Home > Economic policy > Should we retire later?

Should we retire later?

June 2nd, 2010

I’m working on a longish piece on how to pay for the global financial crisis, and it seems like a good idea to deal with some side issues separately. One of the standard post-crisis responses of governments, i has been to increase the age at which people become eligible for public old age pensions. This change is likely to flow through to other policies, for example by shaping the presumptions around the tax treatment of private retirement income.

I want to step away from these financial positions and ask the question: does it make sense, in general, for people to retire at older ages than in the past? For those who want the “shorter” version, my answer, on balance, is “Yes, at least in Australia”.

There are two main factors that should influence the age at which we retire. First, improving productivity means that any given standard of living can be achieved with less work, and we would expect at least some of this benefit to take the form of an increase in leisure, including more years spent in retirement. Second, and going in the opposite direction, we are living longer and (because of higher education levels and increased difficulty of entry to the workforce) starting work later[1]. So, with a fixed retirement age, the number of years out of the workforce is increasing, while the number in the workforce is decreasing.

At least in the Australian context, the second of these factors is dominant. In the last 30 years, the expectancy of remaining life at 60 has risen from 18 years to 24. I’ll guess that average age of entry to the workforce has also risen by about 5 years, say from 17 to 22. That implies a “typical” 1980 life course for full-time workers retiring at 65 of 48 years with 30 years pre- and post-work. The comparable figures now are 43 and 41. So, a proportion of the productivity growth in this period has been used to reduce the proportion of lifetime years spent at work, from over 60 per cent to just over 50 per cent.

By contrast, at least for full-time workers, there has been no reduction in annual hours of work. Official full-time conditions were fixed in the early 1980s at 38 hours/week with four weeks annual leave + public holidays and some long-service leave. That hasn’t changed, but there was a big increase during the 1990s in people working longer hours, and that’s been . Given that prime-age adults also have responsibility for children, this doesn’t make a lot of sense.

Those who think employment conditions reflect voluntary bargaining might argue that this apparently unsatisfactory outcome must reflect the preferences of workers and employers. I don’t buy this, at least as far as workers are concerned. But even if it were true, preferences are affected by policy settings such as pension ages. Leaving the pension age unchanged when life expectancy changes pushes people to work harder since their required savings increase. This is, on the face of it, a bad outcome. So, it makes sense for public policy to encourage later retirement, and discourage ultra-long working hours.

fn1. This assumes that time spent at school/uni should not be regarded as “work”. There are some complex issues here I’ll try to discuss more.

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  1. June 2nd, 2010 at 17:29 | #1

    A couple of years ago there was a provocative paper at an actuarial conference arguing that we should abolish retirement ages entirely, and instead strengthen disability benefits for people who can no longer work. In many ways that was the original of the original age pension – age being a much more impartial way of testing disability than invasive medical evidence. Their website is down at the moment, but I’ll come back and link to it if it comes back soon.

  2. June 2nd, 2010 at 17:47 | #2

    I am not sure about your argument here, John.

    First, the justification usually given for extended education is economic. Education is an investment that benefits the nation. By implication, the extra cost is recovered over the shortened working life.

    Secondly, alteration of the pension age would seem to me to have equity and distributional arguments that need to be discussed. For example, it assumes not just that work is available, but that people can do the work. I am not sure that this is true for those in occupations demanding physical strength or dexterity.

    To a degree, the type of change (extended working life) that many argue for is happening already with the reduction/removal of compulsory retirement ages.

  3. peterm
    June 2nd, 2010 at 17:51 | #3

    I think you have recognised the problem but how do you fix it? This issue seems to be causing a lot of problems with public finances of places like Greece and California.
    It seems that public servants such as Police and Fireman are retiring at age 50 on 90% of their salary due to ‘stress’ and then under taking a second career. This is sending the governments broke.

    What sort of policy setting would you use to address this problem?

    If you reduced the pension by the amount earned in their new job there would be no incentive for them to continue working.

    If you reduce the benefits you get into all sorts of problems with genuine early retirees who are not able to start a second career.

  4. MH
    June 2nd, 2010 at 18:03 | #4

    JQ there is of course the other major factor which is very hard to measure – work satisfaction and the work place environment. I am under sixty and have recently retired (self funded) and have no desire to resume full time work for anybody. The last few years where I worked in a very senior management position became very unpleasant for me personally, the final straw was being subjected to the ministrations of a lunatic CEO, a work place psychopath who as the CEO proceeded to set out to demoralise and destroy anybody who they felt may be a threat or would not be subservient to his views and ideas (no matter how wrongheaded), all of the senior management have now left and it is only a matter of time before the organisation is faced with a catastrophe. In that environment and my age I chose to retire, it has meant less future income and required a number of major readjustments but I made the right decision.

    I will still work and keep very active studying for another university degree and we bought a farm some years ago as a bolt hole. When it rains again in good measure I may be able to start farming again which has been on hold now for several years – I thought very carefully about it all and the view I came to was the extra income and work place involvement did not tip the balance to not retiring. Still the law of unintended consequences remains and there is no amount of careful planning and thought can stop you being clobbered by mother nature and we won’t even mention what the GFC continues to play hell with my finances. Still no regret, if you can go early, go, you only have one life and working very long hours together with the stress of a crap work place is simply not worth it.

  5. gregh
    June 2nd, 2010 at 18:46 | #5

    taking the incrementalist approach to change I would favour getting rid of any compulsory retirement age and going down the disability route. That is, if you want to work and are able to then you should be supported in that decision – if you can’t find work or are unable to take work on then you shoud be supported as a member of the community.
    However we desperately need cultural change to further the view that older people are actually capable. Ageism is the norm in Australia. Furthermore we need greater diversity in the economy to allow for greater diversity in economic roles. Whilst many 70+ have a great deal to offer, not a lot of them are going to be productive ‘down pit’. Similarly greater flexiblity in the workplace is needed – not the fake flexibility we have now, where people are employed part-time or causal but forced to work extended hours or not get re-employed, but real flexibility that acknowledges actual human capabilities and needs as primary, not as ‘costs’

    Two minor notes – it may be the case that increased productivity can lead to increased leisure but that is not a necessary link. It may also be the case that years in education are extending but, in the main, those years coincide with work – often deep into highschool

  6. Alice
    June 2nd, 2010 at 19:07 | #6

    Answer to thread heading.

    NO. Its my super and Ill get it when I want to. I dont want anyone telling me if I can work past the old retirement age, when I started putting into super and when I was told the retirement age.
    Ill sue them for breach of contract.

    I want my money, when I was told I could have my super, some decades ago when I started paying super. Not when some new politician decides I canmt have then after all.

    Thankyou – and they can get their hands off it…and so should everyone else. Any takers out their for a massive class action?

  7. Alice
    June 2nd, 2010 at 19:10 | #7

    I dont give a damn what any do gooders think here about when people should work to. As if they know individual circumstances. As if they should.
    I want to work to the retirement age I was told twenty years ago when I first started putting money into this slush fund they call super for governments and fund managers.

  8. Socrates
    June 2nd, 2010 at 19:15 | #8

    I think the question is not “should we retire later” but, for those of us under 50, “will we get the chance”? The inevitable change in retirement rules is going to be a massive source of inequity between baby booomers and those who come afterwards. Pensions and defined benefit super schemes are obvious pyramid schemes. Retirement age 65 was set when male life expectancy was no more than 70-72. Retirement at 55 is ridiculous when life expectancy is now closer to 80. The longer reform is put off, the greater the change needed, and the greater the inequity.

    That being said, if we enjoy our jobs, it isn’t such a problem. If our jobs are a micro-managed hell, it will be quite painful for some, particularly when combined with rising working hours, rising obesity, and potentially declining life expectancy for many. So if we could get back to more reasonable working conditions, and a better work life balance, this sort of reform would be more acceptable.

    Ever since I read David Foote’s “Boom, Bust and Echo” some years ago, I realised this question can only have one answer.

  9. Alice
    June 2nd, 2010 at 19:21 | #9

    The only answer Socrates…is …for some the workplace is hell…for others they like it.
    So give the people the choice. Simple. Dont dictate changes to retirement age and try to force it on all. Isnt that what we have now? In other words work past retirement age “if you want to.”

    What is wrong with that? Nothing. If the government needs to save its fiscal budget – they can use the super profits tax, and the tax haven tax and the executive bonus tax, and the capital transfer out of Australia tax, and the corporate tax avoidance tax and there is a lot more I can think of.

  10. Alice
    June 2nd, 2010 at 19:24 | #10

    Ill also bet a few libertarians in here arent in favour of giving people choice over their retirement age. Libertarians – yeah sure.

  11. jquiggin
    June 2nd, 2010 at 19:41 | #11

    Alice, please stick to one comment/thread/day

  12. Rationalist
    June 2nd, 2010 at 19:43 | #12

    You should retire whenever you want, if you can fund it yourself in its entireity.

    Means tested pension should kick in between 67 and 70 or so.

  13. fred
    June 2nd, 2010 at 19:48 | #13

    We should, if anything, retire earlier.

    Or at least have the option to do so.

    Simply because life is better when retired [voluntarily].

    I started work at age 13 [20-50 hours per week all year] whilst still at school and worked to put myself through uni and then worked full time until age 50 when a [moderate] package and some voluntary part time work and a high earning spouse got me to superannuation age at 55.
    Then spouse joined me a few years later
    Not high income but adequate for our purposes.

