AUSTRALIA’S AGEING POPULATION fileAustralia’s population will age significantly from around 2010...

AUSTRALIA’S AGEINGPOPULATION

WHAT ARE THE KEY ISSUES AND THEAVAILABLE METHODS OF ANALYSIS?

Agnes Walker

Discussion Paper No. 27

February 1998

National Centre for Social and Economic Modelling

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AUSTRALIA’S AGEINGPOPULATION

WHAT ARE THE KEY ISSUES AND THEAVAILABLE METHODS OF ANALYSIS?

Agnes Walker

Discussion Paper No. 27February 1998

ISSN 1320-3398ISBN 0 85889 683 4

© NATSEM, University of Canberra 1998

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iii

Abstract

Australia’s population will age significantly from around 2010 onwards.While we are able to draw on the experiences of other developedcountries where population ageing commenced earlier, recent trendssuggest that the economic and social conditions underpinningAustralia’s ageing processes will be different in many respects.

Drawing on the extensive Australian and international literature onageing, this paper first identifies key economic and social factors that arelikely to have a strong impact on age related public expenditure inAustralia. These include likely changes in life expectancies and thehealth status of the elderly; social attitudes and government regulationsregarding retirement; wealth accumulation and wealth transfers acrossgenerations; caring for the aged by family, governments or voluntaryworkers; and the extent to which economic growth — and the con-sequent increases in tax revenue — can be relied on in the future tofinance the additional public costs associated with ageing.

The paper then reviews the tools available to analyse these key factors,either individually or simultaneously. Traditional as well as emerginganalytical methods such as microsimulation are considered. The changesin data requirements arising from greater flexibility in the labour market(for example, part-time or contract work) and the loosening of family ties(for example, the availability of carers) are also mentioned.

The paper concludes with a discussion of how the static and dynamicmicrosimulation models developed at NATSEM could provideadditional insights when studying the effects of the ageing of Australia’spopulation.

iv

Author note

Agnes Walker is a Research Fellow at the National Centre for Social andEconomic Modelling.

Acknowledgments

An earlier version of this paper was presented at the Foundation forInternational Studies on Social Security (FISS) Conference: ‘Issues inSocial Security’, Sigtuna, Sweden, 14–17 June 1997.

The author is grateful to Maren Child for her valuable assistance withlibrary searches.

Glossary

ABS Australian Bureau of Statistics

DSS Department of Social Security, Australia

NATSEM National Centre for Social and EconomicModelling, University of Canberra, Australia

OECD Organisation for Economic Co-operation andDevelopment

EPAC Economic Planning Advisory Council

v

Contents

Abstract ................... iii

Author note ....................iv

Acknowledgments ....................iv

1 Introduction ..................... 1

2 Population ageing ..................... 22.1 Australia ..................... 22.2 Experiences of other countries ..................... 42.3 Limits to what Australia can learn from others ................... 10

3 Key issues ................... 113.1 Life expectancy, health status and health costs ................... 123.2 Age of retirement ................... 163.3 Saving for old age ................... 183.4 Caring for the aged — family, governments,

voluntary workers ................... 233.5 Key factors affecting age related public

expenditure ................... 253.6 Life cycle issues ................... 32

4 Methods of analysis and data requirements ................... 334.1 Traditional analyses ................... 334.2 Microsimulation modelling ................... 344.3 Data requirements for additional analyses ................... 36

5 Summary ................... 39

References ................... 45

Other reading ................... 49

1

1 Introduction

Over the next few decades living beyond the age of 80 years is expectedto become the norm.1 While the good news of long life is generally wel-come, it also brings with it uncertainties about health, financial depend-ence, usefulness to the community, and remaining part of a family.

In many countries, including Australia, planning for an ageingpopulation is made more difficult by chronic budgetary pressures aswell as by community concern about slow economic growth, high levelsof unemployment and a growing polarisation of income (OECD 1996a).

While population ageing encompasses many social, personal andeconomic issues, public policy is expected to continue to focus on theadditional expenditure that future governments are likely to face. Forthis reason, this paper focuses on those factors likely to have a significantimpact on age related public expenditure, and on the analytical methodsmost likely to lead to policy relevant conclusions.

While most previous studies tended to focus on one or two aspects ofageing, what is of greatest relevance to policy is the combined effect ofmany factors. This paper considers:• individual ageing (the trend towards increased life expectancy);• population ageing (the increased proportion of older age groups in

the population);• private savings and their use to finance aged care;• work and lifestyle patterns that influence personal skill levels,

income, health and eventually the need for care in old age;• economic growth and the extent to which governments will be able

to finance age related public costs; and• life cycle effects, recognising that what happens at one stage in life

often has a large impact on later stages2.

1 The ABS predicts that by 2051 the ‘average’ newborn Australian male can expect

to live for 81 years and the ‘average’ female for 86 years. People aged over 65currently account for around 12 per cent of Australia’s population and areprojected to make up close to 23 per cent of the population by 2051 (ABS 1996).

2 A comprehensive account of recent research in medicine, biology and psychology— with explanations as to why experiences early in life have a strong influence onpatterns in later life — can be found in Goleman (1996).

2 Discussion Paper No. 27

2 Population ageing

2.1 Australia

United Nations projections show that, although trends similar toAustralia’s are projected for many countries, people aged 65 years andover in Australia account for a smaller proportion of the total populationthan in most other developed countries. By 2050, Australia is expected tohave about 23 per cent of its population aged over 65, with Japan andGermany having close to 30 per cent in this age group (figure 1).3

Figure 1 Projected proportion of population aged 65 years and over,selected countries

0

5

10

15

20

25

30

35

Australia UK Germany USA Japan China

Pro

port

ion

of p

opul

atio

n (%

)

1995 2000 2020 2050

Source: For Australia, ABS (1996, p. 37) with series A/B projections — that is, high fertility and low overseasmigration. For other countries, United Nations’ projections obtained from the ABS in a format comparable withAustralia’s.

ABS projections for Australia suggest that the highest annual rates ofincrease in the size of the ‘over 65’ population will occur between 2010and 2020, when the peak of the post-World War II ‘baby boom’ gener-ation enters this age group. The ABS (1996) projections also suggest that,by 2050, the proportion of the population aged 85 years and over willhave risen from 1 to 5 per cent.

3 Developing countries, such as Indonesia, Korea, China and Malaysia, are expected

to experience an even more rapid ageing of their populations, with at least atripling of the proportion aged 65 and over (ABS 1996).

Australia’s Ageing Population 3

In a recent paper (Walker 1997) key aspects of the literature on popu-lation ageing were reviewed, and policy responses in Australia and insome other developed countries were reported. In that paper it wasnoted that the impact of population ageing has generally led to policyinitiatives aimed at assigning greater responsibility to individuals for thecosts associated with their ageing. It was also noted that in Australiathere has been some discussion of the extent to which ageing maybecome more of a policy issue in the future than it is at present.

In this respect some believe that the existing social arrangements willbecome unsustainable as the population ages. Others note that manyEuropean countries with older populations than in Australia havemanaged without a crisis. Yet others (OECD 1996e, p. 14) are of the viewthat the reason why ageing has not had ‘disastrous’ consequences to dateis that the supply of labour has expanded considerably as more womenhave entered the workforce. However, since in each country there arelimits as to the number of women who are able to join the workforce,future governments may find it impossible to increase social spending atthe same rate as in the past.

That population ageing will place increased pressures on governmentbudgets does not appear to be questioned. It is the likely extent of thesepressures — whether of crisis proportions, or not — that is beingdebated. It is in this area that comprehensive quantitative analyses(referred to in chapter 4) could contribute to the debate by highlightingthe likely implications of various policy options under differentdemographic, economic and social scenarios.

Some have argued that in a rapidly changing environment it does notmake sense to project decades ahead (see, for example, McCallum andGeiselhart 1996, p. viii). However, while there are uncertainties aboutfuture economic and social conditions, there is general agreement thatfrom 2010 onwards Australia’s population will age significantly morerapidly. In essence, the baby boomers are alive and well now, and unlessthere is a major war or a natural catastrophe, a high proportion ofAustralians currently alive will reach age 65 early in the next century.

In view of the relative certainty of the demographic situation, successivegovernments have introduced major policy changes regarding olderAustralians. The question for the future is whether further policychanges will be needed and whether their effect will be felt rapidly (as in


the case of greater targeting of the age pension) or slowly (as in the caseof the Superannuation Guarantee Charge4).

The time required for policies to take effect will no doubt influencewhether action is taken now or later. In this respect the OECD (1996e,pp. 14–15) notes that:

It is hard to build consensus for changes, even if the change takes effect adecade or more in the future … Long lead times and advance warning areneeded to allow people to plan and adjust …

2.2 Experiences of other countries

In most developed countries age related pensions, health and long termcare costs are partly publicly and partly privately funded. At oneextreme are the Scandinavian countries, where universal basic pensions,health care and welfare services tend to be the norm. In these countriessuch services are usually provided by the public sector and are financedthrough general taxation. At the other extreme is the United States,where a high proportion of services are provided by the private sectorand most individuals are expected to provide for the costs of their ownhealth and old age care. However, there is public financing for theneedy. For example, the nursing home costs of low income elderly UScitizens are publicly financed through Medicaid (OECD 1996c, p. 40).

The benefit of the Scandinavian model is that it provides all people witha relatively generous minimum living standard. As a result, in thesecountries poverty in old age is now a marginal phenomenon (OECD1996c, p. 251). The disadvantage is that it places a heavy burden on thepublic purse. It thus relies on Scandinavians accepting very high levelsof taxation. With tighter budgets and higher unemployment in recentyears Scandinavians, as well as people in other countries, havequestioned the future affordability of existing levels of support (seeOECD 1996c, p. 38 in relation to the Nordic countries and theNetherlands, and p. 165 in relation to Sweden).

4 Essentially, through the Superannuation Guarantee Charge (SGC) the government

ensures that individuals’ savings are not accessed before the ages 55 or 65 years. Inexchange, the SGC scheme offers tax concessions and is partly funded byemployers.


The benefit of the US model is that the demand for health and aged careservices is generally market driven, since most individuals areresponsible for the costs of the services they consume. Demand is thusrationed by what people can afford. The disadvantages are that the gapbetween the rich and the poor is widened, that minimum livingstandards are lower than in other developed countries and that arelatively high proportion of people live in poverty, with resulting highlevels of crime, etc. In the United States the private provision of serviceshas led to high health expenditure, which currently accounts for around14 per cent of GDP. Also, in the United States aged care is unavoidablylinked to the broader health reform effort, which aims to expand medicalcost coverage for the uninsured while controlling the rise of healthexpenditure (OECD 1996c, p. 214).

Overall, many developed countries are questioning the affordability ofexisting systems, seeking alternatives that are able to contain costswithout affecting the quality of care. Responding to these concerns isseen by the OECD (1996d) as a critical policy challenge. While askingindividuals to bear a greater share of their age related costs seems anattractive solution, the experience of the United States suggests that therecould be significant disadvantages in moving too far in the ‘privateprovision’ direction.

The general view is that there is no ‘correct’ balance in public versusprivate financing. For each country the final compromise will depend onwhat its people accept as being both socially desirable and financiallyresponsible.

The following describes those experiences of individual countries thatare of relevance to identifying the key factors worth including in futurestudies of population ageing in Australia.

