John, is insufficient income and the associated danger of outliving capital.
Mitchell and Piggott (2000) say that, unlike in Australia where pension saving is mandated and pension preservation is pre-eminent, in the United States pensions are optional and employees with a fund are granted substantial access to their assets. This includes the ability to borrow up to one-half of the pension money prior to retirement and the opportunity to cash out a fund if a job terminates. Like Australia, participants have the option to take the accrued fund as a lump sum at retirement, which most appear to do (Mitchell & Piggott 2000, pp. 5–6).
Stock (2004) says that banks in the United States are starting to recognise this and are beginning to develop networks, marketing and products to accommodate retirees' needs for investment of lump sums and income security. In the past, the focus has been on accumulation. But now banks are realising there are two phases of retirement-accumulation and distribution-and are expanding their product offerings to enable bank-based advisors to manage their customers' entire life cycle. Still, according to Stock, the products tend to be more for accumulation and there is still a need for better fixed-return protection and investment products (Stock 2004).
Key findings from published research
Australian and international evidence shows a general trend in the latter part of the 20th century towards seniors having or acquiring greater wealth-in the form of income and income-producing assets-and subsequently, a trend towards greater self-reliance. However, the evidence is not conclusive and does not inform whether the trend has continued into the 21st century.
Australian cohort data (Centrelink SuperSTAR data and HILDA survey data) also shows, as might be expected, that the older cohorts of age pensioners and older Australians in general tend to have lower assets and incomes than younger age pensioners. What this data does not show is the degree to which this is due to differences in asset accumulation prior to retirement or the drawing down of assets in retirement. Recent Australian and international evidence, although abundant on the question of asset accumulation, is scant on the issue of asset decumulation in retirement. This leads to the conclusion that, as in New Zealand and the United States, the relationship between pre-retirement asset accumulation and the decumulation or draw-down phase of retirement has been relatively ignored.
5. Analysis of administrative data
Wealth changes between cohorts
An applicant's wealth (income and assets) determines Age Pension eligibility and payment rates. Eligibility for, and the rate of, Age Pension can therefore be used as a proxy for wealth.
To study wealth changes between cohorts, data has been drawn from the Centrelink SuperSTAR Pensions database for 1999–2000 to 2003–04 on the number of Australians turning Age Pension age who have been granted Age Pension and whether the grant is at maximum rate or part rate. Figure 3 shows this data as a proportion of all Australians turning Age Pension age during the same period.
As noted in Appendix A, there are significant methodological complications to consider when selecting and comparing cohorts. One complication is that Age Pension age for women progressively increased from 61 in 1999 to 62.5 in 2004.
Figure 2: New age pensioners13 of Age Pension age as proportion of estimated population reaching Age Pension age by rate of payment, 1999–2000 to 2003–04
Figure 2 indicates that a significantly smaller proportion of the total population turning Age Pension age were granted Age Pension in 2003–04 (51.2 per cent) than in 1999–2000 (57.4 per cent), and that this reduction is evident year on year over this period. The corollary of this is, over the period 1999–2000 to 2003–04, a trend toward greater financial self-reliance among Australians reaching Age Pension age, manifesting as a higher proportion not requiring Age Pension and a smaller proportion receiving the maximum rate.
A number of factors not related to wealth or increased wealth accumulation might have influenced this trend. A discussion on the respective influence of three such factors-namely service pensioners, workforce participation and the indexation of Age Pension-follows.
Effects of service pensioners
In this paper, the effects of new applicants for Service Pensions have been excluded from the analysis, as the qualification rules are substantially different from Age Pension and data access is more complex. Service pensioners have, in effect, been treated as self-funded for the purposes of this analysis.
However, there are comparatively few new grants of Service Pensions in any year, and the numbers of new grants are declining year on year. Therefore, including service pensioners in this analysis is expected to have little effect on the apparent trend to greater financial self-reliance. Indeed, any effect would be to strengthen this trend.