    And a full and enjoyable decade or so it has been, hobbies, travel, the pursuit of things we love to do separately and together with a lot of unpaid voluntary community work thrown in.

    I consider us contributing positively to our society both in the past and the present and currently enjoying life as we wish.

    Why shouldn’t everyone have that choice if they so wish?

    OK, how do we organize that becomes a major issue but it should at least be on the social agenda and it should not be assumed that the years of official ‘work’ must necessarily be extended in the future.

  14. JB
    June 2nd, 2010 at 20:11 | #14

    I think people should understand that when the old age pension was introduced in Australia in 1910 – 100 years ago this year – the average life expectancy of an Australian male was 58. For a child born today, the life expectancy is over 80 years – the details are in Australia’s Health, available as a download off the AIHW website (www.aihw.gov.au). The Healthy Average Life Expectancy (HALE) is something like 90% – or in other words, you will have something like 8 years of sickness and poor health in your later years.

    So if we are living longer, and being able to participate in the workforce longer, we better get used to it. In my case, I’m coming up to 49. I’ve come back into a job at the age of 42 with a defined benefit super scheme, so it’s worth my retirement payout/pension to stay around till a minimum 65, and possibly 70, so that I can have a half decent retirement income, because based on the longevity of my parents and grandparents, I’ll be around into well into my 80s and likely into my 90s.

    Although I started working fulltime when I was 18 and had my ups and downs, I look at my father who started fulltime work at the age of 12 in the 30s doing trades and hard physical labour – he’s a WW2 Digger just passed 88. Even I realised as teenager that my father was looking weary at the age of 60 in the early 80s, but I’ve come to the realisation that I’ll be powering on at the age of 60 in the early 2020s. My job is interesting (eHealth policy) and will keep me entertained for the next 10 years if I want to stay.

    Everyone in my agegroup and situation (people starting over in their 40s) realise that the old age pension age will keep receding when we think we’re old enough to qualify.

  15. Alice
    June 2nd, 2010 at 20:16 | #15

    Yes sorry JQ – I post when I get home from work and I simply cant believe the rubbish people post when Im working about ideas for when other working people can access their super and should retire and they wonder why the green vote is rising. Ill keep to one comment per thread / day.
    Australia has gone completely mad with some people telling other working people whats good for them (when it really isnt).

  16. billie
    June 2nd, 2010 at 20:47 | #16

    Many older Australians are today between the devil and the deep blue sea. They need to work but because they are over 45 they are “too old”. If they have managed to accumulate some savings they are too rich to access $234 a week Newstart benefits until they are down to their last $500. It can be a great relief to get a $330 a week Disability pension that comes with concession card and no job search requirements.
    Like my mother and my sister I also haven’t worked since I was 52. Perhaps there is a use by date on technical skill sets.

    In the 1960s factory workers and tradespeople started work at 14 or 15, clerical workers started work at 17 and graduates at age 21, about 5% of the population went to university. Today university graduates start a permanent job at age 25 after completing “internships” and a cocktail of part time jobs, kids can’t leave school until aged 17 – sheer torment for all.

    Australia would be able to fund our old age if it wasn’t squandered on the superannuation products sold by unregulated cowboys that we are forced contribute to. Clean up the superannuation industry and use skilled managers rather than mediocre incompetent insurance company hacks.

    As BB pointed out, our current superannuation system doesn’t cover people who work in multiple jobs, it’s still geared to having one employer for the last 25 years of your working life. Many people are sacked before they can access their pension. It’s definitely not geared to the older worker with multiple part time jobs and an SMSF

    Changing the superannuation system by the simple expedient of a central clearing house for superannuation, abolishing employer based superannuation funds and the super contribution being taken out when PAYG tax is would go along way to reducing the ageism in the Australian work place.

    I think living conditions are becoming harsher for most Australians and future generations just won’t live as long as those people born between 1918 and 1960.

  17. Freelander
    June 2nd, 2010 at 21:07 | #17

    While ‘work till you drop’ does have a certain ring to it, and those who remain healthy can often continue to engage in productive mental activity, and sometimes even into their second century, for those who earn their living in manual labour it is another matter. Even in developed countries, they can simply be worn out, and I think they do deserve the chance to retire. They, also, are not the ones who have the great life expectancy, or the expectancy of health in old age, so for those reasons also, they should get a retirement option.

    As for the former group, still it is probably best to provide options for transitioning to a quazi-retirement, with some work but more recreation time, and planned downtime so the new components (hearts, livers, hips and so on) can be put in (and many would appreciate those options).

    There has been a lot of modelling done on the implications of the demographic change, but a lot more things may be on the horizon than this issue alone, so it is far from clear exactly how much of a problem the demographics will end up being. The real risks are probably macro, with the old folks suddenly withdrawing on mass from super funds with asset price and exchange rate implications. With all the modelling of this, and the other impacts, I would think too many important details would be left out to really be confident about what may happen. I’d have to go with Yogi Berra on this one.

  18. Lizzie
    June 2nd, 2010 at 21:28 | #18

    @JQ “There are two main factors that should influence the age at which we retire. First, improving productivity means that any given standard of living can be achieved with less work, and we would expect at least some of this benefit to take the form of an increase in leisure, including more years spent in retirement.”

    I don’t know how old you are, JQ, but surely you remember the advent of computers which were going to provide the paperless office, enable us all to work from home, and increase our leisure time. Huh! What we have now is more working hours connected to the workplace through “advances” in technology.

    In my final two years I was lucky enough to be able to adjust my hours to part-time work, and finally retired at 68. This was necessary to pay off my mortgage, but my health suffered badly and I definitely could not have held down a full-time job by that age. I am of the generation of women who have little superannuation.

    I would suggest that real, not sham, flexibility must be built into all workplaces – not flexibility that only benefits employers, but one that allows mothers, the chronically ill, and the older workers to participate as fully as they can. I ran a small office and it worked well, making use of the best talents of people who were unable to contribute full-time, but gave of their best in a sympathetic environment. There are many older workers who are slightly limited in their physical strength, but whose mental capacity is unaffected.

    No question, ageism is still pervasive. From the age of 60, I was regularly asked when I was going to retire. Just raising the retirement age will not change that attitude.

    I have

  19. Ernestine Gross
    June 2nd, 2010 at 22:56 | #19


    If the payment for the financial crisis (ie the conversion of privately generated debt into public debt) is not the issue for extending the pension age then I can’t see why there is a problem. The compulsory retirement age of 65 has been abolished. Hence those who want to and can find suitable work for longer periods are free to do so. Furthermore, if my memory serves me right, people who are likely to rely on the age pension are those who helped out during the Hawke government with wage restraints (‘Accord’), who were made to work under workplace agreements, introduced by the Keating government, and whose personal income taxes were not the first to be reduced during the Howard government. The workplace agreements provided the conditions for cases as described by MH; workchoices under Howard made the problem obvious for anybody to see. Not much has changed since then.

    Surely people should be allowed to choose between ‘standard of living’ as recorded in the national account and ‘standard of living’ as assessed by the people themselves.

  20. Jill Rush
    June 3rd, 2010 at 00:03 | #20

    If we are to work to an older age the superannution laws need to allow people to contribute past the age of 75.

    However there has to be a willingness to employ older people and older people in the workforce are often seen as a threat by younger, ambitious people. It can make life most unpleasant as bullying is often the management structure of choice. Ernestine is right there needs to be a level of flexibility in the age that retirement is taken.

    The idea of an age pension is that having contributed taxes all your working life there comes a point where you are eligible based on age.

    The Disability Pension on the other hand caters to a very different group and the two shouldn’t be mixed up because even if some elderly people become disabled they might just be older and weaker but quite capable of everyday functioning without assistance.

  21. Donald Oats
    June 3rd, 2010 at 06:21 | #21

    As someone with a chronic health issue – it cannot be fixed – and having just resumed some part-time work after an absence of three years, due to another health problem (work related stress leading to full-on chronic stress and anxiety, then a major depressive illness), and having blown a big chunk of the down payment for a house on the three years absence from work, I have some rather mixed views about the working later into the twilight years. I’ll add that in spite of the previously mentioned issues, my overall physical health was very good up until about 18 months ago, when I got temporarily flattened by side effects of a new medication – that stopped my fitness regime in its tracks. Now, I am a recovering lard-arse, thinking of attending lard-arse anonymous meetings (aka gym class). Anyway, back to the point I am meandering around…
    On the one hand, if a person’s health is up to it, and they really want to keep working, then I am the last person to want to stop them. On the other hand, if the government wants to encourage a larger grouper of people to work on and on and on like the Energizer bunny, then they are going to have to address ways of setting up part-time initiatives and compromises around shorter working weeks. This is in some ways a delicate issue, not least because employers are understandably – if not acceptably – going to want their labour costs to be on the most productive per unit hour worked employees. While older people are generally able to hold their own through a combination of experience and strong working relationships, they are more visible due to age-related illnesses. My feeling is that age is slowly becoming less of an issue, but the fact that the bulk of aged people (let’s say 60+, sorry Dad!) have at least one age related illness, and probably it is a chronic one. This is just a fact of life, but employers are going to need a few carrots and a big stick to move towards workplaces that do not merely tolerate people with chronic illness, but go the extra yard to ensure that the workplace adapts to the extra needs of motivated, if physically a little more compromised, employees. After all, a retiree today has a good chance of another 20 years of golf and/or bowls, but it may take a hip replacement and cataract surgery and a bypass and diabetes treatment to do it. Modern medicine is extending the post-retirement life as is availibility of good food for those that choose to (or can afford to) buy it.