Retirement policies

Early retirement

In the early 1970s, rising unemployment and massive job cuts led thegovernments of many OECD countries to set up attractive earlyretirement schemes (see Okba 1993). For example, in the UnitedKingdom there was the Job Release Program, which offered workers abenefit if they left the workforce before pension age, plus a subsidy for


their employers if they took on younger workers in their place (Encel1996, p. 115).

Later retirement

The World Bank (1994) noted that using early retirement as a short termpolicy measure to reduce unemployment could prove extremely costlyin the long run, in that:• the cost of pensions and benefits would rise considerably as more

and more people lived longer and longer; and• there would be hidden economic costs due to the loss of many

people with valuable skills.

A similar point was made by the International Labour Office (1995),concluding that the very concept of ‘retirement’ was obsolete andneeded fundamental rethinking. The need for greater flexibility in jobsharing and a spread of employment opportunities over the life spanwere stressed.

An example of a recent move towards greater flexibility is Sweden’sincrease in the age pension age from 65 to 67 years. Other changesannounced (to be phased in over 20 years) included actuarially lowerpensions for those retiring early (from age 61 years) and higher pensionsfor those remaining at work until age 67 (OECD 1996c, p. 175).

Institutional versus community care

Since the early 1960s many countries have put in place policies thatallow the elderly to stay in their own homes for as long as possible. TheOECD (1996c, pp. 61–2) grouped countries into those where:• no more than 5 per cent of people aged 65 years or over received a

home help service (nine countries, including Canada, the UnitedStates, Germany and Japan);

• between 5 and 10 per cent received a home help service (fivecountries — Australia, the United Kingdom, France, the Netherlandsand Belgium); and

• more than 10 per cent received a home help service (four countries —Sweden, Denmark, Norway and Finland).


When considering both institutional and home based care, the OECD(1996c, p. 61) found Australia to be ‘in the middle’, providing an averagelevel of service on both dimensions.

Contrary to expectations, the proportion of elderly living in institutionshas not declined in most countries with policies favouring home basedcare. In a study of eight countries with such policies since the 1960s —Canada, the United Kingdom, the United States, New Zealand, Sweden,Denmark, Finland and Norway — the OECD (1996c, pp. 56–7) foundthat only in three of the eight countries did the proportion of elderlyliving in institutions decline and this was mainly in the younger 65–79years age group. The OECD concluded that, for people aged 80 yearsand over, the development of home based care failed to keep pace withthe growth in their numbers. It also noted that, given the sheer scale ofthis growth, improving the quality of institutions seemed a more realisticpolicy goal for the very elderly than home based care. As seen in section2.1, ABS projections for Australia suggest that there could be a fivefoldincrease in the proportion of the population aged 85 years and over by2050.

Overall, while community attitudes made it possible to expand homehelp services in some countries — for example, Australia, the UnitedKingdom, the Netherlands and Scandinavia — the available evidencesuggests that such services developed more in parallel rather than as asubstitute for institutional care. In Australia’s case there appears to havebeen too rapid change in residential care and inadequate progress incommunity care (OECD 1996c, pp. 69, 229).

Caring for the very old

Unpaid carers

In most developed countries caring for the elderly has traditionallydepended on a substantial input of unpaid, informal care — largelyprovided by family members, particularly women in the 45–64 agegroup (OECD 1996c, p. 19).

While there are well-documented costs to informal care in terms of time,stress and ultimately the carers’ own health, the OECD (1996c, p. 63)notes that the efforts of family carers tend to be seen as a ‘free good’. Italso notes that in most member countries it was only gradually and with


some reluctance that governments accepted a greater share of the task ofcaring for the elderly (OECD 1996c, p. 33).

While there is general recognition that informal carers need support ifthey are not to relinquish their role, studies to date have rarelyconsidered this issue in any depth (OECD 1996c, pp. 76, 89).

Paid carers

In most countries carers employed as primary carers account for a smallproportion of all carers. The exception is in Denmark where they makeup just over 40 per cent of primary carers (OECD 1996c, p. 63).

In Sweden, people who give up their job to care for relatives may receivefrom the government a salary equivalent to that of home helpers. The vastmajority taking up this option are women aged 50–64 years, many com-bining care giving with other part-time employment. However, as homehelp services expanded in Sweden between 1970 and 1990, the number ofpaid caregivers declined dramatically — by close to 70 per cent (OECD1996c, p. 173). The potential for further expansion of publicly providedhome help services is considered limited, as female employment alreadystands at close to 80 per cent. The OECD (1996c, p. 175) notes that in futuremore of these functions will have to fall on volunteers or family members,with greater emphasis on support being provided to such people.

Financing long term care

In most developed countries long term care tends to be mainly publiclyfunded. Although data on the share of public versus private financing ishard to come by, for the United Kingdom and the United States it hasbeen estimated that around half of nursing home costs is met by privatepayments. The requirement of private contributions in several othercountries, such as France, Germany and Japan, has also resulted insignificant levels of private funding. In some countries — for example,Germany and the United States — the growing burden of these costs onmiddle class families has led to requests for extending public funding(see OECD 1996c, p. 41).

There have been expectations that the increased availability of home careservices would lead to lower public outlays on long term care. However,


studies in Australia, the United Kingdom, the United States, Denmarkand the Netherlands suggest that, while community care options canenable the elderly to stay in their homes longer, it is doubtful that suchoptions lead to lower public outlays than the alternatives would. Suchstudies, however, do not take account of the costs borne by informalcarers (OECD 1996c, pp. 74, 76).

In a number of countries there has been considerable interest in longterm private care insurance as a way of limiting public outlays whileensuring coverage against the substantial risk posed by long term carecosts. The focus has been on the United States, as the only OECD countrywith sufficient experience with this type of insurance product. An initialreview of private care insurance in the United States revealed that therehave been considerable problems. For example, on the demand side suchinsurance was being taken up by only about 3 per cent of the elderly; onthe product design side those who were forced to quit the scheme due tounforeseen circumstances have, in practice, ended up subsidising thosewho were able to remain in the scheme (OECD 1996c, pp. 41–2).

In a number of countries products are available which allow the elderlyto access their housing equity in order to finance long term care.However, so far such housing finance initiatives have been taken up byfew people and have had very little impact on public expenditure(OECD 1996c, p. 41). France has also experimented with part recovery —from inheritances exceeding Fr250 000 — of its dependency allowances(OECD 1996c, p. 140). Glennerster (1996) reports on further experiencesin selected countries.

The OECD (1996c, p. 42) concluded from these experiments that in thefuture public sources were likely to continue to bear the major part of therisk of long term aged care.

Partnership

In several countries, including Australia, Canada, the United States,France and Japan, the role to be played by services is being redefined. Ingeneral there is lesser emphasis on services as an alternative to absentfamily care and greater emphasis on seeking new forms of partnershipbetween families and services provided by government or nonprofitorganisations.


2.3 Limits to what Australia can learn from others

Since population ageing in most developed countries commenced earlierthan in Australia, this country has the advantage of being able to drawon the experiences of other countries.

However, because no single solution has emerged out of pastexperiences and because most countries are currently reviewing theirpolicies so as to make them more relevant to changing economic, socialand demographic circumstances, the extent to which Australia can learnfrom others is likely to be below expectations. The greatest relevance ofother countries’ experiences is probably that they highlight the practicaladvantages and disadvantages of policy options that have been tried.

Even if one country’s policies seemed especially relevant, there are anumber of reasons why they may not successfully transplant toAustralia. First, there is the generally accepted point that each countryhas unique social security, health and retirement systems, and thatchanges effective in (or acceptable to) one nation may be ineffective in(or unacceptable to) another.

Second, many of the documented experiences of other countries tookplace some years ago, with circumstances being significantly differenttoday both in those countries and in Australia. For example, while manyearlier experiences took place in a more ‘traditional’ environment, whereeducation was mainly for the young, full-time jobs were the norm formen, and most women either stayed at home or worked in casual, lowpaid jobs, the current situation in Australia is different.• Traditional family ties no longer hold to the extent that they did.• Fewer men work in full-time career-based jobs, and many retire

before the age of 65 years.• More women are well-educated and work until retirement, many

preferring flexible working arrangements.• Work arrangements have been and are still changing rapidly. The

number of part-time, contract and casual jobs has grown rapidlywhile the number of full-time jobs has declined. Currently, Australiahas one of the highest proportions of part-time workers in theWestern world (around a quarter of the workforce). Some three-


quarters of these want to work part-time. Also, working from homeis becoming more common, especially for older people.5

• There is an emerging expectation among older people that somethingbetter than a life filled with inactivity and/or doctor visits may bepossible.

Third, as in other countries the situation in Australia is changing rapidly,so policy making requires vision and experimentation.

Overall, consideration of Australia’s rapidly changing economic, demo-graphic and social structures, in conjunction with the experiences ofother countries, may help policy makers to better focus on those govern-ment initiatives that are most likely to deliver the desired outcomes.

3 Key issues

The ageing of Australia’s population will inevitably bring with itprofound changes in the way we live and in the traditional socialstructures. As already noted, the extent to which other countries’experiences may help us adapt to these changes is likely to be limited.For this reason, rigorous and state-of-the-art evaluations of bothtraditional and novel policy alternatives could be particularly useful tothe policy development process.

Previous studies provide some indication as to which economic andsocial factors are particularly important in analyses of ageing. Forexample, Rothman (1996, pp. 5–6) notes that, in relation to pension costs,demographic factors (such as longevity), retirement rates and the assetsof the retired are particularly important. He also notes that, in relation toprojecting superannuation assets and national savings, economic factors,especially the rate of return on invested funds, dominate. In addition,Walker (1997) reported on Australian and international work thatshowed the crucial importance of economic growth to a country’s abilityto accommodate an ageing population.

5 Between 1989 and 1995 the number of Australians who worked at home grew by

29 per cent, with those aged 55 years and over accounting for 18 per cent of allhome workers compared with only 9 per cent of all employed persons (see Hall etal. 1997).


In Australia policy makers need to consider not only those factors thathave been shown to be important, but also those that are likely tobecome important. The key issues that seem important in the context ofanalyses of population ageing when looking ahead some 30–50 years arenow considered.

3.1 Life expectancy, health status and health costs

Life expectancy

Since the beginning of the twentieth century, life expectancy at birth hasincreased by some 20 years. While the ‘average’ person born early thiscentury could look forward to living until age 55 (for men) and until age59 (for women), a person born in 1996 can expect to live 75–81 years. Forthose born half a century from now life is likely to be some five yearslonger (table 1).6

Table 1 Past and projected life expectancies at birth

1900 1996 2051

years years years

Male 55 75 81Female 59 81 86

Sources: Abraham, d’Espaignet and Stevenson (1995); ABS (1996).

A key reason for longer lives has been the increased scope of medicalscience and related technologies. Some of the breakthroughs haveresulted in dramatic declines in deaths from particular causes, suchcardiovascular disease7. Also, since the 1960s, gains in life expectancyhave tended to be concentrated among the middle aged and olderpopulation (Goss et al. 1994, p. 2). This has resulted in a very rapidincrease in the number of people aged over 75 years.

6 It is generally thought that there is a physical limit to life. Such a limit would be

determined by the length of life a person would have if he or she did not sufferany serious diseases. In recent years the oldest known living persons reached agesof around 120 years.