Workforce participation
The trend towards greater self-reliance may have been influenced by increased workforce participation by people over Age Pension age. This is due to an increase in income (rather than assets) for new Age Pension age cohorts. A relatively small proportion of age pensioners are in the workforce, although this has increased slightly in recent years. At June 2004, 6.1 per cent of male age pensioners and 7.4 per cent of female age pensioners who turned Age Pension age during that year were in the workforce. The corresponding proportions for June 2000 were 5.1 per cent for males and 6.2 per cent for females (Centrelink SuperSTAR Pensions Database 1999–2005). Similarly, across the population as a whole, workforce participation for those over Age Pension age has been increasing at a significant rate. In June 2000, around 12.8 per cent of Australians between 65 and 69 were employed. By June 2004, this had increased to around 16.2 per cent14 (ABS 2005a).
This small but significant increase between cohorts may result in a larger proportion continuing to be self-funded, and a smaller proportion qualifying as maximum-rate age pensioners.
This does not necessarily negate the proposition that the trend to greater financial self-reliance is (also) due to increases in asset holdings for new Age Pension age cohorts. A proportion of this group could have sufficient income while working to be self-funded, but hold few assets and therefore rely more on Age Pension when they leave the labour force. It is counter-intuitive, however, to consider this proportion to be large, as people who remain in the workforce longer could be expected to have accumulated greater assets and therefore be, on average, less reliant on the Age Pension.
In fact, as at March 2005, the average assessed assets for people first granted Age Pension more than one year after they reached Age Pension age was 40 per cent greater than the average assessed assets of people first granted at Age Pension age (Centrelink SuperSTAR Pensions Database 1999–2005). These later entrants are correspondingly less reliant on the Age Pension. As would be expected, the increasing workforce engagement of Australians beyond 65 enhances their short-term wealth (income) and contributes to and enhances future gains in accumulated wealth (assets).
Indexation of Age Pension
Age Pension eligibility and take-up rates are also influenced by the indexation of Age Pension rates and income and asset test thresholds. Indexation applied to the Age Pension rate is linked to the higher of the Consumer Price Index (CPI) and 25 per cent of MTAWE. If, as has happened with the growth of the Australian economy over the last five years, MTAWE growth exceeds CPI growth, the income and assets test thresholds for Age Pension eligibility will increase in real terms. If later cohorts had exactly the same wealth in real terms as earlier cohorts, they would have greater eligibility for (and take up of ) Age Pension. Figure 3 shows that this is not the case.
As a result of this analysis, it can be concluded that the most recent cohorts of Australians are reaching Age Pension age with significantly greater real wealth than earlier cohorts.
6. Cohort analysis of new age pensioners
Another indicator of wealth is mean asset holdings. To determine whether Australians are reaching retirement with greater wealth, the mean assessable asset holdings of new entrants to the Age Pension who just turned Age Pension age were analysed by yearly cohorts. Since they are all of the same age cohort, such analysis facilitates grouping people who would have faced similar opportunities and, to some extent, have similar preferences for asset accumulation. Data was drawn from the Centrelink SuperSTAR Pensions databases.
It is important to note that non-assessable assets under the social security asset testing rules are excluded, such as equity in the residential home and assets-test-exempt (ATE) income streams.15 With the recent increase in real estate prices and incentives in the social security and taxation systems for these income streams, these two asset types have become an important form of asset holdings for retirees.
Table 3 shows that the mean assessable asset holdings generally increased successively with each cohort of new age pensioners.
| Cohort | Male ($) | Female ($) | Total ($) |
|---|---|---|---|
| 1999–2000 | 46,200 | 41,200 | 44,500 |
| 2000–01 | 51,600 | 49,400 | 50,400 |
| 2001–02 | 54,100 | 51,900 | 53,300 |
| 2002–03 | 55,300 | 50,300 | 52,700 |
| 2003–04 | 58,400 | 54,600 | 57,100 |
Attention should be focused on relativities of wealth than on actual wealth values. The actual reported values of asset holdings are somewhat artificial as the cohorts excluded people not granted Age Pension in the year they turn Age Pension age. These 'later entrants' might be expected to be significantly wealthier than those who apply for the Age Pension as soon as they reach Age Pension age, as they would have been in the workforce longer and therefore accumulated greater wealth, and/or are only applying for the Age Pension later in life once they have drawn down some of their accumulated assets. They could therefore be expected to hold in excess of the maximum assets to qualify for a part-rate Age Pension.