    Workplaces have eventually adapted to women working in any job a man can do (thank goodness), and they have moved some way on realising that both men and women may have child responsibilities, so I’m optimistic that a shift in thinking on how to address the needs of aging employees is underway, and that it will usher in a more worker-friendly workplace.

    The government could contribute here by smacking state governments about the ears on public transport systems. A youthful 60 year old might tolerate the current system, but a not-so-youthful 60 year old with a dodgy back and arthritic knees might need a better service if they wish to continue working.

    Just some thoughts before catching the bus to work…

  22. Alice
    June 3rd, 2010 at 08:26 | #22

    @Donald Oats
    On “Just some thoughts before catching the bus to work…”

    Where I live Don – there are only buses. They meander around numerous sharp bends like Spit Hill and numerous stops and starts. You are very lucky to actually get a seat travelling even from Dee Why in peak hour to get to work. The queues are very long. Now I defy even a spritely 60 year plus to hang on to the bars and swing round all those bends day in and day out to get to work and dont expect too many of youth, engrossed as they are in Ipods and with earpieces in…to pay enough attention and offer to give up their seat…(what an old fashioned notion now) Public transport as it is now in Sydney certainly doesnt accommodate the efficient?? and productive?? ideals of people working to 70 plus.

  23. Chris Warren
    June 3rd, 2010 at 08:54 | #23

    Trying to stabilise capitalism by increasing peoples’ working life is playing with mere symptoms.

    The only benefit appears to be a reduction in retirement payments and therefore more funding for stimulating a capitalist economy.

    A better proposal would be to switch our defence procurement from offshore purchases to domestic manufactures. Keeping these funds in Australia and providing high and medium tech jobs, would go a long way to stimulate economic activity without increasing debt.

    Australia does not need American jets to defend our borders, when the real threat to our society is economic.

    Capitalism only wants to employ people when their productivity is either in the training cycle or in the 30 to 55 year range. Most unemployed ‘over 55’s’ are not competitive in the labour market. Most people working after 55, are continuing in the same job or industry they occupied in the past.

    So if you want to increase the retirement age beyond the age-point capitalism selects its labour, you have to indicate how you are going to guarantee jobs for all over- 55’s who need to or want to work.

    There is always enough wealth-making work in any economy – the problem is its distribution and remuneration. If corporations take too much, then naturally nothing is left for retirement incomes. Demanding that people surrender retirement is a complete misunderstanding of the problem.

    It is thick-headed jingoism.

  24. Jim Rose
    June 3rd, 2010 at 09:25 | #24

    It is unfortunate that pension eligibility ages are to rise.

    In Australia, there are so many tax concessions for superannuation that the middle class and rich will enjoy a better standard of living in retirement that while working!

    Might be better to reduce all these middle class tax concessions and let people decide for themselves.

    Where I live, there were no tax concessions for retirement savings. Alas, many subsidies were recently introduced big-time as middle class welfare by a labour party.

    Less is now left-over to pre-fund the government pension scheme that the working class will have to survive on in their old age. Ordinary workers will probably be required to work until they drop because of this welfare for the well-to-do.

  25. Cavitation
    June 3rd, 2010 at 09:32 | #25

    I think it would make sense, and be fairer, to set a proportional figure for a retirement age – that the retirement and a pension would be available for the oldest “x” % of the population, and automatically adjust the age for this as demographics changed. Setting this figure could be done from historical data – looking at the proportion of the population over 65 years old over the last 50 years, and selecting the average.

    In a similar manner, income support should be given to the “y”% of the poorest in the population, and adjust the actual income amount that triggers this payment according to economic developments. Similarly tax bands could be based on income percentages, rather than actual $income figures.

    This makes sense to me, but does not get used. Why not, I have to ask all the economists reading this?

  26. Fran Barlow
    June 3rd, 2010 at 09:38 | #26

    I would largely agree with the general thrust of your observations, PrQ. In any society where resources are not, for practicval purposes, infinite, choices must be made opver how much benefit each individual can draw from the labour of others, now, and into the future. What choices are made is a question that will reflect each person’s views about equity and their broader vision of the nature of community.

    My own vioew is that the rather idealised vision of retirement that one sees in the propagnda for self-funded retirees is simply not sustainable. While many of us working will love the idea of aimless wandering about on lightly populated beaches and leaisurely breakfasts from the pergola with the ocean views, really, this is good for about 4-6 weeks. People need to be doing things to stay happy, IMO, and by and large that means “work”, where “work” simply means “purposeful activity that can be recognised as valuable by others”. We are first and last, social beings. In societies such as ours, paid employment is the most common way to mark out such activity.

    Back in 1908, not only did people in Austrlia die a lot earlier, but they spent a significant period of the time prior to death in a poorly managed descent into death. In short, trying to compel people to give up significant portions of whatever relief they had from this in working (possibly aggravtaing their condition) rather than looking after themselves and getting as much time as they could to enjoy the fruits of their contribution was rightly seen as unreasonable. In that context “work until you drop” was a fair enough claim against such practice.

    These days of course, our medical systems are far better both at preventing and managing illness than was the case before — and indeed, the expense of that system as it applies to people who are ageing and suffering from chronic disease is one of the issues driving a reconsideration of who should work and who might not. There is, moreover, some evidence that after the initial benefits of releif from work have been had, people tend to feel less happy and less satisfied and have worse health outcomes after retirement. This is hardly surprising as many of our most important social relationships are attached to our work contexts. Separation from all that can be alienating.

    It seems to me that there is a case for, at the very least, inviting people approaching retirement age to voluntarily defer getting cash-based pension and super benefits 9and rewarding at least those on modest incomes with cash augmentation of their super and/or more permissive treatment of their ultimate pension claims. There should be an emphasis on supporting people who are fit to work (full or part time) in work and wish to with whatever ancillary services are needed. Conversely, if people are unfit to work even part-time then means and asset-tested support for them to live in physical comfort, dignity and with reasonable autonomy ought to be provided, regardless of their age.

    It is clear that advancing technology in health, and the increasing scope we will have to work from home makes this scenario a lot more feasible than would have been the case even 20 years ago. It should be begun.

  27. boconnor
    June 3rd, 2010 at 09:56 | #27

    Fran @ 26

    Excellent points and observations – agree with all of them.

  28. Joe
    June 3rd, 2010 at 10:02 | #28

    In 2000 Frank Stilwell wrote in his book Changing track “Andre Gorz’s proposal for more flexible work-liesure relationships is also worthy of further consideration… Recognising that only, say, 20,000 hours need be worked by each person over their lifetime in a technologically advanced society in order to generate the goods and services required for a reasonably comfortable existence, individuals could choose when to work them… for example, by working full time for fifteen years straight, by working thirty years half-time, by mixing work with periods of education or liesure, and so forth… Much social policy concerned with redistribution of income over time (eg… aged pensions) could be rendered redundant in such a context.”
    Ten years ago this was a bold proposal, now of course it would be classed as a ridiculous fantasy. (OT, he mentions “ecological tax reform” – what happened to that?)
    Many years ago when I was a Commonwealth public servant I tried to get my colleagues to consider bargaining for increased annual leave instead of a pay increase (2% pay increase = 1 week’s leave); almost everyone said they needed the money more. Of course if over the last twenty years we had been taking only 1% of our pay increases as increased annual leave, we would now be working 38 weeks a year! Imagine Kevin Rudd’s reaction if the ACTU said they were after an increase in annual leave!

  29. Chris Warren
    June 3rd, 2010 at 10:13 | #29

    Many years ago when I was a Commonwealth public servant I tried to get my colleagues to consider bargaining for increased annual leave instead of a pay increase (2% pay increase = 1 week’s leave); almost everyone said they needed the money more. Of course if over the last twenty years we had been taking only 1% of our pay increases as increased annual leave, we would now be working 38 weeks a year! Imagine Kevin Rudd’s reaction if the ACTU said they were after an increase in annual leave!

    Having considered these issues, the points are:

    Pay increases are reflected in salary for superannuation purposes. This benefit is lost if pay is traded for extra leave.

    Pay increases in APS are generally moderate and follow Treasury CPI forecasts unless CPSU members take industrial action. Such pay increases are needed to maintain household budgets. You cannot pay off your mortgage withn 2 weeks extra leave.

    Some may prefer the extra leave but this can be accommodated by purchased leave arrangements.

    So this outcome appears to suit everyone. All superannuation benefits are protected and those that want 2 week extra leave can use “purchased leave” provisions.

  30. Joe
    June 3rd, 2010 at 11:22 | #30

    @Chris Warren
    re your first point, this could be changed.
    re 2, if a lot of people were taking holidays, it would change a lot of things – house prices…
    re 3, purchasing extra leave doesn’t work if only a few people try to do it – you just can’t get the time off.

  31. MH
    June 3rd, 2010 at 11:33 | #31

    JQ – I am not convinced there is a policy ‘lever” for these issues and particularly not productivity or working hours as a means of continuing to prop up domestic demand, company and personal and tax revenues. If we look at the Japanese experience as a guide to where we are headed, a not unreasonable proposition given their adoption of Keynesian theory, then the GFC will never be paid for by Western countries such as Australia and others but deficits as a ratio to GDP will simply increase to the Japanese level.

