SYDNEY, Aug 22 — Australia’s population will age dramatically over the next four decades but much of the extra fiscal burden will be absorbed by its giant private pension system and associated tax breaks according to long-range economic forecasts set to be published by the government on Thursday.
The number of Australians aged 65 and over will double by 2063 but spending on public pensions will decline to 2 per cent of GDP over the same period, from 2.3 per cent today, thanks to the private pension system, according to excerpts from the “Intergenerational Report 2023” seen by Reuters.
The report, part of a series which periodically examines how trends in demography or technology will affect Australia’s economy, projects that by 2035 Australia will have the lowest public spending on pensions among the OECD, a group of mostly rich countries.
However, tax breaks associated with the private system will exceed public pension spending by the 2040s and reach 2.4 per cent of GDP by 2063.
Australia’s A$3.5 trillion (RM10 trillion) private pension system, the world’s fourth largest, is split between large funds run by industry associations or banks, responsible for about two-thirds of investments, and hundreds of thousands of small funds run by individuals or families.
Total investment will grow to 218 per cent of GDP by 2062-63 versus 116 per cent today, the report will say, in part thanks to a system of mandatory contributions where employers pay 11 per cent of a workers salary into funds.
The torrent of savings is forcing the country’s biggest funds to look overseas to put money to work.
Australia’s largest fund, AustralianSuper, has offices in London and New York. Its A$160 billion rival Aware Super will open a London office in November. — Reuters