7 Between 1968 and 1988 age-adjusted death rates from cardiovascular disease inAustralia declined by close 50 per cent (d’Espaignet et al. 1991).


Health status

Today people tend to view longer lives with mixed feelings. One of themain reasons for this is that much of the increased longevity tends to bespent in a state of ill health and disability. An Australian study notedthat improved life expectancy, at least since the 1980s, has not so muchbeen the result of better health than the ability of the medical professionto lengthen the lives of the seriously and chronically ill (Mathers 1991,p. xii). After reviewing the international literature on this topic, theOECD (1996c, p. 248) concluded that the extension of life tended toprolong both the independent and dependent periods, and that it wasrealistic to expect that the need for care was most likely to increase inline with demographic developments.

Health costs and lifestyle risk factors

Health costs

In Australia, health costs are mainly publicly funded. Although a smallproportion of costs are funded through the Medicare levy (paid byworkers as a proportion of salary) and around a quarter of thepopulation has private health insurance, the bulk of health costs areborne by governments.

Those aged 65 and over account for about a third of Australia’s totalhealth expenditure, although they make up only 11 per cent of thepopulation. Public health expenditure, around $19 billion a year,represents some 15 per cent of the total Commonwealth governmentoutlay. There are continued concerns about health costs increasingconsiderably more rapidly than expenditure generally (see Walker 1997,section 1).

Lifestyle risk factors

Mathers (1991) noted that a longer life spent in a state of ill health wasexpected to result in increased demand for social and health services.However, this trend could be countered in the future if significantadvances in primary prevention could be made. This is because primaryprevention has the capacity to lower the incidence of chronic anddisabling diseases (Mathers 1991, p. xii).


Table 2 illustrates the potential for lowering the demand for healthservices by older people through one form of prevention — reducing‘lifestyle risk factors’. These factors include obesity, inactivity, tobaccosmoking and alcohol consumption. The table shows, for example, thathypertension was experienced more frequently by overweight peopleaged 65 and over than by those who were not overweight — 64 per centmore frequently by men and 52 per cent by women.8 Key findings fromtable 2 are summarised in box 1.

Table 2 Effect of older persons’ lifestyle risk factors on chronic illnessand on the demand for health services Aged 65 years and over

Overweight, obesea Inactivea Smoker (tobacco)a Drinker (alcohol)a

Specific chronic illnesses b

Diabetes(men 1.73, women 2.16)

Asthma(men 1.34, women 1.32)

Bronchitis(men 1.52, women 1.74)

Hernia(men 1.59, women 2.24)

Hypertension(men 1.64, women 1.52)




Arthritis(men 1.34, women 1.18)

Heart disease(men 1.23, women 1.22)

Hypertension(men 0.67, women 0.60)


Varicose veins(men 1.51, women 1.24)

Arthritis(men 1.22, women 1.15)

Diabetes(men 0.49, women 0.57)

Heart disease(men 0.78, women 0.31)

Health service usage b

Hospital episodes(men 0.92, women 0.87)




Outpatient visits(men 1.19, women 1.05)




Doctor visits(men 1.00, women 1.10)



Doctor visits(men 0.90 women 0.80)

Other healthprofessionals(men 0.82 women 1.17)

Other healthprofessionals(men 1.14, women 1.46)



a Overweight : if body mass index is above 25 kg/m2. Inactive : if reported no physical exercise for recreation,sport or health/fitness reasons. Smoker : if currently smokes tobacco. Drinker : was considered medium or highrisk if reported average daily consumption of ethanol was above 50 mL for men and above 25 mL for women.b Age standardised rates, 1989-90 data. Comparisons are with the rest of the population (for example, the‘obese’ are compared with the ‘not obese’, the ‘inactive’ with the ‘active’, etc.).

Source: Mathers (1994b, pp. 143–59).

8 A comprehensive study of health differentials among Australians of various age

groups concluded that inequalities in the health of younger Australians continuedinto older ages (Mathers 1994b, p. v). Also see Mathers (1994a, 1995, 1996).


Box 1 Key findings from table 2• Overweight people aged 65 years and over reported having the chronic

illnesses of diabetes, hypertension, arthritis and varicose veins much morefrequently than non-overweight people. While they reported hospital episodesless frequently, their outpatient visits were higher than for non-overweightpeople.

• Inactive older people reported having the chronic illnesses of asthma,bronchitis, heart disease and arthritis considerably more frequently than activepeople did. They were intensive users of health services, having reported usinghospitals, doctors and other health professionals considerably more frequentlythan active persons.

• Smokers aged 65 years and over reported having the respiratory diseases ofbronchitis/emphysema and asthma considerably more frequently than non-smokers. However, they experienced hypertension and diabetes considerablyless frequently than nonsmokers and reported significantly lower cholesterollevels (men 0.74, women 0.89). Smokers generally reported using healthservices less frequently than nonsmokers did.

• Moderate to high risk drinkers aged 65 years and over reported having thechronic diseases of hernia, bronchitis/emphysema and asthma more frequentlythan low risk drinkers. However, they reported much lower cholesterol levelsthan the control group (men 0.39, women 0.30) and experienced heart diseaseconsiderably less frequently. Moderate to high risk drinkers generally reportedusing health services less frequently than low risk drinkers. The exceptionswere outpatient visits, especially for men, who reported using such servicesclose to three times the rate of low risk drinkers.

Apart from lifestyle factors, many other socioeconomic factors affecthealth. For example, older people with low incomes or low educationlevels are likely to have health risks from inactivity, smoking and obesityconcurrently. People with such socioeconomic characteristics also tend toreport higher levels of health service use. Different attitudes between thesexes provide some explanation for the fact that older men tend to reportfewer illnesses and visits to the doctor than do women, although theydie earlier and at a greater rate than women do in the same age group.Older immigrants from continental Europe are more likely to beoverweight, and non-English speaking older immigrants are more likelyto report diabetes than the Australian-born older population. However,there were no significant differences between the use of health servicesby non-English speaking and other older Australians (Mathers 1994b,pp. v, vi, viii).


3.2 Age of retirement

As long out-of-the workforce as in it?

In Australia, the age pension ages of 60 years for women and 65 years formen were set in 1909 (Department of Social Security 1996a, p. 260), whenlife expectancy at birth was just under 60 years of age. As a result, at thebeginning of the century only a very small proportion of people wereable to rely on government support in their old age.

Although the age pension age for women is now gradually beingincreased to 65 years, no other changes have been made since the early1900s. This is despite the fact that life expectancies are now some 20years longer than they were then (table 1). Assuming full-time employ-ment until the age of 65, people today can expect on average to be out ofthe workforce for a period of 10–15 years. By 2051, this period is likely tohave increased to close to 20 years.

In addition, today many retire at age 55. In Australia there is evidence ofa strong preference by employers for younger workers (see, for example,Department of Social Security 1992). Surveys have found that employerssee people who are 45–50 years of age as ‘older workers’. Also, manyrespondents considered that age discrimination commenced at or belowage 45. In addition, older workers tended to believe that the governmentsupported early retirement.

Thus without changes, by the middle of the next century many are likelyto be out of the workforce for up to 40 years — for as long as they hadbeen in it.

The trend towards early retirement

Despite longer periods being spent in retirement, retiring before the agepension age is an increasing phenomenon for both Australian men andwomen. Of concern is that early retirement leads to substantial use ofsocial security payments (Bacon and Gallagher 1996, pp. 65–6).9

9 Those with larger superannuation benefits tend to invest these and not rely on

social security as their main source of income.


So why are people retiring before the age pension age? Indeed, given theincrease in life expectancy, why is not there a trend towards peoplecontinuing to work after the age pension age, possibly in casual or part-time capacities?

Because of the dramatic changes in work patterns, in workforceparticipation rates (especially for females) and in laws governingsuperannuation in recent years, research on these questions has notprovided definitive answers. There are problems with data definitions10

and data availability, as well as with the complexities of analyses in thisarea.

However, research by Bacon and Gallagher (1996, pp. 65–6) suggeststhat:

• an unexpectedly high proportion of ‘retired’ people would haveliked to have remained in the workforce (involuntary and familyretirements11 were found to have outnumbered voluntaryretirements by more than three to one); and

• people tended to respond to the incentives embedded in governmentpolicies, since rates of early retirement were found to have increaseddramatically at the superannuation preservation age. This was age 55for all persons at the time of this study.12

Maintaining an active, meaningful life

From the point of view of those over 55 years of age, the challenge is tomaintain an active and meaningful life. Some prefer to retire early,others to retire gradually, while others work full-time for as long as theycan. However, the little evidence available suggests that despite muchincreased longevity there are strong pressures to retire early. As already

10 For example, currently there are problems with finding a meaningful official

definition of being ‘retired’.11 Involuntary reasons included ‘retrenched’, ‘job was temporary’, ‘own ill health’,

‘business closed down’, ‘unsatisfactory work arrangements’ and ‘employerthought too old’. Family reasons, nearly all cited by females, included ‘to lookafter family, house, or someone else’, and ‘to have children’ (Bacon and Gallagher1996, p. 59).

12 Currently only applies to people born before 1 July 1960. For those born after thatdate the superannuation preservation age increases gradually to age 60.


noted, these arise from social attitudes, employer preferences and agepension and superannuation policies.

How can governments develop a policy framework that would give abroader range of work-to-retirement choices to older people? As withmost age related issues, there is a need to look well beyond thejurisdiction of individual departments. In relation to early retirement theDepartment of Social Security (1996a, pp. 260–1) notes that:

… there is not enough work being done in this area. Perhaps we currentlyhave a social security system that has not entirely kept up with the times …also we need to address early retirement in other forums such as in labourmarket or in taxation policy. … We have to take a wide-ranging view ofhow we deal with early retirement.

3.3 Saving for old age

At the national level, savings and investment in Australia have beenrelatively low in recent years. Indeed, many are concerned that currentlythey are too low (see Sheehan, Grewal and Kumnick 1996, part 2). In thissection, however, it is not the overall level of savings that is at issue, butthe extent to which individuals’ personal savings are put aside for theiraged care rather than being locked into non-age related investments orconsumed before the need for aged care arises.

Public or private financing?

In 1992-93 the age pension was the most important source of income forretired Australians aged 60 and over. In that year, 73 per cent of allAustralians aged 60 or more received an age pension benefit, with 49 percent of these receiving benefits at the full rate (Brown 1996, p. 4).

The Commonwealth government outlay on the age pension was $12billion in 1995-96, following considerable increases in public funding ofthe age pension over several decades (Department of Social Security1996b, p. 84). On this issue Tapper (1993, p. 3) noted that:

Net lifetime transfers to the generation which is now enjoying retirementhave been massive. This generation benefited in the 1950s and 1960s, whenthe State favoured the young, and benefited again when the State latertransferred its favours to the elderly … The lifetime personal income taxespaid by an average couple from that generation will amount to only a


fraction — probably less than half — of the value of the age pension theywill receive.

Without policy changes, age pension expenditure will in future increaseeven more rapidly, due to greater longevity and an increased rate ofpopulation ageing. Concerned about this, the government recentlyindicated a redirection, stating its objective as: ‘to encourage and assistretirees to achieve financial independence’ (Department of SocialSecurity 1996b, p. 83).