    My assessment of the productivity issue is that improvements and benefits plateaued (probably in the mid to late 90’s) due to the limits of mechanical and computer technology productivity increases and has stalled due to excessive process and system complexity and the failure of the private and public sectors to invest appropriately in skill enhancement and development combined with the permanent changes in the sectoral employment mix and opportunities in Australia. The substitution of longer working hours merely masks that situation and I remain unconvinced that there is a correlation between longer work hours and productivity, probably there were inital marginal gains but then you go down the back end of the curve with little improvement as the theory of diminishing returns suggests it would.

    The very significant changes in what we are able to produce, make and what we sell is evident in the never ending BOP deficits even though the deficits have shifted from the public to the private sectors. The only significant opportunity we had to change this mix and get ahead of the game, such as sustainable ecological agriculture, alternative energy systems and products has been squandered by the failed policy vision of the current Federal Government. We are left with the same problems we had in the 80’s but worse, now we are all Japanese.

    It is also apparent that the longevity improvements are applicable to only the current age cohorts above 40 years of age and we are about to see the reality of a decrease in life expectancy in the under 40’s as the affects of a sendentary lifestyle and the changes to diet become apparent as the public health problem of diabetes etc., explode almost exponentially.

  32. Justus
    June 3rd, 2010 at 11:57 | #32

    “I think people should understand that when the old age pension was introduced in Australia in 1910 – 100 years ago this year – the average life expectancy of an Australian male was 58. For a child born today, the life expectancy is over 80 years”

    Someone always writes something like this and they are always wrong. Comparing average life expectancy is wrong but people always do it. It includes things like infant mortality that have no bearing on old age pensions.

    The relevant measure would be something like “life expectancy at age 65” which still shows a problem but nothing as radical as claimed above. In 1940 a 65 year old would live to 77. In 2010 a 65 year old will live to 82. By 2070 a 65 year old is expected to live to 85. Over a 130-year period 8 years will be added to the “age lived in retirement”.

    Those 8-years shouldn’t be ignored and will still cause massive problems. But totally misrepresenting the facts makes it easy to ignore crusaders.

  33. Freelander
    June 3rd, 2010 at 12:14 | #33


    This suggests the problem is not that they are living too long once past sixty-five, simply that there are now far to many of them.

    Something like the kangaroo population. Why don’t we use a similar solution? A periodic culling of the old would fix things. This could even be a further source of revenue for government. Government could issue licenses for old age pensioner hunting season. If the process was converted to reality TV, further revenue could be obtained from the TV rights. Many formats present themselves. You could even vote off your least liked oldie. I am sure it would make riviting viewing.

  34. Chris Warren
    June 3rd, 2010 at 12:38 | #34

    Joe :

    re your first point, this could be changed.
    re 2, if a lot of people were taking holidays, it would change a lot of things – house prices…
    re 3, purchasing extra leave doesn’t work if only a few people try to do it – you just can’t get the time off.

    I cannot see the logic in the first two lines?


    If you have a reasonable union structure then time-off for purchased leave is usually not a problem.

    If a local management refuses time-off in an unreasonable fashion they get caught-out through the usual management staff-representative consultative arrangements.

    If you do not have a reasonable union presence – then you get nothing.

  35. Helen
    June 3rd, 2010 at 13:59 | #35

    Many people will not be able to retire “early” as they do not have enough super/investments/housing security. The superannuation system is skewed to higher income, full time workers. The majority of women have very little super as they have been undertaking unpaid care of children, older relatives etc. Others working in casualised low paid industries also do not have sufficient savings etc. A small, highly educated group of people on higher incomes during their working lives will indeed be able to retire early. My friends and I will be working until pension eligibility and beyond as we and many others are not part of that elite.

  36. Jim Rose
    June 3rd, 2010 at 14:34 | #36


    You raise good points about who gains from the current superannuation regime.

    Compelling lower income groups to save through superannuation means they substitute saving for housing for retirement savings. These retirement savings can reduce their old age pension because of income and asset testing.

    If the low paid were free to choose, they may prefer to save for a house, which is not subject to an old age pension asset test, and collect most or all of the old age pension. Compulsory retirement savings does little for overall savings because of portfolio substitution, but there are important exceptions.

    If you are on a low income, and have little to save to begin with, your chances of making portfolio adjustments to offset the effects of compulsory superannuation contribution on the composition of your savings are much smaller. The low-paid are compelled to keep a lot of their savings in a saving format – superannuation – that may not be to their advantage.

    A low paid worker may prefer to save for the basics of life and rely of an old age pension paid out of taxes, including the taxes of those who are better off than them.

  37. Richard Pickup
    June 3rd, 2010 at 15:21 | #37

    As JQ points out we actually do not live so much longer after 60 than we did in the past. Though life expectancy at birth has risen a lot since 1900 life expectancy at 60 has not risen nearly as much. ie the rise is mainly due to lowing infant mortality. 8 years in 80 is not such a big deal. I am not sure if there is any evidence that we are in better health or we are just taking longer to die. It may be that you retire to die at the same point as we have for the last century.

  38. Justus
    June 3rd, 2010 at 16:39 | #38

    @Jim Rose, given much of Australian housing prices I don’t think you even really need the “lower income” qualification for your argument to have force. I’m sure quite a few middle income people would prefer to have a few extra percent per year go toward a house deposit that they can use in the next 3–5 years rather than a super that solely by virtue of the distance till withdrawal has a lot more risk around it.

  39. Stephen L
    June 3rd, 2010 at 17:11 | #39

    It’s not just that life expectancy has increased, even at 65. It’s also the kinds of jobs we are doing. When most people worked in manual labour a retirement age of 65 was too late – they were physically broken long before. Now that most work is mental people are not only up to doing it later, but keeping working is good for their mental health.

    The idea of working full time for x years and then suddenly going to nothing has never made sense to me. I’ve only ever had one year of working full time. Working part time I’ve managed to save a little towards retirement, but not enough to be very comfortable if I stopped at 65, but I can’t imagine wanting to. Rather I anticipate slowly tapering off, going from 3 days a week at 50 to 2 at 60 and 1 at 70 (well probably two afternoons actually). Allowing for a bit of flexibility for travel I can’t imagine why anyone would find this less desirable than a sudden stopping.

    Of course this should not be enforced on those who prefer something else, but I do think there is a role for the government in challenging employers’ attachment to the historic system, and some sort of phase in of the old age pension might be appropriate.

  40. gregh
    June 3rd, 2010 at 17:34 | #40

    so true Helen – neither my partner nor myself have much super. The whole super thing was a con partially designed to suck working people into believing their interests lay with the stock exchange. And by basing it on percentage income it guaranteed increased disparities in wealth.
    A guaranteed ‘living wage’ would be much better and I don’t see why that should be different for anyone, able, disabled, young or old.

  41. Freelander
    June 3rd, 2010 at 17:59 | #41

    There are a couple of interesting directions for empirical research to shed some light on the aging population, increasing post sixty-five life expectancy and accumulated super and savings. They would involve getting data on and looking at the distribution of life expectancy, post sixty-five, by occupation, by income (at a point in time and life-time), savings, and accumulated super. If health data were also available they would be useful too. Results from this sort of study, assuming it hasn’t been done already, would be useful in informing policy in the area. I imgaine the detail would be very useful. Too much can be hidden by averages. Actuaries might have some of the data, or at least be able to suggest where it might be sourced.

  42. Alice
    June 3rd, 2010 at 18:32 | #42

    @Jim Rose
    “Less is now left-over to pre-fund the government pension scheme that the working class will have to survive on in their old age. Ordinary workers will probably be required to work until they drop because of this welfare for the well-to-do.”

    For once I agree with Jim Rose.

  43. Alice
    June 3rd, 2010 at 19:28 | #43

    @Fran Barlow

    Fran you say

    “These days of course, our medical systems are far better both at preventing and managing illness than was the case before — and indeed, the expense of that system as it applies to people who are ageing and suffering from chronic disease is one of the issues driving a reconsideration of who should work and who might not. ”

    Not the case at all in public hospitals….our medical systems are better at preventing and managing illness… just like our legal systems are better at protecting people’s rights. Only for those who can afford it.

  44. Ernestine Gross
    June 3rd, 2010 at 19:30 | #44


    @41. Agreed.

  45. Jim Rose
    June 3rd, 2010 at 19:54 | #45

    @Fran Barlow

    The contribution of aging to the growth in health care spending is surprisingly small.

    One-half of a percentage point out of 3 to 4 percentage point real growth in spending per year.

    The rest is due to medical innovation, as I recall, because of all those wonder drugs and life-saving and quality of life enhancing medical treatments. A range of medical procedures and countless drugs commonplace today were rare if not unknown in the 1980s and 1970s.

    Medical innovation is going to get even more costly with all those cures for cancer, diabetes, stokes, senility and so on arrive and I am sure they will not come cheap. It does not help either for health care to be a labour intensive service in a capital rich society.

    Medical care was cheap for our grandparents because there was not a lot the doctors could really do for you compared too today. It was maybe the 1920s or 1930s before even going to a hospital became a net gain in terms of a safe place to go to get better. Hospitals back then were full of infectiously sick people with few known cures. The conquest of now forgotten endemic diseases with vaccinations is as recent as the 1950s.

