Volume 14 Issue 2 - May 2014
How Do Means-Tested Pensions Work? John Piggott Talks About Retirement in Australia
April 11-12, 2014 -- Australian pension expert John Piggott got up extra early on a Saturday morning to teleconference from Sydney, Australia, with researchers in Ann Arbor. Because of the 14-hour time difference, Piggott’s Saturday morning ‘appearance’ at the workshop took place on Friday at dinnertime, from the point of view of workshop attendees in Michigan.
Piggott’s teleconference from half a world away provided insight about retirement policy and outcomes from the Australian point of view. Piggott explained that Australia’s old age pension system is non-contributory and tax financed. Because Australians do not get money taken out of their paychecks for Social Security and Medicare, they must save money for retirement on their own. When it is time to retire, they spend down their retirement savings and then figure out whether they qualify for a government pension. Australians are eligible to access their pension at age 65, but starting in 2017 retirement age will gradually be increased to 67.
Retirement benefits are flat at 28% of average full-time male earnings for singles, and 40% for couples, and are tax-free in Australia. About 25-30% of the population receives a partial pension. And 20-25% of retirees get nothing at all from the government because their income is too high. Wealthy individuals who make voluntary contributions to the retirement fund receive tax concessions in return.
Piggott compared poverty rates in Australia and the United States. Those 65+ years who are below 40% of median income are considered poor. In Australia the poverty rate averaged 4.8% from 1985-2003, while in the US it averaged 12.8% during 1986-2000. In 2014, old age pensions will amount to 4.9% of GDP in the United States and 3.6% of GDP in Australia.
John Piggott is Scientia Professor at the University of New South Wales, Sydney Australia, and Director of the Arc Centre of Excellence in Population Ageing Research. He has published more than 100 journal articles and book chapters and coauthored three books published by Cambridge University Press.