Wealth accumulation

Those currently retired tended to save in their youth so that they couldown the family home. Brown (1996) estimated that in 1992-93 the totalassets of age pension age Australians amounted to $305 billion. Some$193 billion of this was home equity.

Current trends suggest that the relative importance of home ownershipin the savings of retired people will diminish in the future. One reason isthat, with increased rates of family breakdown and greater uncertaintyin the job market, people are more hesitant to commit themselvesfinancially to buying their own home. In this respect Percival (1998)shows that, between 1975-76 and 1997, there was a significant decline inthe proportion of those aged 35 years or less who had purchased theirown home. Another reason is that because legislation has made savingfor old age compulsory — through the Superannuation GuaranteeCharge — it is likely that some or all of the savings that would havegone into other forms of investment (for example, the family home) arenow being diverted towards the SGC.

Table 3 shows that superannuation assets have been projected toincrease eightfold between 1995 and 2020 (from $222 billion to around$1800 billion in current prices). The fastest growing element is projectedto be compulsory savings13, SGC funds increasing from around $26

13 In carrying out these analyses, Rothman (1996, p. 4) assumed that the spread of

superannuation, especially at the basic SGC level, continued up to June 1995 andthat coverage proportions stayed constant thereafter. The number of people withsuperannuation coverage followed demographic and labour force changes.


billion to $572 billion over the period — more than a twentyfold increasein the amount of savings earmarked for post-retirement use.14

Table 3 also suggests that the funds preserved for those retiring early15

will increase more than fivefold over the period — less rapidly than allsuperannuation assets, which have been projected to increase eightfold.Superannuation assets of around $1800 billion in 2020 would be fargreater than the total assets of age pension age Australians in 1992-93(around $300 billion).

Over the past few years the exceptionally high — and virtuallygovernment guaranteed — growth in superannuation has attractedmany new entrants to the superannuation industry. The vigorouscompetition that has followed has led to loss of market share for the fewestablished superannuation giants, with subsequent declines in theirperformance.

The result is that the average Australian worker is currently bothconcerned and bewildered. With many superannuation funds charging a

14 The projections were, of necessity, based on a set of simplifying assumptions.

Consequently they should not be seen as accurate estimates of what will happenin 10 or 20 years time. For example, if employment arrangements continue tomove from full-time to part-time jobs or casual and contract work, the SGC fundscan be expected to grow less rapidly because more people will move in and out ofwork and fewer will be in continuous full-time employment. Nevertheless, with aprojected twentyfold increase by 2020, total SGC funds can still be expected togrow rapidly.

15 Combining amounts in personal and eligible rollover accounts, and assuming thatcurrent trends in early retirement remain unchanged.

Table 3 Superannuation assets by type of fund In current prices

TotalSGC funds

Personal androllover funds

Otherfundsa

All superannuationassets

$ billion $ billion $ billion $ billion

1994-95 26.2 32.5 163.9 222.62004-05 146.9 76.6 386.1 609.62019-20 572.4 185.8 1 053.8 1 812.0a Includes public and private defined benefit funds, private defined contribution funds and superannuation fundsfor the self-employed.

Source: Rothman (1996, p. 7).


fixed fee plus a percentage fee16 — say, 2 per cent a year on fundsinvested, once a fixed ‘entry fee’ had been paid — the value of workers’superannuation investments can decline significantly. In the example,fund performance needs to be better than 2 per cent plus inflation a yearduring the workers’ contributory period (that is, better than 5 per cent ifthe average annual inflation rate is 3 per cent over the period), if invest-ments are to at least maintain their value in real terms. So the choice of awell-performing fund is very important. However, in the currentenvironment the performance of established firms can no longer beguaranteed. In addition, how the many new dynamic firms will performin the future is anybody’s guess. Such firms have already shown that,while they can outperform the larger established companies in ‘boom’times, they also face greater risks of bankruptcy in difficult periods. Sothere are valid concerns about the very real possibility, given currentpolicies, that some workers may see either erosion of the value of theirsuperannuation savings over time or lose their savings altogether.

Additional concerns arise from the considerable ‘teething’ problemsassociated with the implementation of the SGC scheme. For example,people do not appear to be using the tax advantage offered to the extentexpected; superannuation funds are complaining about having to bearthe high costs of administering the scheme; low income earners (forexample, those in part-time and casual jobs) find that their small, forcedsuperannuation savings can barely meet even the fixed parts of fundfees; there is an incentive for commission-based financial advisers not tofully disclose information about risk, since such a practice can greatlyincrease their earnings; and people are unclear about their superannu-ation payouts due to uncertainties surrounding the way the SGCregulations will be interpreted in practice.

According to the Department of Social Security (1996a, p. 112),‘Confusion rather than certainty reigns over retirement incomeprovisions, particularly with respect to superannuation payouts’.

16 By charging fees in this manner, superannuation funds are essentially ensuring

that the risks associated with investing are mainly borne by their clients. While thefunds offer low risk options, the returns on these are also low, often barelycovering the fees and compensating for inflation.


Wealth transfers across generations

As already noted, by 2020 the superannuation assets of Australians areexpected to exceed the total assets that age pension age people had in theearly 1990s. This points to a historically undreamt of total wealth thatcould be either transferred to the next generation, consumed by anageing society with increased longevity, saved for and spent on agedcare, or used for a combination of all of these.

The split of total savings between consumption, wealth transfer andaged care will depend to a great extent on government policies.Continuation of the ready availability of the age pension would favourwealth transfer, but would mean higher taxes for the workingpopulation. On the other hand, much tighter means testing of the agepension would force older people to finance a higher proportion of theiraged care costs and could lead to poverty in some instances. Inheritanceswould be reduced, but so would the burden of taxation on the decliningproportion of the population in paid work (section 3.5).

As Mackay (1997, p. 58) put it:

The dramatic increase in public funding of age pensions … reversed thetrend towards poverty for the elderly, but it created a system whicheconomic forecasters are now suggesting cannot be sustained. The taxespaid by the huge baby-boom generation17 have funded the pension fortheir parents (as well as unemployment benefits for their children), butwho will fund the pension for the Boomers, in vast numbers, when theyreach retirement? Not their children, certainly, because there simply aren’tenough of them.

Simulations carried out by the OECD (1996b) for Australia suggest thatthe economic effects of greater targeting of the age pension are likely tobe considerable. If pensions were targeted so that only 30 per cent of theelderly population qualified (instead of the current 70 per cent or so), thesimulations suggest that pension expenditure as a percentage of GDPwould decline from 3.8 per cent in 1995 to 1.7 per cent by 2030. Therequirement for tax revenue so that pension costs could be met would bereduced accordingly.

17 While in general ‘baby boomers’ are acknowledged as being the generation born

between 1946 and 1961, the quotation here concerns the ‘early boomers’ — thoseborn between 1946 and 1955 (Mackay 1997, p. 4).


The extent to which the increasing wealth of Australians is transferred tothe next generation will depend not only on the targeting of the agepension, but also on a range of other government policies. For example,consideration of the assets of the elderly in determining entry fees tonursing homes would lead to less wealth being transferred to the nextgeneration. On the other hand, if the costs of aged care were more theresponsibility of individuals and relied less on taxpayers, then theyounger generation’s capacity to save would be higher. Smallerinheritances might then be offset by greater personal savings.

Also, governments may attempt to recover a proportion of age relatedpublic expenditure from inheritances. As seen in section 2.2, there havebeen experiments overseas (in France, for example) with part recovery ofdependency allowances from inheritances. In relation to policies thataffect the distribution of resources across generations the OECD (1996c,p. 250) notes that the debate may be more intense in countries such asthe United States (where older people are better protected by health andwelfare services than are younger people) than in countries such asCanada and in Scandinavia (where benefits cover age groups morebroadly).

3.4 Caring for the aged — family, governments, voluntary workers

Although declining in importance, in many developed countries thefamily remains the most important provider of care for the elderly.While there are fewer younger people relative to older people, morefamily breakdowns and fewer potential carers (as many women — thetraditional carers — have joined the workforce), there are also moreelderly people who are married with a spouse surviving into old age,and more elderly people with at least one child. In Australia, a highproportion of carers are spouses aged 55 years and over. In the early1990s, wives accounted for 40 per cent of the carer population andhusbands 33 per cent (Walker 1997, section 2.2).

Since then the number of carers has increased significantly, with nowalmost one in five homes containing both a carer and a person requiringcare (Department of Health and Family Services 1997). These increaseswere due in part to government initiatives that not only encouragedcarers to work in partnership with health professionals and non-


government agencies, but also made financial assistance as well asrespite care more readily available.

There are, however, many elderly people who do not have carers. Theseare most likely to be in need of residential care — an option that manywould prefer not to take.18 A high proportion of the elderly who do nothave carers live alone. Their share of the population in Australia (around20 per cent) is very low compared with proportions in many otherdeveloped countries. For example, in most developed countries theproportions rose from around 20 per cent in the 1950s to between 30 and50 per cent by the late 1980s. Over the same period the proportion ofelderly living with their children dropped considerably, reflecting atrend toward greater preference for independence by both young andold (Walker 1997, pp. 18–20).

The OECD (1996c, p. 249) notes that Scandinavian countries havealready experienced a trend towards separate households, which othercountries are yet to experience. With the greater number of householdsthere will be increased demand for formal care services. The OECD alsonotes that there is often a significant degree of unmet demand, whichtends to come to the surface only when services become available.Important issues for Australia are:• whether such dramatic increases in the proportion of the elderly

living alone are likely in this country as Australia catches up withother developed countries in terms of population ageing;

• whether there would be similar large increases in the demand forresidential care; and

• whether further policy initiatives regarding carers would encouragemore people to become carers, or would simply give greaterassistance to those who have already taken on the role of carer.

As seen in section 2.2, community attitudes in a number of developedcountries, including Australia, made it possible to expand home helpservices. In many instances such services supported the alreadyconsiderable effort of carers. However, as noted earlier, evidence fromother countries suggests that home based services can be seen as asubstitute for institutional care for only the 65–79 years age group. For

18 Worldwide, elderly people have expressed a preference for staying independent

and remaining in their homes for as long as possible (OECD 1992).


those over 80 it seems more appropriate for policies to focus onimproving the quality and the ‘human dimension’ of residential care.

3.5 Key factors affecting age related public expenditure

The higher is income per person, the greater is a country’s ability tofinancially assist its nonworking population (that is, the young and theelderly). However, it is by no means certain that Australia’s economicgrowth will be sufficient to allow current social policies to remain intactas the population ages. It therefore makes sense to study a range ofpossible policy alternatives now because of the long lead times requiredfor implementation, should this be required.

The key factors that need to be included in analyses of the abilities ofgovernments to cater for likely future age related public expenditure arenow considered (see also table 4).

The age dependency ratio

As the ratio of those working (that is, taxpayers) to those not workingdeclines, significant additional pressures are imposed on taxpayers andthus on nations’ budgets. In countries where governments currentlyspend more than their tax revenue — that is, where budgets are in deficit— people’s expectations that current levels of social expenditure will bemaintained will probably not be met.

In Australia the age dependency ratio (the ratio of those aged 65 yearsand over to those aged between 18 and 64 years) has been projected byvarious organisations to increase from around 20 per cent currently toclose to 40 per cent by 2050. A better measure of dependency would bethe retired dependency ratio (the ratio of persons retired to thoseworking). Analyses by Bacon and Gallagher (1996, p. 41) show that thisratio is presently around 40 per cent and, on current trends, could rise to60 per cent next century.