  46. Donald Oats
    June 3rd, 2010 at 20:18 | #46

    Absolutely. I loved Sydney buses to work – not! Of course, after I moved to Murray Bridge, the Chatswood to Epping train line became active, and that would have been a single train trip to work with a short walk. I remember catching a train from Kirribilli to the city just so I could catch a bus at a bus stop where I could get a seat and a fast-ish trip.

    While my current bus transport is not ideal due to cost and limited departure times, the early bus to Adelaide and the late bus back home – a total of 160km return trip – takes less time than my usual Sydney time. And, it is air-conditioned, and it is reliable. I can actually read on the bus at night thanks to the reading lights above each seat; oh, and they have seatbelts! Makes for a looong day though, and sometimes I get to Adelaide and I’m hurting too much to go into the office – like today, for instance.

  47. gregh
    June 3rd, 2010 at 20:18 | #47

    @Jim Rose
    Proximity to death is a better indicator of cost than aging – although of course they are related. You are correct that increased possibilities for intervention contribute significantly. But there are also other problems that are not as well known – eg the increasing age of the healthcare workforce which, combined with increased international demand and increased worker mobility, will place enormous pressures on workforce recruitment and retention.

  48. Jim Rose
    June 3rd, 2010 at 20:31 | #48

    @Donald Oats

    Buses and trains are a good way to get the middle class to their office jobs in the city. They are not very good at much else because the trips have so variable destinations, multiple stops and unpredictable departure and return times. Young children get a bit inpatient too if they have to wait.

    These idiosyncratic trips would, if anything, increase with age.

    I take the bus to work. Recently moved house and now take the stop two down from my old one. Civilisation collapsed! I am no longer guaranteed a window seat on the bus!

    I prefer cordon pricing and time of day pricing for car users.

    The people plus 65 do not pay for bus travel off-peak where I live.

  49. stockingrate
    June 3rd, 2010 at 20:57 | #49

    “improving productivity means that any given standard of living can be achieved with less work”

    I don’t believe this is the case in the main cities in Australia if the cost of a given residence location for unleveraged labour at a given age and occupation (and single wage) is accounted for.

    20 years ago in Sydney I took note that the dentist etc whose father was a dentist etc could typically not afford the same quality of residence. My impression is that there has been substantial deterioration since: families in the west not advantaged by capital or very large incomes pay heavy road tolls to access the Harbour and “free” central cultural activities and institutions. (locally it is my impression that former housing commission homes in Brisbane would require a pretty good wage to gain secure access to today)

    Similarly I was dismayed several years ago to meet a young graduate in a professional role with a v. large company, commuting from the parental home in the Blue Mountains because the cost of acceptable accomodation with easy city access was prohibitive. This would not have been the case 20-40 years ago- so in my assessment the standard of living for many Australians has fallen in very important ways.

    Furthermore the immediate standard of living in Australia has been distorted by the rapid and large growth in private and state government debt, divestment of equities, and a boom in minerals. Foreign debt cannot increase forever, at least not at the rates underpinning the current asset price increases, nor can assets -QR, state forests, housing, education, equities – be divested overseas limitlessly.

    The “correction” may be imminent, and if the “correction” accelerates global wage arbitrage any given standard of living will only be achieved -for most Australians – with more work than is humanly possible.

  50. Ed
    June 3rd, 2010 at 22:02 | #50

    I recall reading an interview with a German auto worker who after hearing that the retirement age had been increased to 69 years said to the effect “Why would they increase the retirement age to 69 years when a man of 50 years has difficulty coping with this physical work ?”
    Here is my point: I do not know anyone, over the age of 55 years, who has worked in a trade or done physical labour all their lives who is not physically buggered (no homo). What about the people who have work in the battery hen environment of the call centre who are mentally exhausted ? What about those who work in environments they can barely cope with? What about those who are just not physically and/or mentally capable of working on?
    Increasing the pensionable and retirement age is nothing less than a betrayal of everything our economic system has promised us.
    On the other hand I have friends, well off, working past their retirement age sitting on boards, doing highly paid and satisfying consulting and/or part time work. Most people however will be doing low paid unsatisfying work at unsociable hours. Survival at best. Only the “knowledge workers” will do OK.
    This is where economic theory goes off the rails. It does not start with an assessment of what will happen to those affected and what those affects may be. My guess is that most, if not all posters here are “knowledge workers” who see things through their own situation.
    I’m surprised there has been no public backlash already, but there again we are an obedient lot.

  51. Ed
    June 3rd, 2010 at 22:16 | #51

    [email protected] and [email protected]
    Missed your detail in my scan. Agree with your sentiment.

  52. Ernestine Gross
    June 3rd, 2010 at 23:27 | #52


    “I recall reading an interview with a German auto worker who after hearing that the retirement age had been increased to 69 years said to the effect “Why would they increase the retirement age to 69 years when a man of 50 years has difficulty coping with this physical work ?”

    The mandatory retirement age in Germany was raised from 65 to 67 years (not 69) in early 2007 (ie before the GFC).

    Apparently, there are some minor concessions for people in some occupations. But public servents are not allowed to work beyond the mandatory retirement age.


  53. Jim Rose
    June 3rd, 2010 at 23:28 | #53

    It is hard to judge post-65 labour force participation rate if access to occupational and state pensions requires that your quit your job.

    Where I am, most retirement savings is through defined contribution rather than defined benefit schemes. Eligibility for access is related to reaching a certain age not on employment status or quitting a long-term job. Labour force participation of seniors is much higher because retirement savings access is decoupled from quitting your current often long term job.

  54. Ron
    June 4th, 2010 at 00:49 | #54

    USA has about 100 trillion in unfunded liabilitys , and its cost will be borne by future generatons

    I can not see how one can answer Host’s query without knowing oz Govt capacity to then pay , unless one does not care if a resultant Govt Debt is passed on to then curent workers , with ita neg consequenses Even aleged ‘self funded’ retirees if they live beyond average life age then may become a Govt Liablity , so evn that Group can hardly claim they should be able to retire whenever they want to seeing at a point it may be tax payers money financing them

    In long term , supa guarantee being gradual increasd from 2013 to reach 12% from present 9% will giv a better retirement base for those workers entering workforse but that is a longterm soluton , which would be a LOT bettr had Howard increased Keatings 9% rate at all during our 12 years boom but Howard wasted boom moneys instead on midleclass welfare polisys cynically just for votes

    It however does seem econamicly odd in productivity terms that fixed retirement forses some of our most capable & experienced workers/managers with all there accumulaqted wisdom to be lost simply on a age basis alone , a waste personally for themselves , there busines and our Country

  55. Alice
    June 4th, 2010 at 07:59 | #55

    “This would not have been the case 20-40 years ago- so in my assessment the standard of living for many Australians has fallen in very important ways.”

    and Chris also noted that prolonging the working lives of people is attempting to fix a symptom rather than the cause of capitalism. Some commenters have suggested we cannot exert too much pressure of bovernment budgets expecially given the size of deficits now – yet very few have joined the links to initiatives suggested by other threads – like the proposed rent resource tax.

    Every country appreciates its entrepreneurs and business leaders but many countries also may need to start to look at the extraordinary benefits granted to largish business firms over the past two / three decades under policies of lower taxes, lower regulation and free movement of capital. In reducing the tax burden for businesses and entrepreneurs and also in granting “middle class welfare” have we created a leak in the bucket of government finances that requires a great many more people to be forced to live with a lower standard of living (and thus ultimately to a lower ability to contribute).

    The initiatives needed should address the cause of “lower living standards” generally, rather than to patch over symptoms by prolonging people’s working lives. Some clearly need to pay more income tax in this country but I suggest it is not the average working Australian. That is why the rent resources tax is a good idea but it is a first step only and other large businesses should examined as well. The failure of trickle down is at the very heart of the problem. There is a large problem in many countries budgets (which will not be corrected by extending residents working lives) which is the culmination of policies which allowed profits to freely move untaxed around the globe.

  56. Jim Rose
    June 4th, 2010 at 12:31 | #56


    Any attack on capitalism these days is a direct attack of the retirement savings of ordinary workers.

    We live in the age of pension fund socialism.

    The majority of equity capital is owned by pension funds and other collective investment vehicles competing for the savings of ordinary people.

    Much of the rest of physical capital is owned by workers through home ownership

    In the age of human capital, 70-90% of all capital in the economy is human capital. The notion of unskilled workers labouring away with the capital supplied by the bosses is 19th century throwback.

    The rentier rich has been long replaced by the working rich. They make their fortunes in their own life times – sometimes as business entrepreneurs, sometimes through rent-seeking.

    It is also the age of specific human capital, with a proliferation of technologies and products. The rising specialisation of firms and their production inputs has forced firms to try harder to find those inputs that suit their needs best. Management has the task of finding the right inputs. The role and reward to managers has therefore risen.

    An aging society will lead to a rebalancing of political power more into the hands of the elderly. This rebalancing will lead to more efficient taxes, more efficient spending, a shift in political power from those taxed to those subsidised, and shifts in political power among taxed groups.

    The growth of a politically articulate middle class explained the growth of government in the 20th century. This growth was tempered and streamlined after 1980s through tax reform, deregulation, asset sales and other state sector reforms because the deadweight costs of growing taxes and regulation was provoking too much resistance from the taxed and regulated groups.

    Government size seems to have been constrained in the past primarily by its ability to raise revenue. Growth rates in the new century appear to depend on factors constraining government’s ability to continue to expand the tax base.