To examine change in real terms, the mean asset holdings for the cohorts were analysed further to see how the apparent increase in assets compared to price and wage increases over the same period. The assets of each cohort were plotted against the mean assets of the 1999–2000 cohort indexed for each year to CPI and MTAWE.
Figure 3 indicates that the trend towards seniors having or acquiring greater wealth and therefore having greater self-reliance in the latter part of the 20th century has continued into the earlier part of the 21st century. Subsequent waves of new age pensioners arrived at Age Pension age with greater wealth, especially in their level of accumulated assets.
Figure 3: Mean assessable asset holdings for new age pensioners plotted against CPI and MTAWE, 1999–2000 to 2003–04
This data complements the trend exhibited in Figure 3 and provides considerable evidence to support the proposition that the trend towards greater self-reliance, at least over the 2000–2004 period, is understated because the data excludes new age pensioners coming onto Age Pension above Age Pension age and the other factors considered above (that is, the effects of service pensioners and the indexation of Age Pension).
While based on a relatively short time frame, these findings appear to be in line with the IGR projections that over the next 40 years the proportion of senior Australians receiving a maximum Age Pension will decline and the proportion with a part Age Pension will increase significantly. These projections reflect a continued growth in wealth for older Australians of Age Pension age, the impact of the maturing Superannuation Guarantee and other features of the superannuation system that aim to encourage voluntary superannuation contributions.16
7. Longitudinal analysis of asset changes for 1999–2000 new age pensioners
To examine the rate of asset draw down, asset holdings were examined from the 517 records in the LDS 1% sample for people first granted a part-rate Age Pension in 1999–2000 (refer to Appendix A). Members of this cohort would have been of workforce age (at least 15) during the post-war boom period (1950s) and hence would have had the opportunity to accumulate wealth. Part-rate pensioners, due to their relatively greater assets than maximum-rate pensioners17, would represent those who had greater inclination or better opportunity during this boom period to accumulate wealth.
These individuals were tracked over the following four years18 and their asset holdings and circumstances compared (in real terms) to the assets they held when first granted Age Pension (1999–2000), as shown in Table 4. The study sample comprised new Age Pension customers who stayed in the Age Pension system or exited it through death, becoming self-funded (that is, qualifying for the CSHC) or being suspended from receiving pension or benefits.19
It is important to note that these asset totals do not include equity in the pensioner's own home. The full value of a pensioner's home is exempt from pension means testing and therefore is not captured in Centrelink's systems.
| Percentage of 1999–2000 cohort who have: |
2000–01 | 2001–02 | 2002–03 | 2003–04 |
|---|---|---|---|---|
| Greater assets | 20.0 | 21.2 | 22.1 | 26.0 |
| 90–100% of assets | 56.4 | 40.1 | 8.7 | 5.8 |
| 80–90% of assets | 13.4 | 15.3 | 33.3 | 25.6 |
| 70–80% of assets | 2.0 | 7.6 | 13.4 | 14.6 |
| 60–70% of assets | 1.4 | 2.4 | 4.8 | 7.0 |
| 50–60% of assets | 2.2 | 3.1 | 3.7 | 5.3 |
| 40–50% of assets | 0.8 | 2.0 | 2.4 | 1.9 |
| 30–40% of assets | 0.8 | 1.0 | 1.7 | 1.7 |
| 20–30% of assets | 0.3 | 0.7 | 1.4 | 1.4 |
| 10–20% of assets | 0.5 | 1.0 | 1.5 | 1.9 |
| <10% of assets | 0.0 | 0.0 | 0.5 | 0.7 |
| Deceased | 0.7 | 2.4 | 3.7 | 5.4 |
| Exited (self-funded) (a) | 0.8 | 2.4 | 2.7 | 2.9 |
| Other (suspended) | 0.3 | 0.8 | 0.2 | 0.0 |
| Total (%) | 100.0 | 100.0 | 100.0 | 100.0 |
A significant proportion of part-rate age pensioners accumulated additional real wealth over the period examined. In the 4.5 years from being granted Age Pension in 1999–2000 to June 2004, 30 per cent of part-rate age pensioners increased their total assets in real terms, on average, including close to 3 per cent who had accumulated sufficient wealth to no longer be eligible for Age Pension.