Thus, if current trends continue, there are likely to be at least half asmany Australians retired in the next century as there are personsworking. The rate of retirement was found by Rothman (1996, p. 6) tohave had a considerable influence on social expenditure on the agepension.


Table 4 Key factors affecting age related social expenditure

Key factors Conclusions Study Methods used

Economicgrowth;productivityimprovements

Rate of productivity growth(a factor closely linked toeconomic growth) is a majordeterminant of projectedage related socialexpenditure.

EPAC (1994)

Creedy &Taylor (1993)

Derived demographicallyprojected public expenditurearising from the ageing ofthe population.

Based on ABS populationprojections, estimatedCommonwealth and statesocial expenditure, andcompared these withprojections of GDP.

Rate ofretirementand assetsof retirees

Social expenditure on theage pension is considerablyinfluenced by:• the age of retirement World Bank

(1994)

• the extent to which theage pension wastargeted

OECD (1996b) Simulated ageingpopulations, pensionsystems and governmentbudgets for 20 OECDcountries.

• employers’ willingness tohire older people.

Bacon &Gallagher(1996)

Analysed work-to-retirementpatterns.

When projecting assets andnational savings, the rate ofreturn on invested funds isimportant, together withother economic factors.

Rothman (1996) Projected pension costs andsuperannuation assetsbetween 1995 and 2020.

Governmentpolicies

With Australia’s compulsorysuperannuation policy(SGC), superannuationassets could increaseeightfold between 1995 and2020.

Rothman (1996) Projected pension costs andsuperannuation assetsbetween 1995 and 2020.

Rates of retirementincrease dramatically atthe superannuationpreservation age (55).


Analysed statistics onindividuals’ work toretirement decisions.

People’s retirementdecisions are stronglyinfluenced by governmentpolicies.

Atkinson &Creedy (1996)

Simulated various cohorts’work-to-retirementdecisions.


Table 4 (continued)

Relevant findings Section

Without productivity growth, real GDP per person was predicted to remainunchanged between 1994 and 2051. With 1 per cent productivity growth ayear, GDP per person was projected to nearly double over the sameperiod.

Sensitivity testing highlighted the importance of the assumed productivitygrowth.

3 and 3.5

3.5

Early retirement leads to considerable increases in the cost of pensionsand benefits, and there are hidden economic costs due to loss of workerswith valuable skills.

2.2

Greater targeting of pensions in Australia (that is, only 30 per cent ofelderly qualifying) would result in large reductions in pension expenditure(from 3.8 per cent of GDP in 1995 to 1.7 per cent of GDP by 2030,assuming no other policy changes).

3.5

Early retirement leads to the substantial use of social security payments.An unexpectedly high proportion of retired people would have liked to haveremained in the workforce, since involuntary retirements outnumberedvoluntary retirements by more than three to one.

3.2

For purposes of projecting superannuation assets and national savings,economic factors such as GDP growth and the rate of return on investedfunds are dominant.

3 and 3.5

Superannuation assets were projected to increase, in current prices, from$222 billion in 1995 to around $1800 billion by 2020.

3.3

The rates of early retirement have increased dramatically at thesuperannuation preservation age of 55.

3.2

Current policies provide a significant incentive to retire early and the agepension means test has a substantial impact on the allocation of assets atretirement.

3.2 and 4.1


Table 4 Key factors affecting age related social expenditure (continued)

Key factors Conclusions Study Methods used

Governmentpolicies(continued)

With current policies, in thenext century there are likelyto be at least half as manypeople retired as there areworking.


Analysed work-to-retirementpatterns.

For the next generation, thesplit of savings between‘aged care’ and inheritanceswill depend greatly ongovernment policies.

Age and yearsbefore death

Health expenditure isproportionally higher forretired people than for therest of the population.

Goss et al.(1994)

Used conventional methodsto project health costs,assuming constant realhealth costs by age.

Health expenditure of ‘non-surviving’ 70–80 year oldsis around four times theexpenditure of ‘survivors’.

Goss et al.(1994)

Used method differentiatingbetween the health costs of‘survivors’ and ‘non-survivors’.

Preventivemeasures inhealth

Primary prevention couldsignificantly counterincreased demand for socialand health services.

Mathers (1991,1994b)

Carried out agestandardised analyses,mainly based on ABS data.

It is preferable to usepreventive measures earlyin life than more costlyremedial action later in life.

OECD (1996e)

Informal versusformal carers

The value of caring byfamily members is consider-able and results in lowerpublic aged care expendi-ture. But long term agedcare will probably continueto be the responsibility ofmainly governments.

OECD (1996c) Reviewed experiences ofmember countries with arange of carer and long termcare programs.

The potential availability andthe likely number of actualinformal carers in decadesahead need to be known.

Home versusinstitutional care

It seems doubtful thatgreater availability of homebased care will lower publicoutlays on long term care.

OECD (1996c) Reviewed experiences ofmember countries with arange of carer and long termcare programs.


Table 4 (continued)

Relevant findings Section

Without changes to the age pension age and the superannuationpreservation age, the ratio of retired persons to people working waspredicted to rise from 40 per cent currently to 60 per cent next century.

3.5

The continued ready availability of the age pension would favour wealthtransfer, but would mean higher taxes for the working population.Conversely, tighter means testing of the age pension would lead to lowerinheritances, but the tax burden on the younger generations would belower.

3.3

In 1989-90 those aged 65 years and over were responsible for 33 per centof Australia’s total health costs, but accounted for only 11 per cent of thepopulation.

3.1

In 1989-90 per person health expenditure of 70–80 year olds who survivedranged between $4000 and $7000, compared with $15 000 to $22 000 forthose who had less than two years to live.

Walker (1997,table 6)

There is very considerable potential for reducing the demand for healthservices through one form of prevention, the lowering of ‘lifestyle riskfactors’ — such as obesity, inactivity, smoking and alcohol consumption.

3.1

The OECD found that there was increasing evidence that educationaloutcomes arose from early childhood experiences, that continued physicaland mental activity could slow the loss of functions generally associatedwith ageing and that income and health inequalities among parents tendedto be passed onto their children.

3.6

In most developed countries the task of caring for the elderly has tendedto be mainly carried out by women in the 45–64 age group. However, withfemale employment now standing at around 80 per cent, this traditionalsource of carers is rapidly declining in importance. Attempts to limit publicoutlays on long term care by, for example, providing access to housingequity, private care insurance (United States), and recovery of dependencyallowances from inheritances (France) have had very little impact to date.Public sources are thus likely to continue to bear much of the cost of agedcare.

2.2

In Australia there is very limited data on unpaid carers. Much greater effortis needed in this area if projections of the economic and social effects ofpopulation ageing are to reach their potential usefulness to policy makers.

4.2

People aged 80 years and over are the major users of residential carein Australia. Their numbers are projected to increase fivefold by 2050.Internationally, greater availability of home based care tended to reducethe share of only 65–79 year olds in institutions and had not, in mostcases, reduced public outlays on long term aged care.

2.1 and 2.2


Economic growth and productivity

In reviewing the literature Walker (1997, section 1.3) notes that it is notcertain that per person income growth in the future will generatesufficient tax revenue to allow current levels of age related socialexpenditure to be maintained. However, there seems to be potential forAustralians to maintain (or even improve) their living standards throughproductivity improvements that are already being publicly discussed.With new technological breakthroughs this potential seems even greater.

Nevertheless, over the past 25 years Australia’s productivity perform-ance has been significantly below the OECD average. While there hasbeen some improvement recently19, it is by no means certain thatAustralia can replicate over the next century the sustained growth inGDP per person of the 1960s. There is also uncertainty as to whether pasttrends in the expansion of labour supply can continue now that themajority of women have already joined the workforce. For these reasonsmany are concerned that, without considerable and well-targetedchanges, Australia’s productivity performance will not improvesufficiently to allow future governments to support the elderly to thesame extent as at present.

Probably the single most important factor affecting economic growth isthe rate at which productivity increases. Assuming productivity growthof 1 per cent a year, EPAC (1994) projected aggregate GDP in Australiato rise from $340 billion to around $1100 billion (constant prices) in 2051,assuming that recent per person rates of net migration remainunchanged. The result implies a near doubling of real GDP per person.However, without productivity growth, per person GDP was projectedto be stagnant. Creedy and Taylor (1993) also found that their estimatesof age related social expenditure were particularly sensitive to theassumed rate of productivity growth.

Other broad economic factors

Rothman (1996, p. 6) found that, for purposes of projecting superannu-ation assets and national savings, economic factors such as GDP growthand the rate of return on invested funds were dominant.

19 The Institute for Management Development (1997) rated Australia 16th in the

world in 1997 in terms of competitiveness, compared with 21st in 1996.


Income distribution

EPAC (1994) noted that, apart from productivity growth, incomedistribution was a key factor in dealing with the ageing of Australia’spopulation. This was because policies that attempted to deal with theadditional budgetary pressures that were likely as the population agedhad a much better chance of being accepted if they were seen by most as‘fair’ in terms of income distribution.

Government policies concerning retirees

Government policies generally have a considerable influence on bothpeople’s retirement behaviour and on age related social expenditure.Much of this arises from the compulsory nature of many policies con-cerning retirement. For example, there is a clustering of new retirees atage 55, which is the superannuation preservation age set by the govern-ment. Also, superannuation assets are expected to increase eightfoldbetween 1995 and 2020 in significant part because of the compulsorynature of the SGC (see section 3.3).

However, many non-compulsory policies affect decisions aboutretirement as well. For example, as a result of budget announcements in1996, Australians aged 65–70 years with part-time work can nowcontinue to contribute to a superannuation fund. Also people aged 50and over can now undertake unlimited full-time voluntary work andstill qualify for social security allowances. These measures are likely toencourage older people to continue working either in a part-time or avoluntary capacity. In Sweden a partial retirement scheme built into thenational social security system had a high level of takeup and thusreduced the rate of early retirement (Walker 1997, sections 1.4 and 1.5).On the other hand, the UK government encouraged early retirementthrough the Job Release Program (section 2.2).

Pension expenditure was found to be strongly influenced by the extentto which the age pension was targeted (see the findings of OECD 1996b,described in table 4).

Social expenditure on health services for the aged also depends signifi-cantly on government policies, not only on the settings of the healthsystem itself (for example, the rules affecting Medicare), but also on theextent to which the policies that encourage healthier lifestyles among the


elderly are successful. Australia, by reorienting its policies, appears tohave considerable potential for reducing public health expenditure.OECD (1996b) projected that health expenditure in this country wouldrise from 5.8 per cent of GDP in 1995 to 7.6 per cent by 2030. A modestimprovement in the health status of the elderly or a requirement that ahigher proportion of health costs be borne by people who can afford itcould considerably reduce public expenditure.

In relation to the funding of long term care, it has already been notedthat there is considerable interest internationally in the potential for longterm care insurance. Such insurance should allow people to protect theirassets against the substantial risk posed by long term care costs. How-ever, such products have been found to have very little impact on overallpublic outlays on long term care. For these and other reasons the OECD(1996c, p. 42) concluded that public sources were likely to continue tobear the major part of the risk of long term aged care.

