Mature-age labour force participation: trends, barriers, incentives, and future potential

The fiscal challenges of population ageing can be tackled in a number of ways. These include investing in capital and productivity of the smaller workforce, greater saving for retirement, higher migration, an active population policy, reducing benefits for the old, and/or encouraging and enabling them to work longer. This briefing focuses on the latter. It presents historical and international precedents for higher mature-age labour force participation rates in Australia, summarising available data as well as looking at the public policy response so far and the potential for further intervention.Executive Summary The fiscal challenges of population ageing can be tackled in a number of ways. These include investing in capital and productivity of the smaller workforce, greater saving for retirement, higher migration, an active population policy, reducing benefits for the old, and/or encouraging and enabling them to work longer. This briefing focuses on the latter. It presents historical and international precedents for higher mature-age labour force participation rates in Australia, summarising available data as well as looking at the public policy response so far and the potential for further intervention.The economic case for higher mature-age labour force participation is strong. A five percentage point increase to participation rates of 50-69 year olds is projected to be worth 2.4% of GDP in 2050. If all inactive people aged 55 and over who say they want to work did so, the participation rate for that group would increase six percentage points – also worth 2.4% of GDP. And if Australia had the same mature- age participation as New Zealand, GDP in 2012 would be 4% higher.The Australian Government has undertaken a number of measures to resolve ongoing barriers to employment for older Australians, but important issues remain.Institutional barriers to mature-age participation, resulting from the carrots and sticks that make up the tax, benefit and retirement income system, can be more amenable to policy intervention than those relating to barriers such as health and education. There is also evidence (e.g., from New Zealand) that changing system parameters relating to eligibility age can help.Yet it seems that too little thought has gone into the operation of eligibility ages in Australia. While pension age is increasing from 65 to 67, the eligibility age for Super will remain low, increasing from 55 to 60. At the same time, the age at which Super benefits are tax-free will remain at 60. In the absence of harmonisation of all eligibility ages, there is a case that the tax-free age be increased to 62, moving with the pension age, or to 65, moving with the Super access age.The briefing contextualises the discussion by making use of historic and international benchmarks. A set of scenarios is used to demonstrate the compositional effect of ageing and mature-age participation rates on total participation rates in the long term. Keeping all else equal, ageing would result in a 5 percentage point fall in total participation rates by 2050. If instead Australia were to achieve the higher mature- age rates seen in New Zealand, the fall would be only 2 percentage points. &nbsp

Australia's mandatory retirement saving policy : a view from the new millennium

Formal retirement income provision in Australia, can be traced back to occupational schemes first offered by banks, and state governments in the nineteenth century. However, the year 1909 marks the beginning of a national retirement income policy, with the introduction of means-tested age pension. Since then, retirement income provision has evolved into a multi-pillar arrangement comprising the Age Pension, occupational annuity, and other long term saving through property, shares, and managed funds. The 1990s saw the introduction of private mandatory retirement saving in the form of the"Superannuation Guarantee". With this introduction, Australia joined a growing group of countries which center their retirement income policy, on private mandatory retirement saving. This paper provides a succinct description of the current system along with an analysis of its strengths, and areas where improvement is still needed.Economic Theory&Research,Environmental Economics&Policies,Banks&Banking Reform,Business in Development,Business Environment

Indexing pensions

Pension indexation should anchor the parameters of the pension system to one or more economic and demographic variables to ensure that the system is implemented in a sustainable way, while minimizing distortions affecting important economic choices. Arguing that financial sustainability, incentive compatibility and consistency across multiple government programs are critical, the author examine the many linkages between the various parameters of pension schemes. Finally, the author turn to the cost of the insurance dimension of indexation, and suggest that option pricing techniques could be used to price indexation guarantees, and that this approach may suggest refinements to indexation practice not thus far implemented.Emerging Markets,Debt Markets,Pensions&Retirement Systems,Economic Theory&Research,Markets and Market Access

Income Tax Design and the Desirability of Subsidies to Secondary Workers in a Household Model with Joint and Non-Joint Time

In this paper we analyze income tax design in a two member household labor supply model where time spent on consumption together by the two household members is valued differently from time spent apart. We treat consumption as a non excludable public good to members of the household; one example would be where all household members or one alone can watch TV. When jointly consumed, however, TV services are valued more highly than the same consumption undertaken separately. We use this model to numerically investigate the welfare implications of different tax structures. In sharp contrast to existing literature, our results suggest the desirability of subsidizing secondary worker's labor supply. We also relate our discussion to existing individual-household tax unit literature.