  57. billie
    June 4th, 2010 at 16:37 | #57

    That’s really unfair.
    If like me, you were drilled from high school to expect to work from finishing university at age 21 until age 55 if you could work for an organisation with early retirement, it’s unfair to move the goal posts the closer one gets to the finish line.

    There are plenty of ways of reducing the waste in our current super system. Get rid of financial advisors, avoid retail super funds, employ quality[not expensive or cheap] personnel in super funds management. Get banks and insurance companies out of the super fund arena – they are in business to make a profit – ergo members contributions are being eaten by profits.

    An example of stupid investment decision by super fund. Queensland Nurses bought Mt Hotham and spent lost of money upgrading the resort. The skiers are well pleased but the super fund had difficulty finding a buyer with deep enough pockets to pay for all the investment.

  58. Freelander
    June 4th, 2010 at 17:05 | #58

    Jim Rose :

    Government size seems to have been constrained in the past primarily by its ability to raise revenue. Growth rates in the new century appear to depend on factors constraining government’s ability to continue to expand the tax base.

    Yes. I see we are in agreement for a change.

    Governments’ important role in facilitating productivity is becoming appreciated more and more.

    Constraints placed on the growth of government, and its ability to efficiently raise revenue to play its vital role, are likely to constrain growth rates in the new century. Fortunately, that is now less of a worry. All this once fashionable, low tax, laughter curve, supply-side nonsense seems to have finally gone the way of the dodo.

  59. Alice
    June 4th, 2010 at 22:42 | #59

    @Jim Rose
    Jim Rose says
    “We live in the age of pension fund socialism. ”

    Just when I finally thought you had made a point I could agree with (alas not this one). Id like to counter with the comment that actually we live in the age of super fund capitalism Jim Rose and pension fund socialism has died leaving lots out of pocket in their old age.

    We also unfortunately live in the age of share price bonus fund capitalism for people like mining executives (and other increasingly greedy fly by night bosses undisturbed and unconstrained by what they pull out of the company to remunerate a small elite) and its leaving increasingly less money for employees and income taxes and thus pension fund socialism for ordinary workers.

  60. Jim Rose
    June 5th, 2010 at 00:18 | #60


    Managerial slack troubles you.

    It is possible to gather information on executive compensation as a share of the revenues of public companies. They are in their annual reports.

    A common estimate of the pay-performance relation (including pay, options, stockholding, and dismissal) for chief executive officers indicate that CEO wealth changes $3.25 of every $1000 change in shareholder wealth.

    If your hypothesis about managerial slack is true, the risk adjusted returns from more conservative investment strategies will outdo those with greater exposure to shares. I do not know the extent to with regulation stops you from being free to choose in your retirement savings vehicle and level of risk in your investment strategies. An important question.

    This portfolio rebalancing will unintentionally but still very effectively stave capital to the mining and other sectors that mishandled the incentive conflicts and managerial slack you decry.

    Mining sectors are more heavily populated with active investors and speculators so incentive conflicts and managerial slack will be uncovered sooner because of the pure profits of superior alertness to the same and buying and selling share, futures and options accordingly.

  61. Alice
    June 5th, 2010 at 08:43 | #61

    @Jim Rose
    You assume the market is unnaturally intelligent Jim Rose and you also assume shareholders have more power than they do to rid themselves of managerial slack and excess, even if they dont want to rid themselves of shares in the company.

  62. Jim Rose
    June 5th, 2010 at 10:51 | #62


    The market is a process that gets by with a minimal amount of information.

    People can watch a few pointers to learn what they need to know to adjust their affairs. Those few pointers are a few prices that signal through profits and losses if they need to buy more or less, innovate in what they do and look for new sources of supply. They do not to need to know why to do what needs to be done.

    The discovery of corporate governance devices that control incentive conflicts between owners and managers are an entrepreneurial opportunity for pure profit. Entrepreneurs profit from developing internal controls that assure current and prospective investors in managerial firms that their interests will be protected and share values are at less risk.

    Limits on self-serving discretionary behaviour by directors and managers include:
    • division of decision management rights (initiation and implementation) from decision control rights (ratification and monitoring)
    • performance-based compensation to motivate managers to act in the owners’ interest such as giving managers stock options staggered across time as a bonding device instead of cash bonuses;
    • career concerns that tie the labour market prospects of managers to having worked in successful companies
    • M-form corporate hierarchies to divide power and allow comparisons and improve monitoring;
    • competition within the ?rm for top-level management positions; and
    • Competition in the product market which assures that ?rms whose managers engage in too much discretionary behaviour will fail, costing the managers their jobs.

    Changes in the prices of shares. loans and corporate bonds are the means by which capitalists have supreme control on the supply of capital to errant managerial firms. These prices are determined by speculations in the capital and money markets and decide how much capital is available for the conduct of each firm’s business and it creates performance and survival incentives to which the managers must adjust their operations in detail.

    Capitalist-entrepreneurs steer capital to the better performing firms. Investors will not freely yield control of their assets to people who are not expected to act in their best interests.

    I do not know the extent to which regulation stops you from being free to choose about retirement savings vehicles and formats including home ownership.

    Regulatory capture is as common in retirement savings as it is elsewhere. Regulatory capture is inherent to corporate capitalism, which you support, and not to the free market, which you oppose.

  63. Alice
    June 5th, 2010 at 15:33 | #63
  64. Jim Rose
    June 5th, 2010 at 16:44 | #64

    Your points about managerial slack, if valid, should found a low-risk, high yield savings and investment strategy. You have your whole working life to profit from it.

    You know of all these over-priced shares to avoid because of managerial slack, other under-priced shares because of better or even hands-on governance, and under-priced bonds because the risks of buying shares are under-estimated because of unchecked managerial slack. Long-run super-normal profits from buying and holding bonds are just going begging.

    The risk facing you when investing to profit from managerial slack is managerial slack is common knowledge. Managerial slack was even known to a Scottish tax collector and second hand dealer in ideas when he wrote the Wealth of Nations in 1776.

    There is a large literature on share price anomalies such as the January effect, the holiday effect and so on.

    These anomalies disappeared soon after they were discovered because people profited from buying the under-priced shares, which eliminated the price gap.

    Your hypothesis is a share price anomaly known for hundreds of years persists and has defied all human ingenuity to profit from attacking its cause: managerial slack.

    The ageing of society will increasingly stave of capital to higher risk investments such as shares. The retired will want lower-risk and more stable returns on their nest-eggs, and these savings of the retired will be a more and more of all savings. Lifting retirement ages will make little difference to the size of these retirement nest eggs.

    This growing caution of the average investor, who may be retired, will increase further the returns from reducing risks of investing in shares. This is to win older investors back to the fold. This growing caution will increase the returns to you of investing at the ground floor before the organisational innovations take hold.

    P.S. Do you have any explanation of the proliferation of passive investment funds such as Vanguard that buy and hold diversified portfolios designed to duplicate and track the share market index and minimise trading and other costs?

    P.P.S Most professional money managers fail to beat the market. For the capital market to remain efficient, there have to be lots of these rational investors who believe enough in the market’s inefficiency to spend their careers trying to beat it. Their entrepreneurial alertness correct pricing errors that will always emerge. Thank you for your poorly paid services.

  65. Alice
    June 5th, 2010 at 17:21 | #65

    @Jim Rose
    Hey thats OK Jim Rose – lots of services and returns have been poorly paid of late – I am not alone.

  66. June 5th, 2010 at 19:33 | #66

    At the risk of pouring oil on troubled flames, as Sam Goldwyn is reputed to have remarked, I visited these issues here in some detail over a year ago. To recap, my general conclusion was that the government pension age could be raised gradually, and it could be made equitable for those just coming up on the retreating pension age by providing matching income tax breaks that cut in at an entitlement age that gradually lowered. That way, people could save and invest productively so they could self fund retirement or shorter work earlier than the retreating pension age (a point that some readers missed). Without that investment generating real returns, it wouldn’t be an actual improvement over funded superannuation schemes – but that isn’t a very high bar to clear, what with their fee structures and all.

  67. Jim Rose
    June 5th, 2010 at 20:01 | #67


    Governments have been using backdoor methods to put up or set the background to put the old age pension qualifying age for some time and to compel people to fund their own retirements.

    The lift in Australian pension age from 65 to 67 finishes on the 30th anniversary, as I recall, of the compulsory superannuation. No coincidence. The implicit tax on superannuation for ordinary workers is high because it reduces or eliminates any old age pension they might otherwise get.

    In New Zealand, the tax incentives for the Kiwisaver retirement savings schemes are conditioned on access to accumulated savings being limited to the same age as the eligibility age for the government old age pension, called New Zealand superannuation. New Zealand superannuation has no income, asset or work tests and the eligibility age is 65. This eligibility age increased from age 60 to 65 between 1992 and 2002.

    Setting the Kiwisaver eligibility age equal to the government old age pension, called New Zealand superannuation rather the current age of 65 could have been a coincidence.

    There is a mainly pensioner supported party that narrowly lost its 6 seats in the NZ parliament last election, but it is trying to stage a comeback.

    Do not be surprised to see grey power and family first team up for the Oz Senate. Their mix of social conservatism and fiscal conservatism but only for everyone else will be a dangerous combination.

  68. Freelander
    June 5th, 2010 at 20:03 | #68

    Rather than raise the pension age, why not put a limit on the age until which you continue to receive a pension. Why not stop the pension at 80? Say 80 and you’re out? Out on your own? After all, 80 is a good innings.

