The upsides to extending the pension age
If you are 49 years old, you are likely to only be halfway through your working life. If the federal government has its way – and Clive Palmer doesn’t – you are the first of a generation officially expected to work until the age of 70.
The details about why are found hundreds of pages into the National Commission of Audit report and are informed by the Intergenerational Report. At the moment, half of all Australians aged 65 and over are on a full pension, about 30 per cent take a part pension and 20 per cent are fully self-funded. Australians today still work only a fraction more than they did a century ago – not much more than 40 years.
Even once an entire generation has spent its working life with compulsory superannuation, the proportion of Australians able to retire without government support will not have changed. But the split between full and part pensions will have reversed.
“It is expected that the proportion of pensioners receiving a part-rate pension payment will increase from 22 per cent in 2008 to 49 per cent in 2049,” the report says.
“Despite the increasing shift towards part-rate pensions, the proportion of older Australians eligible for age pension is projected to remain constant at 80 per cent.
“The reasons for this are multifaceted, but are likely to include people deliberately tailoring their affairs to meet current eligibility criteria such as by consuming assets or transferring equity to the principal residence or other assets that are not means-tested. Current means-testing arrangements mean that people with significant levels of income or assets can still be eligible for a part-rate pension.”
For the government, there are twin benefits in extending the pension age – it reduces the cost and allows the individual more time to both save for retirement and pay their own way through working, says Mercer partner (and finance specialist) Steve Schubert.
Schubert believes lifting the pension age is a good thing, but believes it is vital to ensure those older Australians who can’t work, or can’t find work, have a sufficient safety net. He also urges policymakers to consider how to help people plan for retirement when they don’t know if their savings will need to last for 10 years – or 30.
“We actuaries see longevity as a risk, whereas most people see it as a positive thing. People need access to affordable advice and products to ‘protect’ against this risk. Governments can provide the framework for product innovation in this area.”
Big four earnings hit $14.7 billion
The latest report card for Australia’s super-sized finance sector is in, with Westpac, Commonwealth Bank, ANZ and NAB raking in a combined half-yearly cash profit of $14.7 billion.
NAB was the last of the four to report, announcing its $3.15 billion result on Thursday – the last posted under departing chief executive Cameron Clyne.
With three of the four banks reporting since the start of May, results season is an opportunity to hear from banking chiefs about their expectations for the general economy.
Clyne is cautious about the immediate future, warning that consumer confidence is still fragile: “The combination of the cycle in mining investment, increased resource exports, moderate growth in consumer spending and uncertainty around the strength and timing of upturns in housing construction and non-mining business investment will continue to produce very uneven trading conditions across the private sector.”
Three days earlier, Gail Kelly of Westpac tipped the economy would “gradually improve” through 2014, adding that the housing market is likely to drive growth over the next few years.
Ernst & Young partner Paul Siviour describes the results overall as “pretty solid”.
While falling levels of bad debt were a feature across the sector – and responsible for much of the profit growth, Siviour also notes a decline in interest margins at ANZ and Westpac, thanks to increased competition in the mortgage market.
With steady growth the main feature of Australia’s banking sector, Siviour notes banks are focusing on boosting customer service and trying to extend their wealth services as the main drivers of future growth.
NAB: up 8.5 per cent to $3.15 billion; Westpac: up 8 per cent to $3.77 billion; ANZ: up 11 per cent to $3.5 billion; Commonwealth Bank: up 14 per cent to $4.27 billion. (CBA reports at a different time from its peers – for the six months to the end of December, while Westpac, CBA and ANZ reported for the six months to March 31.)
The downsides of global community
Beyond the human toll of the past decade’s disasters, natural and man-made crises have cost nations $US1.5 trillion in damages. This week, the Organisation for Economic Co-operation and Development issued an extensive report examining “disaster exposure” since 1973.
It finds disasters are having a greater and more widespread impact as global economies entwine more closely and cities become more dense. And while experience has made countries more resilient, the OECD argues more can be done.
The most expensive disaster was the 2011 Japanese earthquake, costing $US203.5 billion. This compares with the September 11 terrorist attacks in 2001 that cost $US26.2 billion.
“Economic trends have contributed to increasing risk exposure and vulnerability, including the geographic concentration and the global integration of economic activities,” the report finds.
“A lot has been done [but] a lot more needs to be done when it comes to boosting resilience against future disruptive shocks across OECD countries.”
Among the examples of policy failures the report gives:
• Low insurance cover: In New York in 2012, half the residential units affected by hurricane Sandy were not listed in flood projections, so owners were not required to purchase insurance.
• “Omnipresent enforcement issues”: Italy’s building planning and enforcement failures have resulted in half a million people now living in high-risk areas around Mount Vesuvius; since 2011, 60 per cent of new homes in Mexico were built illegally, while 11 per cent of homes built in Britain are in flood-prone areas.
• Co-ordination gaps: In Japan, local governments are the first responders to emergencies, but many were wiped out in the 2011 earthquake. In Norway’s 2011 terrorist attack, police “could have intercepted the terrorist earlier had orders been transmitted to the police guard nearby”.
• Infrastructure gaps and destruction: During Europe’s 2013 floods and the 2011 Japanese earthquake, dykes and dams failed to withstand the worst-case scenarios they were designed for; in New York, hurricane Sandy flooded all tunnels connecting Brooklyn to Manhattan; and the 2007 floods in Britain left more than 350,000 people without mains water for 17 days.
• Just-in-time processes have left more manufacturers vulnerable if a key supplier – or air transport – anywhere in the world is affected by disaster.
Alibaba set to steal limelight
The announcement of details of the float of Chinese online sales juggernaut Alibaba on the US sharemarket has prompted a worldwide flurry of excitement in the global press.
If the share price performance matches the hype, it would place Alibaba among the giants of the sharemarket. In details filed this week, Alibaba values itself at up to $US121 billion, although some analysts are estimating its market capitalisation could be as high as
$US200 billion. (The largest company today, Apple, is worth more than
$US500 billion.) Should it make it to such heights, Alibaba would be worth more than BHP Billiton, Amazon, Citigroup and Coca-Cola.
The float, scheduled for later this year, will be the biggest float in the US since Facebook’s two years ago.
With 25,000 employees, 231 million users and profits of $US3.6 billion last year, it will finally make co-founder, former English teacher and 8.9 per cent stakeholder Jack Ma, a household name in Western commerce and mark a dramatic shift in the visibility of Chinese companies in Western sharemarkets.
Ma says the idea for Alibaba was sparked during a visit to a friend in Seattle, where he searched up a very familiar word on the internet.
According to Reuters: “ ‘I searched the word beer, b-e-e-r, very simple word,’ Ma recalled in a television appearance. ‘I found American beer, Germany beer, and no Chinese beer. So I was curious. I searched ‘China’, and all search engines said no China, no data.’ ”
Ma said he asked his friend to help him create a home page in Chinese, and within five hours of posting it, he received five emails from the US, Japan and Germany seeking more information.
“I was so excited,” he recalled. “I said, ‘This is something interesting.’ ”
This article was first published in the print edition of The Saturday Paper on May 10, 2014 as "The upsides to working longer". Subscribe here.