By Deborah Ralston, Australian Centre for Financial Studies
While the official retirement age is 65 years, there are many who leave the workforce prior to that age for reasons outside their control.
Almost three-quarters of men and nearly one half of women that retire before the age of 55 do so involuntarily – a fact surely not lost on the almost 3,000 Holden workers that must now find alternative work or be forced into early retirement by 2017.
Health reasons are by far the biggest driver of early retirement, but retrenchment and inability to find work also play a role. Involuntary unemployment is most likely to occur to those who are least capable of re-entering the the workforce. For these workers redundancy means not only a loss of employment, but also exclusion from the labour market, as they struggle to find another job.
Research shows around 12% of Mitsubishi workers that lost their job in 2004 were retired within three years, with an additional 5% not working due to a disability.
This suggests a positive outcome for most affected Mitsubishi workers. An indication of the ability of Holden workers to stay in the workforce and not be forced into involuntary retirement will depend on the individual characteristics of such workers including including work context, demographics, and human capital and finances.
Who retires early?
Workers in occupations such as “community and personal service”, “clerical and administrative workers”, “sales workers” and “labourers” are between 35 to 50% more likely to retire before the age of 60 than professional workers. Furthermore, the likelihood that professionals, technicians and managers work beyond 65 is more than 50% greater than in any other occupations.
While race has been a determinant of involuntary retirement in international studies, this is not the case in Australia.
A more telling determinant of early retirement in Australia is English language proficiency, with males with a strong command of English being almost twice as likely to work past 60 than are males with poor English. English proficiency is perhaps even more important for females with less than 10% of females with poor English working beyond 60.
When the broad definition of involuntary retirement is used, the proportion of female involuntary retirees increases significantly (but is still much lower than males) due to around 15 per cent of women below the age of 55 retiring in order to care for somebody. This is consistent with prior research that has found that two key drivers of early retirement in women are the desire for joint retirement of couples and to care for a loved one.
Level of education is also a strong predictor of early retirement with males without a post-school qualification being twice as likely to retire before 60 than are males with a degree (35 v. 16.5%). For females the level of education is even more important, with one half of all females without a post-school qualification retiring before 55.
As almost one half of superannuation balances accrue in the last year decade of employment, it is hardly surprising that involuntary retirees tend to have lower retirement savings and therefore lower incomes post retirement.
It is clear that the occupations with the highest incidence of early retirement, community and personal service”, “clerical and administrative workers”, “sales workers” and “labourers”, are also the occupation types with average weekly salaries below A$1,000 a week.
Squeezing a balloon
Research suggests that should involuntary employment be due to redundancy, low income workers will be more than twice as likely to experience job search exclusion than those with a salary above 65,000 (53% compared to 24%).
So as the data suggests, some Holden workers will be better placed than others, that is the professionals, technicians and management staff, those with strong English language skills, and those with post-school qualifications.
For those forced out of the workforce early, and who are therefore ineligible for the Age Pension, there is a likely to be a process of benefit substitution, that is a shift to an alternative social security program. Newstart allowance or a Disability Pension are the obvious support mechanisms, provided they can qualify.
Hence, the personal economic cost becomes a public cost. These individuals are also more likely to rely on the full Age Pension once they qualify.
Consequently we need as a nation to think carefully about the support we provide to the involuntary unemployed, in terms of benefits, retraining and employment support. The very high private and public costs of involuntary unemployment will only escalate with structural changes in employment, and of course, with any increase in the official retirement age as recently proposed.
Deborah Ralston does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.