  69. Freelander
    June 5th, 2010 at 20:11 | #69

    @Jim Rose

    Yes. Where else would one look for world’s best practice?

    Iceland, perhaps?

  70. Jim Rose
    June 5th, 2010 at 21:00 | #70

    As you know, the Icelandic old age pension system is composed of a tax-financed public pension scheme, mandatory funded occupational pension schemes and voluntary pension saving with tax incentives.

    The public pension scheme pays a basic pension from the age of 67 and a means-tested supplementary pension after retirement.

    Means testing will wipe out the supplementary public pension for most people who have paid into occupational pension funds during their working life. As a result, public pension spending in Iceland is 2% of GDP, compared to the OECD average of 7.2%.

    The occupational pension system dates from collective bargaining in the 1960s.

    The Iceland pension funds were hit very badly as their equity stakes in the fallen banks became worthless overnight, the value of bank bonds collapsed, and asset prices of all kinds tumbled. The result was that the real rate of return on the Icelandic funds was negative to the tune of 22% in 2008, and their assets as a share of GDP fell from 134% in 2007 to 119% last year. Another figure of their 2008 losses is 25%.-

    Is this 22 to 25 per cent fall any better or worse that your retirement portfolio?

  71. Freelander
    June 5th, 2010 at 22:06 | #71

    So even best practice isn’t as good as it used to be?

  72. Monkey’s Uncle
    June 5th, 2010 at 22:16 | #72

    “Do not be surprised to see grey power and family first team up for the Oz Senate. Their mix of social conservatism and fiscal conservatism but only for everyone else will be a dangerous combination.”

    Thanks Jim. I’m going to be having nightmares thinking about that scenario now. A bunch of cheesy-grinned, morality regulating, nanny statists teaming up with a bunch of whining, over-entitled senior citizens.

    Can everyone excuse me please? I have a weak stomach. I think I’ll have to go to the bathroom.

  73. Alice
    June 5th, 2010 at 22:37 | #73

    Hey why not look to Norway which taxes its Petroleum industry aty &8% but can afford to fund generous pulic health and education and retirement systems. Maybe Norway has the plot with actually collecting tax right in the first place instead of punishing those least able to pay by continually moving the goalposts further away in terms of retirement age and access to their, in most parts, humble super…

    such a one sided argument that focuses on what goes out of the fiscal budget without a glance at what isnt coming into the fiscal budgets. Pardon me sor saying so but some get off very lightly indeed…but dont even get examined.

    Best most efficient most productive practice is lopsided. Sick to death of hearing ways people can work longer by do gooders intent on protecting government budgets from “the dreaded welfare” but dont mind large business tax cheats and transfered and avoiders in all their mighty glory.

    Plug the wealthy tax leaks before you look to pulling in the belts of the working poor further.

  74. Alice
    June 5th, 2010 at 22:38 | #74

    78% above

  75. Alice
    June 5th, 2010 at 22:40 | #75

    @Monkey’s Uncle
    Stay in bathroom ahile MU. There will be a lot more greay hairs coming without enough super. You better steel yourself.

  76. Alice
    June 5th, 2010 at 22:40 | #76

    @Monkey’s Uncle
    Stay in bathroom ahile MU. There will be a lot more grey hairs coming without enough super. You better steel yourself.

  77. Alice
    June 5th, 2010 at 22:40 | #77


  78. Jim Rose
    June 5th, 2010 at 22:43 | #78


    I assume your brevity is the by product of Australian superannuation funds being so heavily hit by the financial crisis, with real pension fund losses of 26.7% in 2008.

    This is the second worst investment performance for private pensions in the 30 OECD countries, after Ireland!

    The USA was on Australia’s heel with a real pension fund losses of 26.25% in 2008.

    Iceland was next with a real pension fund loss of 22.9%, which is a shade under the weighted average OECD private pension fund real loss of 23% in 2008.

    At least Iceland had a collapse of its banking system as an excuse.

    Investment losses in Australia were particularly large because of the large share of equities in pension-fund portfolios. Share markets in OECD countries all fell by around 45% in 2008. Icelandic pension fund exposure to the share market was maybe 2/3rds of Australia’s.

  79. Alice
    June 6th, 2010 at 08:52 | #79

    @Jim Rose
    Are you trying to tell us the global financial bubble burst?

  80. Alice
    June 6th, 2010 at 08:58 | #80

    @Jim Rose
    Well then, the rent resource tax is just a tiddle of a drop in the ocean of investment losses from the GFC isnt it? RRT also takes from large mining firms and gives to low income earners. (Its been a long time since Robin Hood was here rather than his evil cousins, the Robbing Hoods.)

  81. Freelander
    June 6th, 2010 at 11:05 | #81

    “At least Iceland had a collapse of its banking system as an excuse.”

    Got excuse. After all, the collapse of its banking system had absolutely nothing to do with Iceland being world’s best practice. Had nothing to do with Iceland at all.

  82. Alice
    June 6th, 2010 at 11:28 | #82

    No – Jim has his history, blames and beliefs all skewiff Freelander…as they say there are more than two sides to politics – left , right and plain wrong.

  83. Jim Rose
    June 6th, 2010 at 11:39 | #83


    If your pension fund losses are still no more than the weighted OECD average for private pension funds, and those portfolios had to absorb a banking system collapse, the private pension funds must have known what they were doing prior to the 2007 crisis.

    Financial crises are not new. Karl Marx wrote about them.

    The United States had its savings and loan crisis beginning in 1984. During the late 1980s and early 1990s, the Nordic countries experienced some of the worst banking crises the wealthy economies had known since the 1930s depression. In 1992, Japan’s asset price bubble burst and ushered in a decade-long banking crisis.

    These financial crises all follow periods of loose and then tight monetary policy combined with regulatory capture and implicit promises of bail-outs.

    You want regulatory intervention and discretionary stop-go monetary policy.

    You must live with the reality that political power rotates between parties, include to those you would never vote for, and that there will be special interest deals.

  84. Jim Rose
    June 6th, 2010 at 11:58 | #84

    My history of retirement savings policy is governments are slowing making people fund their own retirements, be they rich, middle-class or poor. What is your history?

    This policy requires people to save for retirement when there could be better returns to investing in home ownership, mortgage repayment and consumption smoothing. What is your history?

    My history of retirement age policy is the increases to 67 and beyond make some ordinary workers stay in back-breaking manual labour. What is your history?

    My history is more than one in four Australian seniors live in poverty. This is the fourth highest old-age poverty rate in the OECD countries and more than double the OECD average. Only Ireland, Korea and Mexico have higher old-age poverty rates. Your history is spent threatening to sue if your superannuation nest egg is disturbed.

    I am sure you support governments forcing people to fund their own retirements and stay in back-breaking manual labour while you keep your middle-class tax breaks.

    To oppose compulsory retirement savings would require you to support people being free to choose.

  85. Alice
    June 6th, 2010 at 12:55 | #85

    @Jim Rose
    No so Jim Rose – I do not agree with mandatory super at all. I think most people do save for their retirements and invest along the way without having to be “forced” through superannuation to do so. I believe the monumental accummulation of forced “super” globally has contributed to the bubble and the GFC, due to which many savings have simply evaporated into thin air and are unlikely to be recovered. I think mandatory super has force fattened and distorted the financial industry on a global scale beyond any notions of the financial system being the smooth wheels that facilitate and serve “real production.” The overly wealthy global financial system has created imaginary trading instruments with nothing real behind them all, except the ability to wreak havoc on a global scale – casino capitalism.

    I think it (forced super) has shifted great amounts of wealth away from real production to sheer unbridled speculation and has or will prove wasteful and costly and dangerous in the end.
    I would like to see an end to middle class welfare but by the same account I would also like to see the equivalent of super be given as wages, to be spent or saved or invested as the employee sees fit. I have no doubt that superannuation has made both governments and financial managers wealthy but it has come at the cost of citizens like you and I.
    I suspect, that despite the length of time we have been told manadtory super “is good for us”, I dont believe it is and I would love to know the real impact on people who are boomers coming to retirement with insufficient in their super now due to the GFC and now sagging returns. What is the real cost? Is it more or less than providing an age pension ton the less well off amongst us?.

  86. Alice
    June 6th, 2010 at 12:58 | #86

    @Jim Rose
    Yes Jim Rose – on the matter of super I do support individuals being “free to choose.” This does not mean I support individuals being “free to choose” across the board on all matters, and I do not support individuals or firms like Mining who think they should be “free to choose” not to pay their taxes.
    That is possibly the difference between you and I. I suspect your objection to regulation and government intervention is far more extensive than mine.

  87. Jim Rose
    June 6th, 2010 at 13:07 | #87


    Thanks for the response. I will get back to you later on the time inconsistency and Samaritan’s dilemma reason for supporting mandatory savings.

  88. Freelander
    June 6th, 2010 at 13:30 | #88

    Yes. The Japanese got themselves into trouble by following Milton. The quick cure of inflation was far worse than the disease. Milton’s re-inflation strategy didn’t work. Pity about Milton. No legacy except of failed ideas. But that doesn’t stop acolytes or proselytisers – like Jimbo.

