The first key element in understanding structural change is to assess the impact of change and to address the impact of changing demographic structure.
Demographics of Ageing
Australia, surprisingly, has an older age structure than the USA. This is attributable to very low levels of immigration in the 1970s and 1980s, associated with low levels of economic growth. The courageous policy initiatives of the Hawke–Keating Government (1983 – 1996) to open up and deregulate the Australian economy in the 1980s and early 1990s (e.g. floating the dollar, reducing tariffs, and introducing the wage accord and superannuation) has had almost no impact on the problems associated with health and ageing. Figure 1 below indicates that 37% of the Australian population is either categorised as a builder (pre-1944) or baby boomer (1945–1964). This is important, because persons older than 60 years have a four times greater probability of utilising health services. This in turn influences work, housing and location of these opportunities.
Figure 1: Key Market Segments by Generation
The scale of the health and ageing issue is almost incomprehensible. Based on economic forecasts, the impacts of health and ageing on the Australian economy are likely to be 5–10 times greater than the carbon tax/climate change. The scale and complexity of this issue have combined to generate the most significant economic concern for Australia’s future.
Figure 3 highlights the speed of demographic change. The 65+ age group has doubled as a percentage of the Australian population since 1970 – the only age cohort to significantly increase in size. In actual size it is 400% larger, yet there is little known about this market segment – virtually no planning or land use policies, and around 92% of this segment does not live in a retirement village.
The speed and immediacy of the issue is captured in Figure 2, where the annual increase in the number of persons aged 65–74 years jumps from around 40,000 persons per annum in 2006, to 100,000 persons per annum in 2012. This means, for example, a potential major increase in demand for retirement living.
Figure 2: Annual Increase in National Population Aged 65–74, 2007–2020
Figure 3: Intergenerational Report Population Forecasts to 2050
Source: Intergenerational Report 3 (2010)
There are three major reasons why this imminent problem will not be realised until 2015–2017:
- The labour force participation rate has increased dramatically since 2003. In short, more people are choosing to work older.
- The resources boom and labour shortages have created new casual and permanent part-time jobs.
- Around 30% of the 65+ population have been able to utilise superannuation tax advantages to fund an independent retirement.
Statistically this means two things. First, participation in the workforce is finite, as most are likely to be retired by 75 years. This means that in around 2017–2020, another spike in retirement will occur. Second, the impact will be moderated by independent retirees, provided they can access relevant and affordable accommodation and care.
The average wealth of persons aged 55–64 years showed strong growth over the five years to 2009–10. These older households tend to have more superannuation coverage, and ownership of investment priorities is more common. Some key observations based on the recent relevant historical trends are as follows:
- The cumulative increase in persons aged 65–74 years was 15% from 2005/06 to 2009/10.
- The proportion of persons aged 65+ who derived 50% or more of their income from the aged pension was down from 70% in 2005/06, to 64% in 2009/10 (drop of 8.6%). For those who derived 90% or more of their income from the pension, their income decreased from 46% to 37%.
- The decrease in persons being reliant on the aged pension was due to increased net wealth. Assets relevant for pension means test increased from an average of $350,000 in 2005/06, to $423,000 in 2009/10 (accumulative increase of 21%).
- There will be strong growth in the number of retiree households with below average household wealth, simply due to the ageing demographic. It is these households that do and will represent the primary source of demand for independent living units (ILU).
- In 2007, more than three-quarters (78%) of the 206,700 retired Australians who had received a lump sum superannuation payment within the previous four years had received less than $60,000.
- Only 31% of retirees who had recently received a lump sum had mainly invested the money, with most mainly using it to pay off debt, buy goods and services, or help their family.
- Given that approximately 70% of all retirees received the aged pension as their main form of income, as much as 30% of households draw on residential property sales to fund an independent retirement.
- In summary, while the number of persons in the 65–74 cohort increased over the 2006–2010 period, average wealth also increased substantially. This would suggest that a lower proportion of households would seek to downsize for financial reasons, but could downsize if acceptable accommodation and care options were available.
Understanding workforce participation trends for the 55+ age group over the next decade will unlock a range of new development opportunities. For example, Figure 4 indicates that there has been a significant increase in both full-time and part-time employment within the 65+ age group. Many of these jobs, particularly for females, are focused in the services sectors. This means that either females are already living close to large job pools or are moving to them.
MacroPlan research indicated that with labour mobility rapidly increasing, people are moving closer to job opportunities. This in turn is creating demand for new types of rental and owner-occupier products. It is part of an emerging pre-retirement downsizing phase, designed to accumulate wealth and reduce living costs.
MacroPlan identified this group as ‘born again’ wealth creators, many of whom lost a significant amount of wealth due to the GFC. This is clearly indicated in Figure 5 below, where the workforce participation rate of people older than 65 years increased dramatically after the GFC.
The demographic analysis points to a major change in social structure, which is driving a new pre-retirement market segment which at this stage appears to apply to the 60–72 age group. There is reasonable chance that this group, the born again wealth creators, could instead extend the age range to 55–75 years, in line with likely changes to work life, in response to considerable levels of under-superannuation, and in response to the individual’s desire to work.
As the demand parameters of this new market segment unfold, the supply response will alter quickly. The highly regulated aged care sector is already being overtaken by less expensive and more politically palatable in-home healthcare packages. Growth in the traditional retirement village sector is also stalling in most states, in response to deferred retirement and in response to the need for over 90% of the 65+ age group to achieve a better return on their investment nest egg.
The pre-retirees are staying or moving closer to job pools or health service.
Figure 4: Total Employment by Full time/Part time among Population Aged 65+ in Australia, 1998–2013
Source: ABS Cat 6202.0, MacroPlan
Figure 5: Labour Force Participation Rate of Population Aged 65+ across States/Territories, 1998–2013
Source: ABS Cat 6202.0, MacroPlan
Figure 6: Old Market Segments, Accommodation Pathway
Figure 7: New Market Segments, Accommodation Pathway
 Superannuation guarantee was initiated in 1991. By 2012 the average lump sum withdrawn was $70,000, and around 60% was under-superannuated.
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