Newly crowned Prime Minister Scott Morrison this morning announced his government would turf the planned increases to the pension eligibility age. He told the Nine Network that plans proposed by former treasurer Joe Hockey in 2014 to increase the pension age from 67 to 70 by 2035 will be scrapped.

“Next week, cabinet will be ratifying a decision to reverse taking the retirement age to 70. It will remain at 67, which is what Labor increased it to,” Mr Morrison said.

“I don’t think we need that measure any longer when it comes to raising the pension age.”

The ticking time bomb will increase

However, according to Market Economics’ Stephen Koukoulas, the decision will just serve to make the “time bomb” of Australia’s ageing population even bigger.

Commenting on Mr Morrison’s call this morning, he described it as “not a great decision” in isolation.

“We know … that there is a budget problem that will only be made bigger by the age pension unless something is done and one of the options that was there from the Coalition was to increase the retirement age,” Mr Koukoulas said.

“That was fine to a point,” he continued, emphasising that it was suitable only to a point as not all workers can physically work to 70.

“But that begs the question of whether the pension age change needed to be accompanied by other measures like … access to pension by other people who perhaps weren't able or willing to work that old. It needed to be complemented by a hike in the mandated superannuation contributions from 9.5 per cent to 12 per cent.”

While these strategies didn’t eventuate, the decision to scrap the slated increases amounts to “making the time bomb a little bigger”.

“We know that the workforce participation from those aged over 65 is increasing, that's a good thing, [but] we're all living longer so we've got this problem where it's really just kicking the can down the road on the short-term political expediency rather than the medium-term budget management issues,” Mr Koukoulas said.

He suggested the policy was at least partially motivated by poor results in the opinion polls.

It doesn’t help that the original policy was “very, very poorly sold”, Mr Koukoulas added.

“We know that with a sober analysis of the age pension issue, it is a problem and something needs to be done about it but not increasing the SG, not having flexibility of the retirement age up to the age of 70 have both made the problem worse down the track,” he said.

A bipartisan approach

CEO of retirement solutions provider Retirement Essentials, Paul Rogan, disagrees, describing the shift as “really positive news” for Australians retiring on the pension.

He said the ability to plan and prepare is critical for a comfortable retirement.

“Australians are concerned about changes to rules about the pension with quite a lot of people fearing that they're going to miss out on something that they feel that they have an entitlement to,” Mr Rogan said.

“So, the removal of any doubt as to the future rules has got to be a positive thing to these people.”

Nevertheless, there needs to be a bipartisan approach to the retirement system, including the age pension and superannuation components.

“While I'm sure there will be arguments about politicisation of it, at the end of the day, people in this age group really do need some solid basis on which to plan their retirements,” he said.

Increase super preservation age to match

To Grattan fellow, Brendan Coates, it’s a “shame” the policy has been removed as it was one of the few measures the Coalition government had in place to address the financial burden of Australia’s ageing population.

He said the problem is “looming larger and larger” and Australians can expect a sharp increase in the amount of spending for the retiree population.

“The pension is really going to start to bite and this was one of the few policies the government had taken to prepare for that reality,” Mr Coates sai.

However, with the decision made, the government needs to think of ways to make it work.

Mr Coates suggested raising the superannuation preservation age to be closer to the pension age.

“The preservation age is already rising from 55 to 60 by 2024, so we're already part way through that process. When they raise the pension age to 67 they should have also increased the super preservation age to at least 62 at the same time,” he said.

“There is no reason why you should have access to super tax breaks as a wealthier retiree from the age of 62 when you have to wait until you're 67 to access the pension.”

Mr Coates added that many other countries are increasing the pension age in response to demographic shifts. He pointed to Denmark where the retirement age for men beginning to work today is projected to be 74 when they retire and to 71 in Italy and the Netherlands, where the pension age is linked to increases in life expectancy.

“The pension age is also expected to rise to 68 years in Portugal, Ireland, Finland and the United Kingdom,” he said.

Responding to suggestions a higher pension age impacts blue collar workers more, Mr Coates said the reality is that most full pensioners in the early years of retirement are also receiving disability support benefits immediately beforehand.

“For that group, changing the age of eligibility wouldn't have done much to reduce their welfare payments, instead it would have merely changed the category of the payment they received,” he said.

“The main group that increasing the pension age would have hit is those that would have received a part-rate pension.

“Wealthier retirees who would not receive the pension at age 67 would have had to wait to 70. They tend to be physically capable of working because they tend to be white collar professionals, everything from teachers, all the way through to doctors and the reality is that group is now going to receive the pension earlier and it’ll be younger Australians that will have to pay the cost of it.”