The costs of living longer

The Australian Government’s 2016 Census of Population and Housing showed that about 3.7 million out of 24.3 million Australians were aged 65 or older.

In 1901, older people aged 65 and over made up four per cent of Australia’s population. This increased to 6.4 per cent in 1921, 7.4 per cent in 1941 and 8.5 per cent in 1961, before slowly declining to 8.3 per cent in 1971. Between 1971 and 2011, the proportion increased to 14 per cent and to 15 per cent in 2016. For those aged 85 years and over, the proportion has more than tripled, from 0.5 per cent to 1.8 per cent.

Compared with 2011, there are an extra 664,500 Australians aged 65 and over. By 2056, government forecasts estimate there will be 8.7 million Australians aged 65 or older (22 per cent of the population) and by 2096, 12.8 million (25 per cent).

Of the current 3.7 million, those aged 65 to 74 accounted for the majority of older people (56 per cent), however the census found increasing numbers in the 75-84 years group (30 per cent) and 85 and over (13 per cent). 

With average life expectancy about 80.4 years for males and 84.6 for females, health has become an important factor for both the individual and for the economy.

The 2016 census found that:

• 92 per cent of older Australians reported not eating enough fruit and vegetables to meet the recommended guidelines
• 72 per cent were overweight or obese
• 52 per cent reported high levels of psychological distress.

With longevity, one expects increasing health-care costs.

The census found that in 2014–15, Australians aged 65 and over accounted for 28 per cent of the 123 million claims for GP visits. There were more than twice as many claims per person for that group than for those aged under 65 – 10.1 compared with 4.4.

In addition, there were 12.5 million specialist visits claimed through Medicare in 2014–15 – 43 per cent of all specialist claims and four times as many than for people aged under 65.

The three most common elective surgery procedures for people aged 65 and over were cataract extraction, cystoscopy and knee replacements. This changed slightly for people aged between 65 and 84, with hip replacements pushing out knee replacements.

A Monash University-CSIRO report in 2016 estimates that as a result of an ageing population, health expenditure per person will rise from $7439 in 2015 to $9594 in 2035 – an increase in total expenditure from $166 billion to $320 billion or an average annual growth of 3.33 per cent.

Personal health costs are an issue for many retirees. In YourLifeChoices’ Retirement Income and Financial Literacy Survey 2018, 71 per cent of respondents said they had private health insurance. However, the increasing cost of private cover means that key groups are struggling to maintain their policies.

An analysis of the Australian Bureau of Statistics’ Household Expenditure Survey (HES) by senior economist with The Australia Institute Matt Grudnoff shows how spending on healthcare by our six tribes has changed between the 2009-10 and 2015-16 HES surveys. Constrained Couples (those on a full or part Age Pension who own their home) have borne the brunt of the increases. Mr Grudnoff said: “This is primarily because Constrained Couples spend the largest proportion of their income on health. Cash-Strapped Couples and Singles (those on a full or part Age Pension who rent) spend the smallest proportion of their income on health and so it impacted them the least.”

Spending on healthcare  

Given the financial pressure on many older Australians, government initiatives for this key group in Federal Budget 2018 have been keenly dissected.

Under the banner ‘More Choices for a Longer Life’, the Government delivered options for Australians who want to continue working beyond pension age, those who can tap into the equity in their home and those who fear they will outlive their financial resources. However, it did nothing significant for pensioners who rely fully on the Age Pension and do not own their home.

Most of these budget policies listed here will start from 1 July 2019.

Mature-age workers
The Government says it wants to help Australians work for as long as they wish. One of the measures to encourage this is an expansion of the Pension Work Bonus to allow people to earn $300 a fortnight without affecting their entitlements.

Another is a one-year exemption from the work test for voluntary superannuation contributions. This means Australians aged 65 to 74 with less than $300,000 in super will be able to top up their fund for an extra 12 months after retiring.

Cash-poor, asset-rich homeowners
The Pension Loans Scheme will be widened so those homeowners on a full pension and self-funded retirees can borrow from the Government. Previously, this option was open only to part-age pensioners.

This initiative will allow single full-rate pensioners to boost their annual income by up to $11,799 and a combined $17,787 for couples. In other words, those eligible for the scheme will be able to access an income stream equal to 50 per cent more than the Age Pension rate.

The extra income stream will be a form of reverse equity mortgage on the homes of pensioners. An interest rate of 5.25 per cent will apply and the amount borrowed will not be allowed to exceed the value of the home.

New income streams
After years of talk about legislating to amend Age Pension means testing to make annuities or pooled lifetime income streams more attractive to retirees, this budget has set that ball rolling. Under a new regime, annuities will be known as Comprehensive Income Products for Retirement (CIPR).

The rules will assess a fixed 60 per cent of all pooled lifetime product payments as income, and 60 per cent of the purchase price of the product as assets until age 84, or a minimum of five years, and then 30 per cent for the rest of the person’s life.

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