In addition, more than 30 per cent of age pensioners had, over the period, retained 80 to 100 per cent of their assets in real terms. Most of these had not drawn down any of their nominal asset holdings-inflation over the period had reduced their real asset holdings. Over this 4.5 year period, the annual reduction in real asset holdings due to inflation was 3.3 per cent. The majority of pensioners retaining the same nominal wealth led to the same median rate of annual real draw down (3.3 per cent). This median rate of draw down is the same between subgroups of these pensioners: partnered and single; home owners and non-home owners; and the wealthiest, middle and least wealthy groups.
Less than one in 13 of surviving pensioners had, over the 4.5 years, drawn down more than half their assets.
Market effects
It is plausible that patterns of wealth draw down may have been influenced by unusual market effects during the period examined.
Real estate values in many Australian centres experienced significant growth, in real terms, between 1999 and 2004. However, since a pensioner's own home is excluded from this analysis, only pensioners with other real estate, such as an investment property or a holiday home would show an increase in wealth through higher real estate values.
Of the subgroup of the 1999–2000 cohort that increased their real assets between 1999–2000 and June 2004, 20.9 per cent owned real estate assets apart from their home. Around 14.5 per cent of the group that became less wealthy over the period owned real estate assets apart from their home.
Noting that 79 per cent of the group that became wealthier did so without owning real estate apart from their home, it is likely that the impact on asset wealth of owning real estate assets is significant, but not large. Pensioners who held property indirectly, such as through property trusts and real estate components of managed investments, may have benefited from increasing real estate values. However, the available data on indirect investments is not disaggregated sufficiently to allow this to be investigated.
A significant proportion of pensioners have equities among their assets-in many cases indirectly through superannuation, managed funds and similar investment vehicles. This indirect investment makes the proportion of pensioners with wealth in equities difficult to quantify.
However, the All Ordinaries Index at June 2004 was no higher in real terms than in June 2000. The index, in real and nominal terms, was also significantly lower in June 2000 than in June 2002 and June 2003 respectively (Standard & Poors 2005). Overseas equity markets showed similar patterns.
Even with the drop (on average) in equity values to June 2003, there was a large group, more than 22 per cent of the entire cohort that accumulated additional wealth between 1999–2000 and 2003.
Changes in equity markets are therefore unlikely to have contributed significantly to increases in wealth.
Circumstance effects
Wealth patterns may also have been influenced by factors other than age pensioners continuing to save money from regular income.
Some pensioners may have sold their home and converted assets to a form that is means tested. This was tracked by examining the proportion of the 1999–2000 cohort of new part-rate age pensioners that changed from 'homeowner' to 'non-homeowner' in the LDS by June 2004. This effect may be slightly understated, as it does not capture people who 'downsized' by selling one home and purchasing another of lower value.
Focusing on the 1999–2000 cohort subgroup that increased their real assets between 1999–2000 and June 2004, it was found that 7 per cent changed from home owner to non-home owner. Only 2 per cent of the group that became less wealthy over the period changed from home owner to non-home owner.
Noting that 93 per cent of the group that became wealthier did so without changing home ownership status, it is likely that the impact of pensioners selling their home on asset wealth is marginal.
