Issue: 341
Sent: 16-06-2009 14:24:01
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Brickbats for the Dollar from the BRICsEmail Marketing Business Opportunity - Helen BairstowWorking Longer - Part 4The Easiest way to do a Client NewsletterWhy Warren Buffett won't buy a NewspaperHow do I use ATC articles for my clients?
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Working Longer - Part 4

Click here to buy - A How To Book of SMSF's by Tony Negline
Lester Wills

Following on from the three previous articles on this issue that referred to research by the Center for Retirement Research at Boston College, this time I am referring to some reports from the OECD, the European Union and various submission to the Australian Senate.

The OECD report entitled, "Ageing Societies and the Looming Pension Crisis" states that Pension reform needs to go hand in hand with changes in the behaviour and attitudes of all actors involved to promote a longer working life. According to the OECD there are three aspects to the issue:

Firstly, if nothing is done quickly to extend working lives, living standards will fall in the course of the coming decades. As the report says, this is not an insurmountable challenge as most countries have considerable room to increase the employment rate of persons between age 55 and 64.

Second, governments can eliminate provisions that subsidise early withdrawal from active life, primarily, early retirement schemes. Some countries have already taken that step, but experience shows that it is not enough. In many cases, the actual retirement age remains 2 to 3 years below the statutory retirement age, because other provisions continue to encourage people to stop working. As they so rightly point out, while it is desirable for older workers to remain in the labour market, steps must be taken to ensure that they have real employment prospects. Their jobs must be of sufficient quality to encourage them to stay on for an extended period. This requires a veritable change in attitude on the part of all concerned.

Third, governments must adapt their employment policies. Public employment services must meet the specific needs of older workers and measures that reduce benefit dependency and facilitate the integration of older workers in the labour market should also be taken. Enterprises must learn to view older workers as a genuine asset. They will need to eliminate discrimination against older workers, invest in their training, and adapt working hours and conditions to fit their needs.

Having said there were three aspects to the issue, they then add a fourth. Workers need to understand that early retirement is not a vested right and that they must get used to the idea of a longer career, perhaps taking on different jobs towards the end of their working lives. I would add that this is particularly important for unions to recognize.

The report concludes stating:

"Issues of demography and older workers go well beyond the reform of pension systems. They are a matter of social equity, not only between workers and pensioners, but also between generations. Without reform, and without a change in attitude, it will be our children and grandchildren who will pay the price."

The European Union has also issued a stark warning that people should be prepared to forget early retirement and work longer, namely, "Pension reforms with a particular focus on reducing incentives to take up early retirement and improving incentives for working longer will be crucial to reverse the trend of early retirement".

In Australia the Senate Select Committee Report entitled "Planning for Retirement" devoted a whole section to early retirement and the need to change people's attitudes.

In its submission the Australian Bankers Association argued that too many Australians want to retire at the earliest possible age but fail to recognize that their savings may not provide enough money for them to maintain an adequate standard of living in their retirement. Similar comments were made by the Institute of Chartered Accountants.

The Business Council of Australia released a report entitled "Age can work: A business guide for supporting older workers". Ms Lahey the BCA spokesperson argued that Australia's ageing population would result in a shrinking work force, which would cost taxpayers and the economy dearly if not addressed now.

She went on to state that: "At the moment there are six taxpayers to support each retiree. With more and more baby boomers moving into retirement, there will be only half that number in 20 years. That's clearly unsustainable, and will mean a massive barrier to economic growth, tax hikes and a decline in government services if not addressed".

Even our previous Prime Minister got in on the act when he argued the need for attitudes to change with regards early retirement! "People need to work longer", he said.

Early retirement is really not the go. In fact it is not sustainable.

As financial planners you are able to point out the true reality to your clients.


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