Nick Bruining: These are the two biggest threats to the future viability of Centrelink’s age pension

The myth of there “never being a pension when you retiree” was inconveniently blown apart in last week’s Intergenerational Report.

Often used as a line to scare people into making risky investments, the seventh report prepared by Treasury shows that the Australian age pension system is fundamentally safe, even for millennials.

An Intergenerational Report is released every five years or so, the first being generated in 2002. In essence, they track and predict Australia’s journey over the next 40 years.

It covers a number of different areas ranging from key current issues such as the effects of artificial intelligence and geopolitical upheaval through to the long-term important stuff like the economy and future Federal Budgets.

It’s the latter that’s of interest.

As it stands right now, spending on the age pension continues to fall.

“Spending on age and service pensions is projected to fall from 2.3 per cent of GDP in 2025–26 to 1.8 per cent of GDP in 2065–66,” the report said.

“This is despite the number of people over age pension age being projected to double to around nine million.”

The first report in 2002 said spending on pensions in that year totalled 2.9 per cent of GDP. The reason it is less now is that Centrelink’s means-testing system is kicking in for a greater number of seniors.

Just under 40 per cent of seniors now receive a full age pension. By 2062, that number is forecast to drop to about 15 per cent.

Today, about 32 per cent of seniors don’t qualify for any pension because they are too rich. That number is set to increase to about 40 per cent in 20 years time, and 45 per cent in 40 years time.

Without question, the big difference is the introduction and expansion of compulsory retirement savings through superannuation and the “intergeneration wealth transfer” taking place, which is fancy talk for big inheritances.

It is also why we need to be careful messing with the superannuation early access rules. The system is clearly working as it should.

Knowing that my kids and grandkids won’t be slugged extra income tax to pay seniors who raided their super along the way is a good thing.

My message to millennials and gen alpha: Your job is to lift the fertility rate. At least to a level that replaces the current base of taxpayers.

With Australia’s fertility rate sitting at about 1.5 children per woman, that’s 0.6 below the replacement rate of 2.1.

Not much the baby boomers can do about that.

But make no mistake, population growth translates to economic growth and is why the current debate over immigration levels is such a key component of Australia’s future economic prosperity.

Finally, the big issue going forward is undoubtedly age and disability care.

Almost on a weekly basis, medical advancements dealing with some illness or condition appear in the media. These collectively extend life expectancies and, sometimes, quality of life.

While the pension might be safe, a wholly different approach is being taken to health and aged care.

Big changes to the Support At Home and residential aged care systems occurred last year.

This year, seniors are facing tweaks to health insurance rebates, minimal increases to Medicare funding to health professionals and an apparent tightening on drugs being subsidised by the Pharmaceutical Benefit Scheme. That all points to one thing — the user-pays philosophy is alive and well across all political parties.

Kids, perhaps the inheritance might not be as big as you thought it would be. Just so you know, a nip-and-tuck ahead of my 100th birthday celebration is definitely on the cards.

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association