Some may have been widowed and inherited assets from their late spouse. Using a similar methodology to examine home ownership, this effect was tracked by investigating the proportion of the 1999–2000 new part-rate cohort that changed from married to single status in the LDS by June 2004. This may slightly overstate the inheritance effect since some couples may have separated, for reasons other than widowhood, resulting in a division of assets.
Focusing on the 1999–2000 cohort subgroup that increased their real assets between 1999–2000 and June 2004, it was found that 12 per cent changed from married to single. Only 3 per cent of the group that became less wealthy over the period changed from married to single.
Noting that 88 per cent of the group that became wealthier did so without changing from married to single status, and therefore potentially inheriting assets, it is likely that the impact of spouse inheritances on wealth increases is significant, but not large.
A small number of pensioners may also have inherited assets from others such as parents or siblings, but this impact is likely to be minimal.
It can be concluded that the only factors likely to have contributed to the increase in wealth of a significant proportion of part-rate age pensioners are an appreciation of real estate assets and/or savings from regular income.
When these factors are taken into account it still seems the 1999–2000 cohort of part-rate age pensioners are managing their finances well and maintaining their wealth so it is sustainable against the prospect of a long life in retirement.
Movement from part-rate to other circumstances
The same individuals tracked by the LDS in terms of asset draw down were also tracked in terms of movement to other categories of pension receipt. These are summarised in Table 5.
| Percentage of 1999–2000 cohort who are: |
June 2000 | June 2001 | June 2002 | June 2003 | June 2004 |
|---|---|---|---|---|---|
| Exited (self-funded) | 0.2 | 0.8 | 2.4 | 2.7 | 2.9 |
| Part-rate age pensioners | 70.6 | 61.1 | 49.6 | 47.9 | 48.2 |
| Maximum-rate age pensioners | 28.5 | 37.0 | 44.8 | 45.5 | 43.5 |
| Deceased | 0.7 | 0.7 | 2.4 | 3.7 | 5.4 |
| Other (suspended) | 0.0 | 0.3 | 0.8 | 0.2 | 0.0 |
| Total | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 |
At first, this seems to contradict the finding that pensioners can maintain a good part of their real wealth beyond Age Pension age.
However, there are two factors likely to have influenced this. First, high proportions (around two-thirds) of part-rate age pensioners are on a part-rate payment through income testing rather than asset testing. If these part-raters withdraw from the paid workforce after being granted the pension, their income drops and they often move from part rate to maximum rate. Anecdotally, it is common for working pensioners to reduce or discontinue paid work soon after they first move onto Age Pension.
Second, it is understood that many part-rate age pensioners are first granted pension close to the maximum rate and are in a position to adjust their financial arrangements to obtain the maximum rate quickly and with little disruption.
8. Further research
The results presented in this paper shed light on areas that can be further examined to better understand senior Australians' wealth accumulation and draw down behaviour.
Possible future research is listed below.
- A cohort analysis of new grants of pension payments, including those receiving Service Pension and those greater than Age Pension age.
- An analysis of asset draw down for part-rate age pensioners to determine the rate of graduation from part-rate to maximum-rate payment or other circumstances and other factors influencing the graduation.
- An extension of the longitudinal time frame to the extent permitted by available data (for example, including one more year of longitudinal data) or maintaining the same time frame for a later cohort of new part-rate age pensioners (2000–01 cohort ).
- A composition analysis of pensioners' assets as they enter the income support system.
9. Conclusions
The paper sought to answer two questions:
- Are Australians reaching retirement with greater wealth than in the past?
- Are Australians drawing down their wealth in retirement, and (if so) how quickly?
On the first question, it is clear that the June 2004 cohort of Australians turning Age Pension age were, on average, significantly wealthier in real terms than earlier corresponding cohorts. As people become more aware of the projected changes in the social and economic environment over the next 40 years and adjust their working, expenditure and saving patterns, and with the maturation of the Superannuation Guarantee over the same period, this trend might be expected to continue.
On the second question, it is evident that the 1999–2000 cohort of new part-rate age pensioners are, on average, drawing down their wealth in retirement. However, this draw down is occurring at a fairly slow pace. If the patterns shown persist, this would allow these pensioners to maintain significant assets through many years of retirement.
