The Ageing Population is Not a Curse: Why Australia Should Pay Full Pensions and Let Older People Keep Working if They Want
Australia's ageing population is routinely presented as an economic problem, a demographic time bomb that threatens to overwhelm government finances, undermine productivity and impose an intolerable burden upon younger generations. The familiar argument is that as the proportion of elderly Australians increases, there will be fewer workers supporting more retirees, with rising expenditure on pensions, healthcare and aged care. Yet this conventional account contains assumptions that deserve serious examination. An ageing population is not necessarily an economic curse. Properly managed, it may offer substantial advantages, particularly if governments abandon policies that discourage older Australians from remaining economically active.
An interesting challenge to conventional thinking appeared in Macrobusiness on October 25, 2026, in an article by Damien Klassen entitled "Is an Ageing Population Really an Economic Burden?" Klassen discusses arguments advanced by economist Cameron Murray, who questions whether traditional demographic dependency ratios provide a meaningful picture of economic reality. The conventional calculation treats people over 65 as economically dependent, while classifying those between 15 and 64 as potentially productive. But this division is increasingly artificial. Many younger Australians remain in education well into adulthood, while substantial numbers of older Australians continue working into their late sixties, seventies and sometimes beyond.
Murray points to an interesting transformation in Australian employment patterns. In the late 1970s and early 1980s, approximately 40 per cent of Australians aged 15 to 19 worked full-time, whereas today the proportion is below 10 per cent. Meanwhile, full-time employment among those aged 60 to 64 has approximately doubled, from around 20 to 40 per cent. The traditional demographic distinction between productive younger people and dependent older people therefore fails to reflect the changing organisation of work.
Economic dependency should not be defined simply by chronological age. What matters is whether people are producing goods and services, contributing to economic activity and supporting themselves and others. A healthy 70-year-old professional who continues working may contribute considerably more to the economy than a younger person who is not employed. This is not a criticism of younger people, many of whom are legitimately engaged in education or caring responsibilities. It is simply a recognition that age alone tells us relatively little about economic contribution.
There is a further consideration. Older Australians possess accumulated knowledge, practical skills, professional experience and institutional memory. In many occupations, these qualities are economically valuable. Experienced tradespeople, engineers, doctors, teachers, academics, farmers and small business operators can remain productive long after reaching the conventional retirement age. Indeed, in occupations where judgement and experience matter more than physical strength, older workers may possess advantages that are difficult to replace.
Yet Australian pension policy continues to create disincentives for older people who wish to remain employed. Under the present Age Pension income test, a single pensioner generally loses 50 cents of pension for every additional dollar of assessable fortnightly income above the free area, subject to special provisions such as the Work Bonus. The Work Bonus currently disregards up to $300 of eligible employment or self-employment income per fortnight, with unused credits accumulating to a prescribed maximum. These arrangements recognise the desirability of continued employment, but they remain limited.
A more ambitious reform would be to allow Australians who have reached pension age to receive the full Age Pension regardless of how much employment income they earn. Ordinary income tax would continue to apply to earnings, but working would no longer reduce the pension itself. The principle is straightforward: reaching retirement age should establish entitlement to a basic pension, while continued work should be encouraged rather than financially penalised.
Consider an older Australian who enjoys working three or four days a week. Under a means-tested system, additional earnings can reduce pension payments, thereby lowering the financial reward from employment. Income tax may further reduce the amount retained. The result is an effective marginal tax rate that can make additional work less attractive. Removing the pension withdrawal associated with employment income would eliminate one important disincentive.
This proposal would involve additional government expenditure, and it would be misleading to suggest that it could automatically finance itself. Some older Australians who already work would receive larger pension payments without increasing their hours. Others might respond by working more, generating additional income tax revenue and economic output. The net fiscal consequences would depend upon the behavioural response, the number of eligible workers and the detailed design of the reform. Nevertheless, the broader economic benefits deserve serious consideration rather than dismissal on the grounds of immediate budgetary cost.
There is also a distinction between allowing older people to work and compelling them to do so. A humane society should not require people in their seventies to continue working simply to survive. Some have physically demanding occupations, disabilities or chronic health conditions that make continued employment difficult or impossible. Others have spent decades in paid employment or unpaid caring responsibilities and reasonably wish to retire. The objective should be freedom of choice: a secure pension for those who retire and a genuine financial incentive for those who prefer to remain active.
Such a policy could also have important health and social advantages. Meaningful work can provide routine, intellectual stimulation, social contact and a sense of purpose. Retirement is not inherently harmful, and many people flourish outside paid employment, but involuntary withdrawal from a valued occupation can be psychologically difficult. Allowing older Australians to combine a pension with employment would expand their options and potentially reduce some of the isolation associated with later life.
The economic value of older Australians also extends far beyond paid employment. Grandparents provide childcare, older volunteers support charities and community organisations, and retired professionals frequently contribute expertise without remuneration. Family farms, community associations and local institutions often depend upon the efforts of people who would be classified as economically dependent under conventional demographic measures. Much of this activity is invisible in standard calculations of economic productivity, yet it provides services that would otherwise require substantial expenditure.
