In the 2014 May budget, Commonwealth Government Treasurer Joe Hockey announced that the age at which people would be entitled to receive the age pension would increase to 70, by the year 2035.
While at the time of writing this proposal still had not been legislated, the mere thought of working until the age of 70 has a lot of people nervous and, confused.
Joe Hockey is by no means telling you that you have to work until age 70. He is telling you that you will not receive any government support in retirement until age 70.
Let’s put this in perspective. Assume that the legislation is passed exactly as Joe Hockey outlined it in the May 2014 Budget and there is a gradual increase to the age pension age from 2025 to 2035. If you are currently 55 years of age, your new age pension age will be 67.5 and if you are currently 49 years of age (or younger), your new age pension age will be 70. If you are somewhere in between, your age pension age will be between 67.5 and 70.
For anyone younger than 49 now, you will have had the benefit of compulsory Superannuation Guarantee (SG) Contributions paid by your employer for almost your entire working life. SG was introduced as compulsory in 1992 by the Keating Labor government and started at 3%. This was gradually increased to 9% in 2002 and is set to increase to 12% by 2025.
This compulsory savings strategy will certainly give you some choices about when you retire and how much money you have upon retirement.
If you are self-employed, it is vitally important that you pay yourself superannuation (this does not apply to those set up as a company structure, as they have to be employees and pay themselves SG).
Without the forced savings plan and possible introduction of an increase to the age-pension age, these people could find themselves working until age 70.