This may indicate that part-rate age pensioners manage their money effectively and draw on their assets in a way that has regard to their expectations of a long life. This is in line with international findings reported in the concluding decades of the 20th century.
In addition to the findings on the rate of draw down, there is also a substantial proportion of this group who over the period examined have actually increased their real wealth. While a variety of factors may have influenced this, it appears most likely to have been driven by pensioners continuing to manage their money carefully into retirement.
These findings also address the question around the relationship between pre-retirement wealth accumulation and post-retirement wealth draw down. Point-in-time age cohort data shows that the value of assets held by senior Australians tends to decline after Age Pension age, except for money held in bank accounts. This suggests that retirees draw down their assets to fund their retirement at a significant rate. The LDS suggests this is not the case.
What the LDS indicates is that Australia's retirement income system provides a strong basis to allow senior Australians to accumulate wealth leading up to retirement and to continue to generate sustainable and adequate income throughout retirement. Intuitively, the conclusion from the LDS findings is that the point-in-time age cohort data indicates that older cohorts of senior Australians have lower levels of wealth, either in the form of income or assets, because during their working lives they had less opportunity or were less inclined to accumulate wealth and/or less opportunity to participate in superannuation schemes.
Appendix A
Methodology notes
Cohort analysis
New age pensioners and the Age Pension age population
As shown at Figure 2, there is change from year to year in the respective proportions of Australians who reach Age Pension age and are either:
- granted a maximum-rate Age Pension
- granted a part-rate Age Pension
- not granted an Age Pension (either self-funded or granted a Service Pension).
Not all new recipients of Age Pension apply as soon as they reach Age Pension age. Some continue to work beyond this age and only become eligible when they withdraw from the paid workforce. Others have sufficient assets to fully fund their retirement but qualify for some pension later as they draw down their assets.
As a result, it would be inaccurate for this paper to use the total number of new age pensioners (those granted Age Pension in a given year) to represent people first coming onto Age Pension. Instead, this paper only uses new age pensioners who have just turned Age Pension age (those who have not come onto Age Pension more than one year after they were eligible).
Similar to the Age Pension age population, this paper uses only those who have just reached Age Pension age in any particular year.
A complicating factor surrounds the number of new age pensioner females who have just turned Age Pension age. The female eligibility age for Age Pension is being progressively increased to bring it into line with the male eligibility age. By 2014, this will be complete with eligibility age set at 65 for males and females.
The female eligibility age for Age Pension increases by six months every two years. In the years to June 2000, 2002 and 2004 only half the annual cohort of females turned Age Pension age (61.5, 62 and 62.5 respectively). For 2000 and 2004 this presented no further complication, as it was clear from the administrative data how many females were granted Age Pension in the year they turned Age Pension age. However, for 2002, the number of females aged 62 who were first granted Age Pension would have included a number who had turned Age Pension age (then 61.5) in 2001, but who delayed their application for Age Pension until 2002 because they were working or too wealthy to be eligible. A correction factor, based on the proportion of females who delayed their application for Age Pension by one year in previous years, was applied to the numbers of females counted as turning Age Pension age and being first granted Age Pension in 2002. Similarly in 2001, some 62 year-old females counted as new age pensioners were eligible the previous year. The same correction factor has been applied.
Selection of cohort for comparison
New age pensioners
It is important to note that there is a 'dampening' effect on changes in wealth between cohorts from the nature of the interaction between population wealth and the means test thresholds for Age Pension.
If a cohort of Australians in one year is wealthier in real terms than a previous year, the 'sample' (that is those whose wealth is low enough to qualify for at least part-rate Age Pension) would exclude some who corresponded to the wealthiest in an earlier cohort.
