Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 111

Longevity awareness and the three pillars

The latest Intergenerational Report (IGR) postulates the three pillars of the Australian retirement income system as the age pension, compulsory superannuation and voluntary saving. All three are looking increasingly shaky for the task ahead, as policy struggles to cope with changes, especially in life expectancy. The failure to increase the eligible age for the age pension has been one of many flaws in retirement income policy, caused by changes that accelerated in the 1970s.

Life expectancy at time of pension eligibility

The IGR graphs life expectancy against pension age eligibility (page 70). Unfortunately it uses the life expectancy of a baby. A better insight comes from using the life expectancy at the age of eligibility for the age pension, which for males has stood at 65 for more than 100 years. It is belatedly being increased from 2017 so that by 2035 it will have reached 70 for both genders.

The increase in eligibility is too little too late. From the inception of the age pension, male life expectancy at age 65 rose only slowly until the 1970s (ABS numbers rounded to the nearest year). From then it increased by roughly two years per decade until today and this is expected to continue, as shown.

The last two federal governments have initiated increases in the eligible pension age which top out at 70 in 2035. The chart shows that the gap between eligibility age and average life expectancy for males is likely to have increased from 12 years in the 1970s to 22 years by the decade starting 2040. For female life expectancy, add about four years at age 65, resulting in an even greater gap.

On the face of it, the chart shows just how badly successive governments have failed to respond to the ongoing increase in longevity. The shift towards an older population has further compounded the problem of funding the age pension.

Lower returns and compromised expectations

In earlier Cuffelinks articles (such as this), David Bell neatly defined the many issues in attempting to reform an age pension system that has for so long failed to adapt to the reality of ongoing longevity increases.

Failure to adapt the superannuation system to increasing longevity is likewise building in a gap between expectation and reality. Lower economic growth and low interest rates (in real terms, negative returns in many countries) feed through to entrenched lower returns, leading to a widening gap between perceived need and funds availability. Policy should determine whether the age of access needs to be increased as well as contribution levels.

Financial adequacy is only part of the problem. Financial literacy programs are improving as well as financial awareness at the individual level. People should increasingly be able to conduct an effective financial conversation and contribute to decisions about their savings.

Longevity awareness crucial for retirement planning

The foundations of retirement planning need to be deeper. Few people are aware of their personal time frame that the three pillars need to support. Failure to increase the age of access to the age pension and superannuation has fostered an expectation that it is reasonable to expect access at much younger age than is realistic, other than for those in genuine need. This also has an impact on willingness to add to voluntary savings, the important third pillar.

There is an urgent need to improve longevity awareness across the community, especially at times of tight budget funding.

Since people become more different as they age, using averages such as from the Life Tables is unhelpful. Averages are misleading for individuals and actions that people can undertake need to be personally framed, not generic.

Once people start to recognise what influences their personal longevity, they can take personal ownership of the financial consequences. As a first step, they can begin to address any unrealistic expectations of maintaining living standards with increasing age in the absence of better personal planning such as increasing savings and working longer.

Longevity awareness can underpin weaknesses in the increasingly shaky three pillars. Collective action to boost longevity awareness by governments needs to be complemented by individuals who are well enough informed to commit to making the best of their opportunities to secure their future.

 

David Williams began longevity research in 1986 and was a Director with RetireInvest and CEO of Bridges. He chaired the Standards Australia Committee on Personal Financial Planning. David founded My Longevity Pty Limited in 2008.

 

RELATED ARTICLES

Should access to super and pensions depend on life expectancy?

SMSF trustees have longer lives and more certainty

How not to run out of money in retirement

banner

Most viewed in recent weeks

16 ASX stocks to buy and hold forever, updated

This time last year, I highlighted 16 ASX stocks that investors could own indefinitely. One year on, I look at whether there should be any changes to the list of stocks as well as which companies are worth buying now. 

UniSuper’s boss flags a potential correction ahead

The CIO of Australia’s fourth largest super fund by assets, John Pearce, suggests the odds favour a flat year for markets, with the possibility of a correction of 10% or more. However, he’ll use any dip as a buying opportunity.

2025-26 super thresholds – key changes and implications

The ABS recently released figures which are used to determine key superannuation rates and thresholds that will apply from 1 July 2025. This outlines the rates and thresholds that are changing and those that aren’t.  

Is Gen X ready for retirement?

With the arrival of the new year, the first members of ‘Generation X’ turned 60, marking the start of the MTV generation’s collective journey towards retirement. Are Gen Xers and our retirement system ready for the transition?

Why the $5.4 trillion wealth transfer is a generational tragedy

The intergenerational wealth transfer, largely driven by a housing boom, exacerbates economic inequality, stifles productivity, and impedes social mobility. Solutions lie in addressing the housing problem, not taxing wealth.

What Warren Buffett isn’t saying speaks volumes

Warren Buffett's annual shareholder letter has been fixture for avid investors for decades. In his latest letter, Buffett is reticent on many key topics, but his actions rather than words are sending clear signals to investors.

Latest Updates

Investing

Designing a life, with money to spare

Are you living your life by default or by design? It strikes me that many people are doing the former and living according to others’ expectations of them, leading to poor choices including with their finances.

Investment strategies

A closer look at defensive assets for turbulent times

After the recent market slump, it's a good time to brush up on the defensive asset classes – what they are, why hold them, and how they can both deliver on your goals and increase the reliability of your desired outcomes.

Financial planning

Are lifetime income streams the answer or just the easy way out?

Lately, there's been a push by Government for lifetime income streams as a solution to retirement income challenges. We run the numbers on these products to see whether they deliver on what they promise.

Shares

Is it time to buy the Big Four banks?

The stellar run of the major ASX banks last year left many investors scratching their heads. After a recent share price pullback, has value emerged in these banks, or is it best to steer clear of them?

Investment strategies

The useful role that subordinated debt can play in your portfolio

If you’re struggling to replace the hybrid exposure in your portfolio, you’re not alone. Subordinated debt is an option, and here is a guide on what it is and how it can fit into your investment mix.

Shares

Europe is back and small caps there offer significant opportunities

Trump’s moves on tariffs, defence, and Ukraine, have awoken European Governments after a decade of lethargy. European small cap manager, Alantra Asset Management, says it could herald a new era for the continent.

Shares

Lessons from the rise and fall of founder-led companies

Founder-led companies often attract investors due to leaders' personal stakes and long-term vision. But founder presence alone does not guarantee success, and the challenge is to identify which ones will succeed in the long term.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.