Thus, on the basis of current knowledge, it seems that in future studiesgreater attention should be paid to the merits of various publicly fundedsystems than to possible privately financed arrangements.

3.6 Life cycle issues

Generally, existing public policies do not take the combined effects ofageing and changing life course arrangements into consideration. This isdespite it increasingly being recognised that what happens at one stagein life often has a large impact on later stages. The OECD (1996e, p. 6)notes that there is increasing evidence:

… that educational outcomes are driven by early childhood experiences inthe home, that there are strong linkages between initial learning andlearning (and productivity) later in life, that stress on the job is linkednegatively to health and longevity, that work patterns do not match thepatterns required for care of children and the dependent elderly, thatphysical and mental activity throughout life can slow down the loss offunctions that are traditionally associated with ageing, and that incomeand health inequalities among adults are passed on to their children.

The OECD (1996e, p. 7) also notes that, from a policy point of view, it ispreferable to use preventive measures earlier in life than more costlyremedial action later in life.


4 Methods of analysis and data requirements

4.1 Traditional analyses

A review of the extensive literature on ageing, together with the types ofanalytical methods traditionally used, can be found in Walker (1997,chapter 3). The review covered, among other things:• population projections by, for example, the ABS (1996), EPAC (1994)

and Young (1990) — such projections indicating the rate at which acountry’s population is likely to age, as well as the size of theworking population relative to the ‘retired’ population;

• the evolution of patterns of family linkages, such as those reported inMyers (1992) — providing estimates of the number and types ofrelatives that may become available as carers; and

• projections of age related social expenditure, either one element at atime (see Eckermann 1992 and Goss et al. 1994) or several elementssimultaneously ( see OECD 1996b, EPAC 1994 and Creedy andTaylor 1993) — the costs studied including expenditure on the agepension, health services to the aged, unemployment benefits andother aged assistance.

An example of a newer type of study, which aims to simulateindividuals’ work-to-retirement decisions, is provided by Atkinson andCreedy (1996). These authors simulated the optimal choice of retirementage and the allocation of assets at retirement, involving the routethrough what they called the ‘retirement maze’.20 Each simulatedmember of the cohort was assumed to maximise a lifetime utilityfunction, defined in terms of the present value of utility. Each year’sutility was independently defined as a Cobb Douglas function ofconsumption and leisure in the year. While a large number ofsimplifying assumptions had to be made (for example, transition to part-time work was not modelled and retirement was treated as irreversible),some useful conclusions could be drawn, showing the importantinfluence of government policies on early retirement patterns. Forexample, the analyses suggested that:

20 At the time the Atkinson and Creedy paper was published, the model was in

preliminary development as it considered only male homeowners (Department ofSocial Security 1996a, p. 260).


• current policies provided a significant incentive to retire early; and• the age pension means test had a substantial impact on the choice of

the age of retirement and on the allocation of assets at retirement.

4.2 Microsimulation modelling

The OECD (1996e) has referred to microdata and microsimulationmodelling as being among the few newer sophisticated techniquesavailable to analysts of health economics and population ageing.

So what is microsimulation? Whereas in traditional studies the unit ofanalysis is a group of people with a common set of characteristics, inmicrosimulation the unit is the individual, with his or her rich set ofpersonal characteristics. Microdata (that is, information at the personlevel) is collected through surveys such as the census and relates toindividuals as well as their families. Microsimulation models can then beconstructed, based on microdata. Because such models deal with theindividual, the impact of policy changes can be examined in far moredetail than was ever possible before. Although a relatively new methodof analysis, there is an extensive literature on the development andpolicy applications of microsimulation models (see, for example, Orcutt,Merz and Quinke 1986, Harding 1996, Nelissen 1996 and NationalResearch Council 1991).

Microsimulation models are now used routinely for policy analysisacross the industrialised world. One key advantage they have overtraditional methods is that they allow a greater number of variables to beincorporated in the model, with minimum expansion in size andcomplexity. In macrosimulation models each additional variableproduces an exponential increase in the number of transitions21 to bemodelled. But the size of a microsimulation model is not affected byadditional variables, provided that these are part of the initial microdataset (see, for example, Walker 1997, section 3.3 and Department ofHousing and Regional Development 1995, p. 45).

For example, had Atkinson and Creedy (1996) used microsimulationtechniques, they may have been able to relax some of their simplifying

21 A transition is a change of status, such as an employed person becoming a retired

person.


assumptions. They may have been able to model the transitions fromand to part-time work, as well as make the transition to retirementreversible. Of course, all this would depend on the availability ofsuitable microdata.

Another advantage microsimulation models have over traditionalmethods is that they make estimating the net effect of a complex set ofpolicy changes possible. For example, the net effect of all major policychanges announced in a particular budget on the incomes of the elderlycould be estimated.

This is one reason why it was considered important to identify the keyissues relating to ageing in this paper. Variables linked to these issuesare then the ones to be selected for modelling purposes.

NATSEM was established in 1993 to develop microsimulation modelsand techniques and to foster the use of microdata and microsimulationin applied social and economic analyses. STINMOD, the static micro-simulation model developed by NATSEM, provides an up-to-date snap-shot of the characteristics of the Australian population and simulates theimpact of about 30 different cash transfer and income tax programs(Lambert et al. 1994). It is used by the major federal government depart-ments and a host of other users outside government, mainly for simu-lating the revenue and distributional impacts of policy changes to theseprograms.

Through such static models it is possible to study particular aspects ofage related public expenditure in considerable detail. Some modellingwork and analysis has already been completed at NATSEM on privatehealth insurance (see Percival, Schofield and Fischer 1997, Schofield,Fischer and Percival 1997 and Schofield 1997). Work is already welladvanced on adding to STINMOD a capacity to analyse pharmaceuticalusage as well as the associated public expenditure through the subsidiesprovided by the Pharmaceutical Benefits Scheme. Also, a model that willallow analysis of options in the diagnosis and treatment of a particulardisease, diabetes, is currently being developed. 22

22 The options of current interest are those proposed as part of the 1998 National

Diabetes Strategy.


NATSEM has also developed a dynamic microsimulation model thattracks individuals through their life cycle over a 20–30 year period (seeAntcliff 1993 and Antcliff et al. 1996). Once current work on addingwealth accumulation (see Bækgaard and King 1996 and King andBækgaard 1996) and planned work on adding health status to the modelare completed, analysis of an extended range of policy issues related topopulation ageing will become possible (see Walker 1997, section 4).

To extend the capabilities of its microsimulation models, NATSEM isworking on linking its models to macroeconomic models (see Poletteand Robinson 1997). Such linking would allow, for example, consider-ation of the effects of future economic growth on governments’ capacityto finance the long term care needs of Australia’s ageing population.

4.3 Data requirements for additional analyses

As already noted, some key issues in ageing cannot be adequatelystudied because of the lack of data. Data requirements that have beenidentified in the literature are now discussed.

Age of retirement

For Australia, the Department of Social Security (1996a, pp. 45–8, 259,270, 277) suggests that there is a need to define and collect officialinformation on early and late retirement. In doing this, the followingquestions need to be answered.• To what extent is ‘early retirement’ a synonym for unemployment?• To what extent are the mature aged ‘underemployed’ (that is, they

do not enter the unemployment statistics, since they have given upapplying for work due to their lack of success)?

• How can the official statistics fully account for the rapidly growingnonstandard forms of employment, such as casual and contract work(both part-time and full-time)?

One step in this direction is the ABS Survey of Employment andUnemployment Patterns currently under way — a longitudinal surveyespecially designed to provide information on the dynamics of thelabour market and, more specifically, to assist in the evaluation of labour


market assistance programs. The survey uses multiframe sampleselection methodology to provide samples of sufficient size for relativelyrare populations. Information collected directly from the respondent issupplemented with administrative data from the Department ofEmployment, Education, Training and Youth Affairs (Labour MarketProgram Participation) and the Department of Social Security (IncomeSupport). The survey is a potentially very rich source for longitudinalanalysis of the characteristics of both job seekers and the population ingeneral. The longitudinal nature of this survey is well suited to life cycletype models, such as NATSEM’s dynamic microsimulation model. Also,it may be possible to extend the survey to include questions about thereasons why people decide to retire early or late.

The method used by Atkinson and Creedy (1996) to analyse retirementdecisions could possibly be extended through surveys producing unitrecord data, with questions relating to retirement decisions. Such datawould have the advantage of allowing simultaneous consideration of alarge number of variables, and of being able to distinguish between thedecision processes of people belonging to different generations.

Value of informal care

Quantitative information on Australia’s unpaid carers is very limited,although they are a major provider of long term care to the elderly. Avery important data need for future analyses is the value of the informalsector, as well as the future availability of family members as potentialcarers.

In addition, there is a need to know what makes a potential carer decideto become a carer. Information of this kind is essential if a study of thelikely impact of options such as part funding of carers by government,the provision of carer support, or the involvement of people (ororganisations) on a voluntary basis is to be undertaken.

Government versus private funding

While in most developed countries long term care is mainly publiclyfunded, the ratio of government financing to private financing isgenerally not known (section 2.2). There have been some estimates for


the United Kingdom and the United States, suggesting that around halfof nursing home costs are met by private payments. There have alsobeen studies in Australia and elsewhere that have indicated thatcommunity care options may not lead to lower public outlays than thealternatives.

Without comprehensive and comparable costs data on all activitiesrelated to aged care — be they public or private, formal or informal —the cost effectiveness of various care options is extremely hard todetermine. Thus, as a first step, focus should be on obtaining qualitydata on as many age related costs as possible.

As noted in section 2.2, a challenge for the US-style health and aged caresystem is to find a way to expand medical cost coverage to the uninsuredwithout leading to further rises in the already very high US health costs.Thus, as a second step, it would be useful to develop benchmarks forAustralia, indicating the extent to which segments of aged care servicescould be privately funded without risking extreme hardship for some.

Pricing of services

In New Zealand there are currently moves by regional health authoritiesto use contracted services. The OECD (1996c, p. 234) reported thatfinalisation of contract arrangements had been delayed by a year due tothe lack of microeconomic data for use in setting the prices for suchservices.

In general, the current trend in Australia — as in many other developedcountries — to rely to a greater extent on private suppliers, as well as onprivate financing, means that there is now a need for a wider range ofmicroeconomic data. Collecting and making such data available in unitrecord format would have the advantage of allowing researchers to useeither traditional or microsimulation analytical methods — whicheverwas more appropriate for the task.


5 Summary

While there are great uncertainties about economic and socialdevelopments in the decades ahead, few question the certainty thatdemographic changes will lead to significant ageing of Australia’spopulation. Official projections suggest that by 2050 the proportion ofpeople in the population aged over 65 years will have nearly doubledand the proportion aged 85 or more will have increased fivefold(chapters 1 and 2).

Research to date suggests that, while medical science helps some elderlypeople to remain independent and healthy for longer periods, for othersit extends the time spent in ill health and a state of dependence. Onbalance, the OECD concluded that a realistic assessment was that agerelated costs will grow as the population ages (section 3.1).

In Australia there has been some debate about whether the impact ofthese demographic developments will be small or large relative to otherlikely changes. Some of the questions asked were:• Should policies be changed as the population ages, or would

continuation of existing policies be an adequate response?• Since other developed countries with a higher proportion of elderly

than Australia managed without a crisis, was there really a need forconcern?