As an example, assume that in a given year a population with 3 per cent of people turning Age Pension age had wealth of 95 per cent to 100 per cent of the maximum wealth that allowed them a part-rate Age Pension. We might assume that this 3 per cent group is, for example, the 50th to the 53rd percentile of total wealth in the Australian population turning Age Pension age. This 3 per cent of people would, if they applied for the Age Pension they would be eligible for, be captured in the Centrelink systems and used for the cohort comparison. Simplistically, the averages would use the least wealthy 53 per cent of the total Australian population.
If, in a subsequent year, everyone in the population was 5 per cent wealthier in real terms, the 50th to 53rd percentiles of total wealth would then have wealth of 100 per cent to 105 per cent of the wealth for a part-rate pension. They would no longer be eligible for any pension and would drop out of the cohort being compared. The averages would then be based on only the least wealthy 50 per cent of the population and therefore show a lower average value than if 53 per cent of the population (as in the prior year) was used. Thus, increases in wealth year-to-year are dampened to some extent.
This would also apply in reverse, effectively dampening the effect of later cohorts being less wealthy than earlier ones by allowing more of the later and poorer cohorts' eligibility for pension. It should be noted that this dampening does not apply in reverse in any of the years investigated in this paper: every year showed an increase in wealth over the previous year.
It is therefore believed that the increase in real wealth between cohorts turning Age Pension age, although still quite significant, may be slightly understated.
Impact of people choosing not to apply
It is also likely that some seniors Australians, who are eligible for at least some Age Pension, decided not to apply. It is assumed that this effect is minor and constant over the years. Since it is the relativities between years (as distinct from total values) being analysed, this effect would not distort the findings.
Selection of new entrants from the FACSIA LDS 1% sample
Data for the LDS 1% sample is extracted as fortnightly snapshots from Centrelink's administrative databases-a rich collection of raw data on customer characteristics and benefit details. FaCSIA engaged the ABS to develop a method to derive a 1 per cent sample from the administrative databases. The records in the LDS 1% sample go back to January 1995.
For this study, records were taken for entrants to the Age Pension system between 1999–2000 and 2003–04. It should be noted that records on asset holdings were not available before June 1999. Entrants to the Age Pension were those who, for a particular year, had only been on Age Pension payment for a fortnight or less. The term 'entry' denotes the first time a person came onto the Age Pension system. Hence those who came back to the system following a break, for example, failing to qualify the means test for a period, were not counted again as entrants.
The Age Pension entitlements of these entrants were used to group them into recipients of part-rate pension or maximum-rate pension. To distinguish between members of illness-separated couples who were on an unpartnered rate of pension (hence their pension could exceed the maximum rate for partnered pensioners) from other members of a couple, the amount of Pharmaceutical Allowance received was used. In cases where entrants were entitled to backdated payments, sometimes resulting in entitlements greater than the maximum rate, or where their claims had not been processed resulting in Age Pension entitlements equal to zero, further data processing was used. Following entry, the rate to which their subsequent entitlements stabilised was used to group them into either part-rate or maximum-rate pensioners.
The 1999–2000 sample for the longitudinal analysis
From 1996–97 to 2003–04, there were 9,619 observations of new entrants extracted from the LDS 1% sample, resulting in an average of 1,200 observations per year. There were 5,505 observations for 1999–2000 to 2003–04. There were 955 observations for the year 1999–2000 of which 589 were on part rate of payment. This became the final sample used in the longitudinal analysis.
The time-invariant characteristics of the 1999–2000 cohort were obtained (for example, date of birth, sex, country of birth, and the partner's country of birth) and their changing circumstances tracked for financial assets, marital status and home ownership. To capture these changes, key dates were flagged: dates of entry; exit from the Age Pension system, not necessarily from the entire social security benefit system; death; and when they received their last payments for each financial year over the period, last benefit date.
These dates were used to distinguish between actual exits, suspended payments and tracking down changes in marital status, asset levels and payment rates in between last benefit dates. Changes in payment rates and marital status were captured to appropriately reclassify them as being on part rate or maximum rate, at the key dates. The stable rate of payment was obtained for those who were paid in arrears.