  89. Alice
    June 6th, 2010 at 14:29 | #89

    @Jim Rose
    Oh so you mean you will get back to me on why we should be good samaritans and not let individuals “choose” regarding super – as always Jim Rose I typically find the right willing to bandy about the individuals right to “choose” but also be completely on side with the individual having no right to choose to have all their super paid as wages (rather than squirrelled off by “good samaritans” like the government and fund managers).

    What you really mean is that we will tell you individuals what is good for you and when and we would prefer you think you are “free to choose” when you are not. So in the meantime, work harder and longer so we can keep funnelling your super by way of governments and the distorted financial empires.

    Such hypocrisy is truly mind bending.

  90. Jim Rose
    June 6th, 2010 at 16:17 | #90


    Wrong again.

    Did the Bank of Japan follow a constant monetary growth rate rule in the 1980s? Of course not!

    You appear to be unaware that Friedman opposes discretionary monetary policies.

    Friedman never stopped favouring a fixed rate of money growth rule as his first preference for a monetary policy rule. He, unlike you, proposed abolishing the Fed.

    The Bank of Japan spent the 1980s pursuing a stop-go monetary policy.

    The Bank of Japan switched almost annually between inflation control and co-ordinated exchange rate targeting together with the Fed, Bundesbank and Banks of England and France under the Plaza accord of 1985 and the 1987 Louvre Accord.

    You appear to be unaware of these exchange rate targeting agreements and how they stand in stark contrast to one of Friedman’s most famous essays, which was his 1950 case for flexible exchange rates.

    Japan, as its part of the Louvre Accord, printed yen to buy dollars. The acceleration in monetary growth led to higher inflation and, initially, to higher real growth. The most notable result was the bubble economy – an explosion in the prices of land, shares, and other assets. The Bank of Japan reacted belatedly in 1990, reducing monetary growth.

    Not surprisingly, in 1998 Friedman said “A decade of inept monetary policy by the Bank of Japan deserves much of the blame for the current parlous state of the Japanese economy.”

    Friedman’s 2006 prediction for Euroland was “The euro is going to be a big source of problems, not a source of help.” His reasoning in 1999 was “Some among them will be affected by developments that would have called in the past for a depreciation of their currency. But given that they are locked into a single currency, the alternative will be a recession.” Freidman also said in 1999 that “I do not believe there would have been an East Asian crisis if there had been no IMF.”

    As a foot-soldier of corporate capitalism, you oppose abolition of the Fed and IMF and supported the Euro.

  91. Freelander
    June 6th, 2010 at 16:35 | #91

    Of course.

    How could it be Milton’s idea of obsessing over inflation? Milton’s detailed idea about monetary growth had already been refuted early in the ’80s, so they didn’t use that. As I said, Milton has no legacy except failed ideas. Even his idea of obsessing over inflation is a failed idea, in large part responsible for the failure of that failed economy, New Zealand.

    But I can see you are upset that I have taken the name of your Milton in vain. Peace be upon him.

    I like your quote “I do not believe there would have been an East Asian crisis if there had been no IMF.” LoL. Milton certainly did say a lot of silly things. Of course, the IMF’s advice after the crisis was nonsense, as Stiglitz and others said, but it was hardly responsible for causing that crisis. The remarkable thing about Friedman and Greenspan is that it is rumoured they did what they did uninfluenced by drugs. One would have hoped they would have had an excuse (like Iceland).

  92. Alice
    June 6th, 2010 at 16:58 | #92

    Milton is discredited well and truly along with his Chicago boys. No-one will swallow that nonsense ever again Jim Rose (some new nonsense maybe) but the logic of Freidman and friedmanite policies now leaves a sour aftertaste across the globe. It wont be me who buries Friedman, the new generation will be doing it for us and we wont even have to ask.

  93. Alice
    June 6th, 2010 at 16:59 | #93

    i before e except after c …pardon

  94. Jim Rose
    June 6th, 2010 at 17:30 | #94


    You appear to be a double-secret wide-eyed libertarian. I am not.

    The reason we need to have mandatory retirement accounts is not because people are irrational about saving for their retirement, but it is precisely because people are rational and politically cunning in a rent-seeking body politic.

    If, for example, somebody knows that they will be cared for in old age even if they don’t save then what is their incentive to save? Wouldn’t it be rational to spend instead on consumption and home ownership and rely on the old age pension?

    The time inconsistency problem is that the government will tell people that they need to use their own savings for retirement, but then change its mind when it sees that old people are destitute.

    The expectation of an old age pension can lead people to behave in ways that keeps them in poverty after retirement. Most of their assets could be tied up in their home because this cannot be means tested. Overcoming this Samaritan’s dilemma requires strategic courage.

    Mandatory savings accounts are the solution. The details should involve no fiscal discrimination. In a majoritarian democracy, general rules that apply to all citizens inhibit majority cycling and rent seeking. A government service or social transfer must be available to all or to none.

    Where I live, prior to 2007 there were no tax concessions for retirement savings. A Labour government introduced capped dollar for dollar tax credits for retirement savings by people below age 65, which advantaged the middle class.

    My preference is a uniform tax credit into a retirement savings account with a percentage of wage contribution so that after a 45 year transition, everyone can support themselves without the need for public help. The tax credit would stop at age 65.

    Superannuation contributions in Australia differ from social security taxes abroad in that the funds go into private savings accounts that are actuarially sounder but heavily regulated rather than a state sector Ponzi scheme. Neither of these is voluntary.

  95. Freelander
    June 6th, 2010 at 19:17 | #95

    @Jim Rose

    But people don’t have to be cared for. It is very anti-libertarian of you to impose forced saving on your fellow citizens just because the body politic doesn’t let people who choose, their choice to die penniless in the streets by not having saved for retirement.

    But, the amusing thing about libertarianism and libertarians is the coercive mentality they invariably possess. Even though they preach freedom, it is freedom to agree with them and to live in a society designed by them. They support the idea of democracy but not one in which the vote counts unless the vote coincides with their views. Very democratic.

    Very classically liberal, not.

  96. Jim Rose
    June 6th, 2010 at 20:22 | #96


    As to your Friedman refuted in the early 1980s obsession, the decades from 1980 saw wide acceptance of free market policies in rich and poor countries: private ownership, sales of numerous state owned commercial assets, free trade, responsible budgets, lower taxes and deregulation.

    Since 1980, as the world embraced these free market policies, living standards rose sharply, while life expectancy, educational attainment, and democracy improved and absolute poverty declined. Is this a coincidence?

    You also appear to be unaware that central banks around the world replaced discretionary monetary policy with a transparent commitment to price stability as their primary goal on the premise that inflation is a monetary phenomenon.

    Newspaper coverage and policymakers’ statements of the day show that in the 1960, 1970s, 1980s, and until the early 1990s and the Keating depression in Australia, monetary policy was not seen central bankers and ministers as determining inflation.

    The 2007 financial crisis arose after central banks in the early 2000s departed from the rule-based monetary policies that replaced double-digit inflation of the 1970s and beyond with low inflation and sustained economic growth for up to 25 years.

    As for monetary aggregates in the early 1980s, monetarists blame fluctuations in inflation on excessively volatile growth in monetary aggregates.

    The U.S. data supported this hypothesis until 1982. Since 1983 monetary aggregates have been essentially uncorrelated with subsequent inflation in the U.S.

    Kochin pointed out in 1973 that a well designed monetary policy would lead to zero correlation between any measure of monetary policy and subsequent inflation.

    The reason for this is the correlation between any variable and a constant is zero. If monetary growth is stable, it will have no correlations with any variable. If the effects of fluctuations in monetary aggregates were not precisely known then the optimal policy would produce negative correlations between monetary aggregates and inflation.

    P.S. Asian crisis – the fact that, for example, Thailand had a pegged exchange rate and the IMF was around encouraging it to have a pegged exchange rate meant that lenders elsewhere underrated the exchange-rate risk.

    P.P.S. Michael Dooley wrote excellent papers on the Latin and Asian crises as insurance attacks. Credit constrained governments accumulate liquid assets and IMF lines of credit both to prop up pegged exchange rate regimes and insure poorly regulated domestic banks owned by cronies.

    Crises come when liabilities equal insured assets. The magnitude of both these aggregates is uncertain, and expectations are subject to change.

    The timing of crises and the scale of capital inflows leading up to a crisis are the anticipated outcomes of private investors’ incentives to exploit a pool of government insurance.

    Uncertainty about the size and distribution of local and IMF insurance can generate unpredictable defaults that intensify and prolong losses in national output. Contagion arises from a crisis in one country reducing the expected size of IMF lines of credit to other countries with high fiscal deficits.

  97. Ernestine Gross
    June 6th, 2010 at 21:29 | #97

    “Should we retire later?” is the title of this thread. I am pretty sure the topic relates to the retirement age of individuals, particularly in Australia, rather than some long retired macro-economic ideas on monetary policy.

  98. Jim Rose
    June 6th, 2010 at 21:43 | #98

    @Ernestine Gross

    see post #42 by Alice and #41 by Freelander. These two introduced into this thread their mistaken views on modern history and Friedman.

    Ernestine Gross, this was bad first day out for you as a wannabe apprentice imoderator – forgot to police all offenders.

  99. Ernestine Gross
    June 6th, 2010 at 22:44 | #99

    Jim Rose, I’ll ignore your comment @48 on the grounds of containing wrong assumptions.

  100. Jim Rose
    June 6th, 2010 at 22:49 | #100

    @Ernestine Gross

    Then respond to my post #44.

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