Murray's argument also raises the question of productivity. A smaller workforce does not necessarily mean proportionately lower economic output. Businesses can respond to labour shortages through investment in machinery, automation and more efficient methods of production. Agricultural equipment, industrial robotics, computer systems and increasingly artificial intelligence can allow fewer workers to produce more goods and services. An ageing population may therefore encourage productivity-enhancing investment rather than simply reducing national output.
Japan provides an interesting case. Despite having one of the world's oldest populations, it remains a major advanced economy with substantial technological and industrial capabilities. Its experience does not establish that population ageing is economically harmless, but it does demonstrate that demographic change need not produce national economic collapse. The outcome depends heavily upon productivity, institutional adaptation and the capacity to maintain employment among those who wish to work.
There is, however, a legitimate objection to paying the full pension to everyone regardless of earnings. A wealthy 70-year-old executive earning several hundred thousand dollars annually would receive the same basic pension as a retired worker with no substantial income. Critics would argue that this directs public funds towards people who do not need assistance. Supporters of a universal pension would respond that universality simplifies administration, reduces disincentives and recognises retirement income as a general entitlement of citizenship rather than a narrowly targeted welfare payment.
One possible compromise would be to disregard earned employment income entirely while retaining an assets test and some assessment of substantial investment income. This would preserve incentives for productive work without necessarily extending full pensions to every wealthy retiree. It would not be a fully universal pension, but it could provide a practical starting point for reform. The relative merits of these approaches should be assessed through transparent modelling of fiscal costs, labour-force participation and distributional effects.
The broader debate also raises questions about Australia's reliance upon population growth as an economic strategy. Governments frequently respond to demographic ageing by advocating higher immigration to increase the working-age population. Immigration can contribute workers, skills and tax revenue, but it is not a permanent mathematical solution to ageing, since migrants themselves grow older. Population growth also requires investment in housing, infrastructure, hospitals, transport and other public services. A serious economic policy must consider these costs alongside the benefits.
Rather than assuming that every demographic challenge requires an ever-expanding population, Australia could place greater emphasis upon making better use of its existing human resources. Encouraging willing older Australians to remain employed, investing in productivity and improving preventative healthcare could form part of a more sustainable response.
Healthcare deserves particular attention. A longer lifespan does not necessarily mean a corresponding increase in years of severe disability. Better prevention, medical treatment, nutrition and physical activity can help people remain independent for longer. The economic objective should not simply be to extend life, but to extend the period during which individuals enjoy good health and functional capacity. This would benefit older Australians directly while potentially moderating some demands upon healthcare and aged-care services.
There are genuine fiscal challenges associated with population ageing. Pension expenditure, aged care and medical treatment must be financed, and a smaller proportion of working-age taxpayers can complicate that task. Recent international evidence, including Germany's rising expenditure on old-age and illness-related services, illustrates that these pressures cannot simply be dismissed.
But acknowledging these costs is not the same as accepting the proposition that older people constitute an economic burden. The elderly are not merely passive recipients of government expenditure. They are consumers, workers, taxpayers, investors, carers and participants in community life. Many have spent decades contributing to the public finances and productive capacity of the country.
The crucial distinction is between the costs of ageing and the consequences of badly designed policies. A government that discourages employment among pensioners, tolerates age discrimination and neglects productivity-enhancing investment may turn demographic change into a more serious economic problem than it needs to be. Conversely, a government that rewards continued participation and supports healthy ageing may capture substantial benefits.
Australia should therefore consider a fundamental reform of its retirement income system. At the very least, employment income should no longer automatically result in the withdrawal of Age Pension payments. Older Australians who wish to continue working should be able to do so without being penalised through the pension system. The costs of such a reform would need to be carefully calculated, but so too would its benefits in employment, taxation, productivity and individual wellbeing.
The central lesson of the Macrobusiness discussion is that demographic statistics are not destiny. An ageing population presents challenges, but it also possesses resources that conventional economic calculations frequently overlook. Experience, accumulated knowledge, continuing productivity and community contribution do not suddenly disappear when someone turns 67.
The real economic mistake is not that Australia has too many older people. It is that our institutions too often treat productive older Australians as though their working lives should already be over.
A society that allows people to live longer, remain healthier and continue contributing should regard these developments as achievements, not automatically as liabilities. With sensible pension reform, better health policy and stronger incentives for voluntary employment, an ageing population can be a source of economic resilience rather than merely a burden upon the public purse.
The aim should be simple: provide older Australians with financial security, respect their right to retire, and remove unnecessary barriers for those who still have the energy, ability and desire to work. That would be a far more constructive response to demographic ageing than treating longevity itself as an economic problem.
https://www.macrobusiness.com.au/2026/10/is-an-ageing-population-really-an-economic-burden/