Developments in Retirement Provision: Global Trends and Lessons from Australia and the US

Retirement systems should be conceived of as long-term financial contracts under which workers' contributions today are exchanged for benefits paid to the elderly tomorrow. Such contracts are said to be well-managed if the transactions are handled in an affordable, reliable, and efficient manner. Yet all pension systems are forced to operate under a multitude of constraints including participants' ability and willingness to save; the availability of assets with which to convert current saving into future retirement benefits; the limitations of imperfect capital markets; political influences imposed by stakeholders; county macroeconomic conditions; and as we are becoming increasingly aware, global business cycles. If pensions are to continue to meet the needs of an aging world, it is imperative to prepare for emerging challenges as these systems evolve through time. In these remarks we first show how global demographic change is driving pension change throughout the world. Next we describe and compare developments in old-age provision over the last decade in Australia and the United States, and outline the key issues facing retirement systems in both nations. There are many differences between the experiences of the two countries, but as we shall show there are also common themes. Finally we identify key pension reform design issues facing Australia and the US in the upcoming decades.

Aged-Care Support in Japan: Perspectives and Challenges

This study explores economic aspects of the market for long term care (LTC) with a special focus on Japan. First, we describe the LTC system in Japan as presently implemented, and we highlight some aspects of the program that are novel and potentially of interest to other countries seeking models for long-term care provision. Next, we discuss alternative projections of Japanese LTC utilization and costs. Finally, since Japan appears likely to experience important shortfalls in LTC in the future, we discuss whether such services might be more efficiently organized and financed under alternate forms of provision.

Socially Responsible Investment in Japanese Pensions

As the level of retirement-related assets has grown, so too has public and private interest in so-called "Socially Responsible Investment" (SRI), an investment strategy that employs criteria other than the usual financial risk and return factors when selecting firms in which to invest. This study evaluates whether SRI indexes would alter portfolio risk and return patterns for the new defined contribution pension plans currently on offer in Japan. We conclude that SRI funds can be included as an option, albeit with some cost; consequently, mandatory investment in SRI portfolios cannot reasonably be justified.

The Design of Not-so-everyday Things: Designing for Emerging Experiences

In this paper, we explore how emerging technologies and experiences challenge previous theories and practices to grow and adopt and, thus, address new and unique challenges, such as designing across macro-level ecosystems, new devices, and interaction models that enable user control of data in an increasingly complex digital world. We discuss these topics with respect to real and future examples, the unique challenges they present, and how academia and industry must collaborate to adapt current frameworks and develop new methods to address these challenges. This partnership will ensure both parties better understand the problem space for designing emerging experiences in today\u27s digital economy. Further, this partnership enables scholars and practitioners to more effectively explore the solution space for designing novel products and developing advanced theories that help craft meaningful user experiences. Finally, we argue that the partnership between academia and industry can develop future talent and upskill current practitioners, which is paramount in successfully meeting the challenges inherent in the design of emerging technologies

Too Much Risk to Insure? The Australian (non-) Market for Annuities

While retirement income products have become more important in Australia in recent years, the growth in these has been predominantly in phased withdrawal products which offer no longevity insurance. The life annuity market has virtually disappeared, exposing Australians to much greater uncertainty about their well-being in later life than is necessary. We suggest that both the private market and government intervention will need to be harnessed to address this issue, including better co-ordination across key policy agencies. While inaction will lead to a long term prospect of arbitrary and ill-considered government action to meet the realised uninsured outcome, there are signs of a collaborative effort to revitalize the market