Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 111

Longevity awareness and the three pillars

The latest Intergenerational Report (IGR) postulates the three pillars of the Australian retirement income system as the age pension, compulsory superannuation and voluntary saving. All three are looking increasingly shaky for the task ahead, as policy struggles to cope with changes, especially in life expectancy. The failure to increase the eligible age for the age pension has been one of many flaws in retirement income policy, caused by changes that accelerated in the 1970s.

Life expectancy at time of pension eligibility

The IGR graphs life expectancy against pension age eligibility (page 70). Unfortunately it uses the life expectancy of a baby. A better insight comes from using the life expectancy at the age of eligibility for the age pension, which for males has stood at 65 for more than 100 years. It is belatedly being increased from 2017 so that by 2035 it will have reached 70 for both genders.

The increase in eligibility is too little too late. From the inception of the age pension, male life expectancy at age 65 rose only slowly until the 1970s (ABS numbers rounded to the nearest year). From then it increased by roughly two years per decade until today and this is expected to continue, as shown.

The last two federal governments have initiated increases in the eligible pension age which top out at 70 in 2035. The chart shows that the gap between eligibility age and average life expectancy for males is likely to have increased from 12 years in the 1970s to 22 years by the decade starting 2040. For female life expectancy, add about four years at age 65, resulting in an even greater gap.

On the face of it, the chart shows just how badly successive governments have failed to respond to the ongoing increase in longevity. The shift towards an older population has further compounded the problem of funding the age pension.

Lower returns and compromised expectations

In earlier Cuffelinks articles (such as this), David Bell neatly defined the many issues in attempting to reform an age pension system that has for so long failed to adapt to the reality of ongoing longevity increases.

Failure to adapt the superannuation system to increasing longevity is likewise building in a gap between expectation and reality. Lower economic growth and low interest rates (in real terms, negative returns in many countries) feed through to entrenched lower returns, leading to a widening gap between perceived need and funds availability. Policy should determine whether the age of access needs to be increased as well as contribution levels.

Financial adequacy is only part of the problem. Financial literacy programs are improving as well as financial awareness at the individual level. People should increasingly be able to conduct an effective financial conversation and contribute to decisions about their savings.

Longevity awareness crucial for retirement planning

The foundations of retirement planning need to be deeper. Few people are aware of their personal time frame that the three pillars need to support. Failure to increase the age of access to the age pension and superannuation has fostered an expectation that it is reasonable to expect access at much younger age than is realistic, other than for those in genuine need. This also has an impact on willingness to add to voluntary savings, the important third pillar.

There is an urgent need to improve longevity awareness across the community, especially at times of tight budget funding.

Since people become more different as they age, using averages such as from the Life Tables is unhelpful. Averages are misleading for individuals and actions that people can undertake need to be personally framed, not generic.

Once people start to recognise what influences their personal longevity, they can take personal ownership of the financial consequences. As a first step, they can begin to address any unrealistic expectations of maintaining living standards with increasing age in the absence of better personal planning such as increasing savings and working longer.

Longevity awareness can underpin weaknesses in the increasingly shaky three pillars. Collective action to boost longevity awareness by governments needs to be complemented by individuals who are well enough informed to commit to making the best of their opportunities to secure their future.

 

David Williams began longevity research in 1986 and was a Director with RetireInvest and CEO of Bridges. He chaired the Standards Australia Committee on Personal Financial Planning. David founded My Longevity Pty Limited in 2008.

 

RELATED ARTICLES

Should access to super and pensions depend on life expectancy?

SMSF trustees have longer lives and more certainty

How not to run out of money in retirement

banner

Most viewed in recent weeks

Australian house prices close in on world record

Sydney is set to become the world’s most expensive city for housing over the next 12 months, a new report shows. Our other major cities aren’t far behind unless there are major changes to improve housing affordability.

The case for the $3 million super tax

The Government's proposed tax has copped a lot of flack though I think it's a reasonable approach to improve the long-term sustainability of superannuation and the retirement income system. Here’s why.

7 examples of how the new super tax will be calculated

You've no doubt heard about Division 296. These case studies show what people at various levels above the $3 million threshold might need to pay the ATO, with examples ranging from under $500 to more than $35,000.

The revolt against Baby Boomer wealth

The $3m super tax could be put down to the Government needing money and the wealthy being easy targets. It’s deeper than that though and this looks at the factors behind the policy and why more taxes on the wealthy are coming.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

The super tax and the defined benefits scandal

Australia's superannuation inequities date back to poor decisions made by Parliament two decades ago. If super for the wealthy needs resetting, so too does the defined benefits schemes for our public servants.

Latest Updates

Planning

Will young Australians be better off than their parents?

For much of Australia’s history, each new generation has been better off than the last: better jobs and incomes as well as improved living standards. A new report assesses whether this time may be different.

Superannuation

The rubbery numbers behind super tax concessions

In selling the super tax, Labor has repeated Treasury claims of there being $50 billion in super tax concessions annually, mostly flowing to high-income earners. This figure is vastly overstated.

Investment strategies

A steady road to getting rich

The latest lists of Australia’s wealthiest individuals show that while overall wealth has continued to rise, gains by individuals haven't been uniform. Many might have been better off adopting a simpler investment strategy.

Economy

Would a corporate tax cut boost productivity in Australia?

As inflation eases, the Albanese government is switching its focus to lifting Australia’s sluggish productivity. Can corporate tax cuts reboot growth - or are we chasing a theory that doesn’t quite work here?

Are V-shaped market recoveries becoming more frequent?

April’s sharp rebound may feel familiar, but are V-shaped recoveries really more common in the post-COVID world? A look at market history suggests otherwise and hints that a common bias might be skewing perceptions.

Investment strategies

Asset allocation in a world of riskier developed markets

Old distinctions between developed and emerging market bonds no longer hold true. At a time where true diversification matters more than ever, this has big ramifications for the way that portfolios should be constructed.

Investment strategies

Top 5 investment reads

As the July school holiday break nears, here are some investment classics to put onto your reading list. The books offer lessons in investment strategy, financial disasters, and mergers and acquisitions.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.