Endnotes
1. The results of this research were presented at the Australian Social Policy Conference, 20–22 July 2005, Sydney.
The authors would like to acknowledge the assistance of the FaCSIA Library Research Team and thank them for their considerable contribution to this paper.
2. The number of Service Pension and War Widows Pensioners has been stable at around 300,000 for some time and is expected to decline with the ageing of veterans from the Second World War (Australian Government Department of Treasury 2002).
3. This includes retirement income from the Age Pension, compulsory superannuation and additional voluntary savings (Australian Government Department of Treasury 2004, p. 11).
4. Consistent with the projected increase in the proportion of part-rate pensioners over the next 40 years, the proportion of Age Pension recipients on a part rate of payment has been increasing in recent years. The proportion of all age pensioners on a part rate increased from 32.5 per cent in June 2002 to 37.5 per cent in March 2006.
5. Sourced from the Centrelink SuperSTAR Pensions database, June 2004; Australian Government Department of Veterans' Affairs 2004; ABS 2005b (see Time series spreadsheets, Table B9: Population projections, by age and sex, Australia – Series B).
6. The Australian Government guarantees that the maximum single rate of base pension is at least 25 per cent of Male Total Average Weekly Earnings (MTAWE).
Whenever pensions are adjusted for increases in the Consumer Price Index (CPI), and the new pension rate falls short of 25 per cent of MTAWE, then the Government tops up the pension so it is equivalent to 25 per cent of MTAWE. The pension rate is never reduced as a result of indexation. If the single pension rate increases, the partnered pension rate also increases.
7. As at June 2004, some 9 per cent of people over Age Pension age (about 246,000) were engaged in paid employment. Of these, about 32 per cent (about 78,000) received a pension and about 17 per cent (about 41,000) deferred claiming a pension and had registered under the Pension Bonus Scheme.
8. Pension data showed that as at June 2004, there were proportionately more age pensioners aged well above the Age Pension qualification age than those aged closer to the qualification age; these older seniors also tended to qualify for the maximum rate of pension (as opposed to a part-rate pension).
9. Whiteford and Bond (2000) obtained their data from former Department of Social Security publications: annual reports, Ten Year Statistical Summary and DSS Customers: a Statistical Overview (various years).
10. Harding, King and Kelly (2002) used ABS data from the 1986 Income Distribution Survey and 1997–98 Survey of Income and Housing to impute wealth holdings for each of the families, because these surveys only provide details of the home asset and income from other wealth sources.
11. Source: ABS 2004c (see Time series spreadsheets, Table 9: Estimated resident population by single year of age, Australia).
12. Centrelink SuperSTAR Pensions database (March 2005) shows that the ratio of age pensioners with partners to age pensioners without partners at age 65 is two-to-one, dropping to one-toone at around age 78, and to about one-in-six by age 90.
13. New age pensioners are defined as those who have been in receipt of Age Pension for less than one year.
14. Analysis of this data shows extreme monthly volatility which probably reflects the survey size. Despite this volatility, there is a general trend towards higher workforce participation rates for senior Australians.
15. The assets-test exemption of certain 'non-commutable' income streams purchased on or after 20 September 2004 was changed from 100 per cent to 50 per cent. Since the sample only includes entrants to the Age Pension system from 1999–2000 to 2003–04, none of their holdings of such income streams would have been affected by this change. As a result, all holdings of such income streams would not have been captured.
16. Examples are the government co-contribution and spouse contributions tax offset schemes.
17. In March 2006, part-rate age pensioners had, on average, 3.3 times the asset holdings of maximum-rate age pensioners. For new entrants to the Age Pension system, part-raters had 3.7 times the asset holdings of maximum-raters, on average.
18. In the LDS 1%, there is no problem tracking people as they move between regions within a state or move interstate.
19. It is unlikely that age pensioners transfer to other payments. Among age pensioners in June 2004, 95.1 per cent remained in the system with the rest becoming self-funded (CSHC holders) or non-clients of FaCSIA or dying. Given the study sample, transfers to other payments were not captured.
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