To clarify some of these issues it is worth considering the experiences ofother developed countries, especially those with similar welfare systemsto Australia’s (for example, many European countries). Probably themost striking feature of other countries’ current responses is that theirsystems are no longer considered adequate. Chronic budgetarypressures, community concerns about slower economic growth, highlevels of unemployment and a growing polarisation of income have ledmany to question the affordability of existing systems and to look foralternatives. While asking individuals to bear a greater share of their agerelated costs seems an attractive proposition, the experiences of othercountries suggest that there could be significant disadvantages inmoving too far in the ‘private provision’ and ‘self-financing’ direction.

Studies show that:


• long term private care insurance (the United States),• products allowing access to housing equity to pay for long term care

(the United States and other countries) and• part recovery of dependency allowances from inheritances (France)

have had very little impact on total public expenditure. On the basis ofthis the OECD concluded that public sources were likely to continue tobear the major part of the risk of long term aged care (section 2.2).

Contrary to expectations, the proportion of elderly living in institutionsdid not decline in most countries where policies favouring home basedcare were introduced. While there was some decline for the 65–79 agegroup, those over 80 years tended to need residential care. In this respectthe OECD concluded that, given the scale of the projected growth of theover 80 age group, it seemed realistic to focus policies for the veryelderly on improving the quality of institutional care. In practice,expansion of home help services tended to develop in parallel withresidential care rather than as a substitute for it. Also, there was noevidence to suggest that home based care represented a lower costoption (section 2.2).

Today many see the finding of alternatives that would allow thecontainment of age related public expenditure without affecting thequality of care as a critical policy challenge for the future.

Since most developed countries are currently reviewing their policies,there must be considerable limits to the extent to which such policiescould be transplanted to Australia. In addition, the economic and socialconditions underpinning Australia’s ageing process will be very differ-ent in many respects from the conditions in Europe 20–30 years ago.

What is clear is that in other countries the adjustment process topopulation ageing has not been easy, often requiring a great deal ofdebate and time for adjustment. Because decisions about the extent towhich age cared costs should be publicly funded involve decisions aboutincome distribution, not only across income groups but across gener-ations as well, policies will need to be seen as being ‘fair’ by Australiansgenerally. Given the long lead times required in gaining acceptance forradical changes, it seems important to start considering options as earlyas possible.


What are the key issues that need to be considered in policy analysesfrom Australia’s point of view? The ones arising from the literaturereviewed in this paper follow.

In the health area, there seems to be considerable potential for improv-ing the quality of life of the elderly through one form of prevention, thelowering of lifestyle risk factors — such as obesity, inactivity, tobaccosmoking and alcohol consumption. In developing policies in this area itmay be important to target the young as well as the elderly, since manylifestyle patterns are established early in life. Prevention would have thebenefit of improving the quality of life of the elderly, as well ascontaining expenditure on health care (section 3.1).

The age of retirement is another key factor affecting both the quality oflife and public expenditure. The current age pension age of 65 years formales was set in 1909, when it was above the average life expectancy atbirth (section 3.2). In essence, at that time people were expected to workuntil they died. Today, with the age pension age unchanged and thesuperannuation preservation age set at 55, many Australians can expectto be out of the workforce for 15–40 years. As a result, many of thosewho retire early can expect to be out of the workforce for as long as theywere in it (section 3.2).

So why are a considerable number of people retiring before the agepension age? Indeed, given a much increased longevity, why is not therea trend towards people continuing to work after the age pension age,possibly in a casual or part-time capacity?

For Australia, research in this area is scant. However, there areindications that an unexpectedly high proportion of retired peoplewould have liked to have remained in the workforce. Others have retiredearly because current policies presented them with financial advantages;yet others had health and family problems. In general there appear to bestrong pressures in Australia to retire early, arising from social attitudes,employer preferences and age pension and superannuation policies(section 3.2).

Of concern is that early retirement in Australia leads to the substantialuse of social security. In Sweden, in response to similar concerns the agepension age was raised from 65 to 67 years, with those retiring early(from age 61) receiving actuarially lower pensions than those leaving theworkforce later (section 2.2).


Another key issue in Australia is the extent to which retirees rely on theage pension. In the early 1990s around three-quarters of Australiansaged 60 years or over received a pension benefit. Greater targeting of theage pension, combined with the introduction of the compulsory Super-annuation Guarantee Charge, is likely to reduce this proportion in thefuture. A study by the OECD estimated that, if only 30 per cent of theelderly qualified, public expenditure in Australia on the age pensionwould decline from 3.8 per cent of GDP in 1995 to 1.7 per cent by 2030(section 3.3).

With existing policies, superannuation assets are expected to increaseeightfold between 1995 and 2020, with a more than twentyfold increasein the amount of savings earmarked (through the SuperannuationGuarantee Charge) for post-retirement use. Estimates also suggest thatthe funds preserved for those retiring early would increase more thanfivefold over the period (section 3.3).

The projected superannuation assets of Australians of around $1800billion by 2020 would be much higher than the total assets that agepension age Australians had in the early 1990s (around $300 billion,mainly through home ownership) (section 3.3). This suggests ahistorically high capacity for people to personally take care of their agerelated costs, as well as a considerable potential for a massive transfer ofwealth across generations in decades to come (section 3.3).

However, at the practical level there are considerable ‘teething’ problemswith the implementation of the Superannuation Guarantee Charge —superannuation funds as well as their contributors finding the currentarrangements unsatisfactory. Inability to resolve the problems quicklymay cast doubt on the long term viability of some recently announcedage related policy initiatives.

But who will care for the frail elderly — those aged 85 years or over —whose numbers in Australia have been projected to increase fivefold?

In most developed countries the majority of the caring task is performedby family members. In Australia the number of carers has increasedsignificantly in recent years, due in part to government initiatives thatmade financial assistance and respite care more readily available. AnOECD study found that Australia was one of the countries leading in theencouragement of the sharing of informal care between families andoutside home based services (section 3.4).


However, many elderly people live alone and do not have carers and soare most likely to be in need of residential care. Also, there are trendstowards family members being less accepting of unpaid caring roles andtowards households splitting, often into single units. With such develop-ments the demand for formal care services is likely to increase at ahigher rate than the rate at which the population ages (section 3.4).

Internationally, the efforts of family carers have tended to be seen as a‘free good’. The OECD noted that in most of its member countries it wasonly gradually, and with some reluctance, that governments accepted agreater share of the task of caring for the elderly. In one country,Denmark, paid carers became a significant proportion of primary carers,while in Sweden working age carers were offered by government asalary equivalent to that of home helpers. However, as home helpservices expanded in Sweden, the number of paid caregivers declineddramatically — by some 70 per cent between 1970 and 1990 (section 2.2).

This suggests that there are very significant substitution possibilities inpeople’s decisions about becoming a carer. It also suggests that, ifgovernments decided to offer financial assistance to carers, personsbeyond the pension age as well as those of working age should also beeligible. As seen earlier, it is mainly the younger retirees who havetraditionally accepted the role of carer. With some 15–25 years availableto retirees before they themselves are likely to need formal care, it mayalso be possible to set in place incentives that encourage them to retrainfor employment as formal, paid carers.

Based on the above, it seems likely that future initiatives regardingageing will rely not only on the extension of existing policies, but also ona great deal of experimentation. In such an environment quantitativestudies of the effects of changes to existing policies, as well as those ofnovel options, could greatly aid policy development. For such studies tobe undertaken effectively, databases will need to be developed in newareas (section 4.2) and new ways of drawing on research expertise acrossa wide range of disciplines will have to be found.23

23 See, for example, Johansson (1995) on the possibilities of applying techniques from

various disciplines (such as contingent valuation, utility maximisation, healthproduction functions, ‘willingness to pay’ locus, cost effectiveness analysis andintertemporal models) when evaluating health risks.


When building models, care will need to be taken to include all variablesthat are likely to have a major impact on results, and omit those withlittle impact. This standard rule of model building is particularlyrelevant in the area of population ageing, since ageing is influenced bysuch a wide variety of variables, and since there can be considerable andsometimes rapid changes in underlying social and economic conditions.In particular, international experience has shown that special attentionneeds to be paid to the substitution possibilities people are presentedwith — for example, the work–retirement or formal–informal carechoices. Unless an effective way to model such substitution possibilitiesis found, studies on age related policy choices will be of limited use.

It will be possible to extend traditional methods of analysis by using therelatively new technique of microsimulation. For example, with the staticmicrosimulation model already developed at NATSEM, it is possible toconsider a greater number of variables and analyse a wider range ofpolicy options simultaneously than with traditional approaches. Withthe dynamic microsimulation model being developed at NATSEM, whilecovering fewer variables, it will be possible to address the intergener-ational issues associated with ageing to a significantly greater extentthan with traditional methods (section 4.2).

In summary, compared with the uncertainties surrounding many aspectsof Australia’s future, the ageing of this country’s population seems anear certainty. Adjustments will need to be made, regardless of themagnitude of the effects of ageing. The experiences of other countriessuggest that there are no obvious simple solutions. They also suggestthat there may be keen public interest in the policies considered, sincethese could have a major impact on income distribution — bothbetween the rich and the poor and between younger and oldergenerations. Most countries tend to search for policies that can be seenby their citizens as not only socially desirable but also fair and financiallyresponsible. To do this, time is needed for debate, experimentation andplanning. The aim of papers such as this one is to contribute to informedpublic debate on ageing.


References

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Antcliff, S. 1993, An Introduction to DYNAMOD: A Dynamic MicrosimulationModel, DYNAMOD Technical Paper no. 1, National Centre for Social andEconomic Modelling, University of Canberra.

Atkinson, M. and Creedy, J. 1996, ‘The choice of early retirement age and theAustralian superannuation system’, in Department of Social Security,Early Retirement Seminar, AGPS, Canberra, pp. 161–94.

Bacon, B. and Gallagher, P. 1996, ‘Early retirees: trends and their use ofsuperannuation benefits and social security payments’, in Department ofSocial Security, Early Retirement Seminar, AGPS, Canberra, pp. 41–84.

Bækgaard, H. and King, A. 1996, Modelling the accumulation and distributionof Australian household assets, NATSEM paper presented at the 24thGeneral Conference of the International Association for Research inIncome and Wealth, Lillehammer, 18–24 August.

Brown, C. 1996, Sources of Income and the Assets of Older Australians, RetirementIncome Modelling Task Force, Department of the Treasury, Canberra.

Creedy, J. and Taylor, P. 1993, ‘Population ageing and social expenditure inAustralia’, Australian Economic Review, no. 3, July/August, pp. 56–68.

Department of Health and Family Services 1997, Carer Support Kit, Canberra.

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—— 1995, Facets of Living Standards: A DSS Community Research Project, PolicyResearch Paper no. 70, AGPS, Canberra.


——1996a, Early Retirement Seminar, AGPS, Canberra.

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Encel, S. 1996, ‘Involuntary early retirement and labour force re-entry for olderworkers’, in Department of Social Security, Early Retirement Seminar,AGPS, Canberra, pp. 113–20.

Eckermann, S. 1992, Projected health expenditure and ageing: revisedmethodologies, Paper presented at the PHA Conference, Canberra,September.

