Being the owner of one of Australia’s oldest poodle cross dogs I can see first-hand, and at an accelerated rate, the impact of ageing on lifestyle and expenses. Boo (pictured, below) is nearly 17 years old, which for a dog of her size equates to nearly 90 years old in human terms, which is getting on a bit.

Her labour force participation is dropping off, no longer barking a warning when someone comes to the door, and the health expenses are increasing, with ongoing dental issues as well. The pills for her heart condition are not covered by the PBS but I have managed to find a generic option.

If the Grattan Institute was looking at the costs, they would most likely suggest a pretty drastic solution, particularly as their suggested standard of living in retirement does not leave much scope for having a dog or other companion animal. Fortunately, most people focus on achieving good outcomes in terms of quality of life rather than trying to restrict budgets, get by on as little as possible and put up with the consequences.

Ageing personally for humans and the ageing of the Australian population structure are more protracted processes, fortunately, but some of the issues are the same.

Poodle crosses were very popular 15 years ago (and even more recently) so there will be an emerging affordability crisis for care over the next few years, at least if you are pessimistic about people holding pet insurance or otherwise putting money aside for such costs.

Boo the poodle cross dogBoo the poodle-cross

For humans, the post-World War II baby boom is producing a high growth rate of older Australians, with the number of Australians aged 65 to 74 peaking in 2015 and projected growth for those aged 75 to 84 peaking in about 2025.

The Superannuation Guarantee (SG)—already at 9.5 per cent and scheduled to increase to 12 per cent—will have an important role in both bringing about fiscal sustainability of retirement income provision and delivering better retirement incomes for Australians. Without compulsory superannuation, future retirees would struggle to meet the costs of living in retirement.

Senator Andrew Bragg, no stranger to the financial services sector, recently posed two questions which he says need to be answered for the SG increase to 12 per cent to be justified:

  1. will more super reduce future pension costs to government and, if so, by how much?
  2. how much better would retirement standards be if we had more super?

Thanks to the compulsory superannuation system, Australia is well placed to deal with the financial consequences of these developments. In the face of an ageing population structure, the cost of the Age Pension in terms of percentage of GDP will fall, from around 2.7 per cent to 2.5 per cent of GDP, largely due to compulsory superannuation. This is an extremely good outcome compared to just about any other country in the world.

More super reduces future pension costs given the operation of the means test. Recently released Household, Income and Labour Dynamics in Australia (HILDA) data indicate that since 2003 there has been a decline in welfare reliance among people aged 65 and over. In 2003, 60 per cent of those aged 65 and over relied on welfare for more than 50 per cent of their income, and 36 per cent relied on welfare for more than 90 per cent of their income. By 2017, these figures had fallen to 51 per cent and 28 per cent respectively.

For those aged 65 to 69, fewer than 40 per cent rely on welfare for more than 50 per cent of household income.

Having more superannuation undoubtedly improves retirement living standards. For instance, a retiree with $100,000 in superannuation can expect to have an income of $29,400 (including the Age Pension) in retirement, well above the full rate Age Pension of $24,800 a year.

With superannuation of $150,000, income in retirement increases to $32,140 (again including the Age Pension).

Higher super leads to higher retirement income across the complete range of superannuation balances, although the increase is a bit muted for increases on balances over $350,000 given the operation of the means test. Someone with $350,000 in super can expect a retirement income of $40,690 a year, and $41,980 a year if they have $400,000 in super.

The asset test for the Age Pension is not particularly well designed, the result of a somewhat rushed political negotiation with crossbenchers in the Senate, but it is not a reason to abandon the increase in the SG to 12 per cent. The policy priority should be making the Age Pension means test work more fairly.

Support for the increase in the SG has been publicly indicated by the Prime Minister, Treasurer and Minister for Finance. Hopefully this support will soon be shared by all the backbenchers in Parliament.