Clare, R. and Tulpule, A.1994, Australia’s Ageing Society, Background Paper no.37, Economic Planning Advisory Council, Canberra.

d’Espaignet, E., van Ommeren, M., Taylor, F., Briscoe, N. and Pentony, P.1991, Trends in Australian Mortality 1921–1988, Mortality Series no. 1,Australian Institute of Health, AGPS, Canberra.

Glennerster, H. 1996, Caring for the Very Old: Public and Private Solutions,Discussion Paper no. WSP/126, Suntory and Toyota International Centresfor Economics and Related Disciplines, London School of Economics.

Goleman, D. 1996, Emotional Intelligence, Bloomsbery.

Goss, J., Eckermann, S., Pinyopusarerk, M. and Wen, X. 1994, Economicperspective on the health impact of the ageing of the Australianpopulation in the 21st century, Paper presented at the Conference of theAustralian Population Association, Australian National University,Canberra, September.

Hall, R., Harley, W., Lafferty, G. and Whitehouse, G. 1997, Homeworking inAustralia: An Assessment of Current Trends, University of QueenslandResearch Paper, Brisbane.

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Johansson, P. 1995, Evaluating Health Risks: An Economic Approach, CambridgeUniversity Press.

King, A. and Bækgaard, H. 1996, The Dynamic of Housing Wealth, NATSEMpaper presented to the 8th National Conference of the AustralianPopulation Association, Adelaide, 3–6 December.


Lambert, S., Percival, R., Schofield, D. and Paul, S. 1994, An Introduction toSTINMOD: A Static Microsimulation Model, STINMOD Technical Paperno. 1, National Centre for Social and Economic Modelling, University ofCanberra.

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Percival, R. 1998, Changing Housing Expenditures, Tenure Trends and HouseholdIncomes in Australia, 1975-76 to 1997, Discussion Paper, National Centre forSocial and Economic Modelling, University of Canberra (forthcoming).

——, Schofield, D. and Fischer, S. 1997, Modelling the Coverage of Private HealthInsurance in Australia in 1995, Technical Paper no. 12, National Centre forSocial and Economic Modelling, University of Canberra.

Polette, J. and Robinson, M. 1997, Modelling the Impact of Microeconomic Policyon Australian Families, Discussion Paper no. 20, National Centre for Socialand Economic Modelling, University of Canberra.

Rothman, G. 1996, Aggregate and Distributional Analysis of AustralianSuperannuation Using the RIMGROUP Model, Retirement IncomeModelling Task Force, Department of the Treasury, Canberra.

Schofield, D. 1997, The Distribution and Determinants of Private Health Insurancein Australia, 1990, Discussion Paper no. 17, National Centre for Social andEconomic Modelling University of Canberra.

——, Fischer, S. and Percival, R. 1997, Behind the Decline: The ChangingComposition of Private Health Insurance in Australia, 1983–95, DiscussionPaper no. 18, National Centre for Social and Economic Modelling,University of Canberra.

Sheehan, P., Grewal, B. and Kumnick, M. (eds) 1996, Dialogues on Australia’sFuture, Victoria University, Melbourne.

Tapper, A. 1993, The Welfare Culture of Confusion, Tenth Bert Kelly Lecture,Centre for Independent Studies, Perth.

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Young, C. 1990, Australia’s Ageing Population — Policy Options, Bureau ofImmigration Research, AGPS, Canberra.

Other reading

Goss, J. 1992, Health Care for the Elderly — Costs and Some Institutional Issues,EPAC Background Paper no. 23 to seminar ‘Economic and SocialConsequences of Australia’s Ageing Population — Preparing for the 21stCentury, Canberra.

Mathers, C., McCallum, J. and Robine, J. 1994, Advances in Health Expectancies,Proceedings of the 7th International Meeting on Health Expectancy,Australian Institute of Health and Welfare, Canberra.

NATSEM publications

Copies of NATSEM publications and information about NATSEM maybe obtained from:

Publications OfficerNational Centre for Social and Economic ModellingUniversity of Canberra ACT 2601Australia

Ph: + 61 2 6201 2750 Fax: + 61 2 6201 2751Email: [email protected]

See also NATSEM’s World Wide Web site:http://www.natsem.canberra.edu.au

Periodic publications

NATSEM News keeps the general community up to date with thedevelopments and activities at NATSEM, including product andpublication releases, staffing and major events such as conferences. Thisnewsletter is produced twice a year.

The Income Distribution Report (IDR), which is also produced twice ayear, provides information and comment on the average incomes ofAustralian families, covering the incidence of taxation for differentfamily types, the income support provided by the government and howdifferent family groups are faring. The IDR, which is available onsubscription, presents this information in a simple, easy-to-followformat.

NATSEM’s Annual Report gives the reader an historical perspective ofthe centre and its achievements for the year.

Discussion Paper series

No. Authors Title

1 Harding, A. Lifetime Repayment Patterns for HECS andAUSTUDY Loans, July 1993Journal of Educations Economics, vol. 3, no. 2,pp. 173–203, 1995.

2 Mitchell, D. andHarding, A.

Changes in Poverty among Families during the1980s: Poverty Gap Versus Poverty Head-CountApproaches, October 1993

3 Landt, J., Harding, A.,Percival, R. andSadkowsky, K.

Reweighting a Base Population for aMicrosimulation Model, January 1994

4 Harding, A. Income Inequality in Australia from 1982 to 1993:An Assessment of the Impact of Family,Demographic and Labour Force Change,November 1994Australian Journal of Social Research, vol. 1, no. 1,pp. 47–70, 1995.

5 Landt, J., Percival, R.,Schofield, D. andWilson, D.

Income Inequality in Australia: The Impact ofNon-Cash Subsidies for Health and Housing,March 1995

6 Polette, J. Distribution of Effective Marginal Tax RatesAcross the Australian Labour Force, August 1995Contributed to article in Australian EconomicReview, 3rd quarter, pp. 100–6, 1995.

7 Harding, A. The Impact of Health, Education and HousingOutlays on Income Distribution in Australia inthe 1990s, August 1995Australian Economic Review, 3rd quarter,pp. 71–86, 1995.

8 Beer, G. Impact of Changes in the Personal Income Taxand Family Payment Systems on AustralianFamilies: 1964 to 1994, September 1995

9 Paul, S. and Percival, R. Distribution of Non-Cash Education Subsidies inAustralia in 1994, September 1995

10 Schofield, D., Polette, J.and Hardin, A.

Australia’s Child Care Subsidies: A DistributionalAnalysis, January 1996

Discussion Paper series (continued)

No. Authors Title

11 Schofield, D. The Impact of Employment and Hours of Workon Health Status and Health Service Use,March 1996

12 Falkingham, J. andHarding, A.

Poverty Alleviation Versus Social InsuranceSystems: A Comparison of LifetimeRedistribution, April 1996In Harding, A. (ed.), Microsimulation and PublicPolicy, North Holland, Amsterdam, 1996.

13 Schofield, D. and Polette, J. How Effective Are Child Care Subsidies inReducing a Barrier to Work?, May 1996Australian Economic Review, forthcoming.

14 Schofield, D. Who Uses Sunscreen?: A Comparison of the Useof Sunscreen with the Use of PrescribedPharmaceuticals, May 1996

15 Lambert, S., Beer, G. andSmith, J.

Taxing the Individual or the Couple: ADistributional Analysis, October 1996

16 Landt, J. and Bray, J. Alternative Approaches to Measuring RentalHousing Affordability in Australia, April 1997

Australian Journal of Social Research, vol. 4, no. 1,pp. 49–84, December 1997

17 Schofield, D. The Distribution and Determinants of PrivateHealth Insurance in Australia, 1990, May 1997

18 Schofield, D., Fischer, S.and Percival, R.

Behind the Decline: The Changing Compositionof Private Health Insurance in Australia, 1983–95,May 1997

19 Walker, A. Australia’s Ageing Population: How ImportantAre Family Structures?, May 1997

20 Polette, J. and Robinson, M. Modelling the Impact on Microeconomic Policyon Australian Families, May 1997

21 Harding, A. The Suffering Middle: Trends in IncomeInequality in Australia, 1982 to 1993-94, May 1997Australian Economic Review, vol. 30, no. 4,pp. 341–58, December 1997.

22 Schofield, D. Ancillary and Specialist Health Services: DoesLow Income Limit Access?, June 1997

Discussion Paper series (continued)

No. Authors Title

23 King, A. The Changing Face of Australian Poverty: AComparison of 1996 Estimates and the 1972-73Findings from the Commission of Inquiry,December 1997

24 Harding, A. andPercival, R.

Who Smokes Now? Changing Patterns ofExpenditure on Tobacco Products in Australia,1975-76 to 1993-94, December 1997

25 Percival, R. and Fischer, S. Simplicity Versus Targeting: A Legal AidExample, December 1997

26 Percival, R., Landt, J. andFischer, S.

The Distributional Impact of Public RentSubsidies in South Australia, April 1997,January 1998

Policy Paper series

No. Authors Title

1 Harding, A. and Polette, J. The Distributional Impact of a Guns Levy,May 1996

2 Harding, A. Lifetime Impact of HECS Reform Options,May 1996

3 Beer, G. An Examination of the Impact of the Family TaxInitiative, September 1996

DYNAMOD Technical Paper series a

No. Authors Title

1 Antcliff, S. An Introduction to DYNAMOD: A DynamicMicrosimulation Model, September 1993

a Discontinued series. Topic is now covered by the broader Technical Paper series.

Dynamic Modelling Working Paper series a

No. Authors Title

1 Antcliff, S., Bracher, M.,Gruskin, A., Hardin, A.and Kapuscinski, C.

Development of DYNAMOD: 1993 and 1994,June 1996

a Discontinued series. Topic is now covered by other series, including the broader Technical Paper series.

STINMOD Technical Paper series a

No. Authors Title

1 Lambert, S., Percival, R.,Schofield, D. and Paul, S.

An Introduction to STINMOD: A StaticMicrosimulation Model, October 1994

2 Percival, R. Building STINMOD’s Base Population,November 1994

3 Schofield, D. and Paul, S. Modelling Social Security and Veterans’Payments, December 1994

4 Lambert, S. Modelling Income Tax and the Medicare Levy,December 1994

5 Percival, R. Modelling AUSTUDY, December 1994

6 Landt, J. Modelling Housing Costs and Benefits,December 1994

7 Schofield, D. Designing a User Interface for a MicrosimulationModel, March 1995

8 Percival, R. andSchofield, D.

Modelling Australian Public Health Expenditure,May 1995

9 Paul, S. Modelling Government Education Outlays,September 1995

10 Schofield, D., Polette, J.and Hardin, A.

Modelling Child Care Services and Subsidies,January 1996

11 Schofield, D. and Polette, J. A Comparison of Data Merging Methodologiesfor Extending a Microsimulation Model,October 1996

a Series was renamed the Technical Paper series in 1997.

Technical Paper series

No. Authors Title

12 Percival, R., Schofield, D.and Fischer, S.

Modelling the Coverage of Private HealthInsurance in Australia in 1995, May 1997

13 Galler, H.P. Discrete-Time and Continuous-Time Approachesto Dynamic Microsimulation Reconsidered,August 1997

AUSTRALIA’S AGEING POPULATION fileAustralia’s population will age significantly from around 2010...

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