Actuaries Institute research shows equity gap growing between generations


Elayne Grace

Falling rates of home ownership, government spending that skews to older Australians and deteriorating environmental factors are some of the factors that have driven a wider gap in equity between Australia’s young and old.

The Actuaries Institute’s latest Green Paper, Mind the Gap – The Australian Actuaries Intergenerational Equity Index (AAIEI), launched yesterday, takes a broad view across six domains to track how wealth and wellbeing for different generations have been changing over time.

The Index was commissioned by the Actuaries Institute and compiled by actuaries Hugh Miller, Ramona Meyricke and Laura Dixie. Dr Miller has a PhD in statistics, and he sits on the Actuaries Institute’s Public Policy Council Committee. Dr Meyricke has a PhD in financial economics and has produced papers for the Actuaries Institute including on the impact of climate change on mortality and retirement incomes. Dr Dixie has a PhD in physics and has been a consultant to the Government in the social services sector.

“The Australian Actuaries Intergenerational Equity Index indicates that the relative wealth and wellbeing of those aged 25-34 sits lower than at any other time in the past two decades,” the Green Paper states.

“The wealth effects of the housing boom, plus rapid increases in government payments on pensions and services for older people are key reasons that young Australians today have relatively lower wealth and wellbeing index scores than that of their parents at a similar age.” Deteriorating environmental conditions have also had a significant negative impact on intergenerational equity.

The AAIEI tracks 24 indicators across six domains that relate to wealth and wellbeing, over nearly two decades from 2000-2018. The Index shows that since 2012, there has been a marked widening of generation gaps.

The report states: “The results are striking; from 2012 onwards, there was a marked increase in the Index for the 65-74 age band, while over the same period, there was a pronounced drop in the index for the 25-34 age band. This period coincides with the Baby Boomers entering the 65-74 bracket and Millennials entering the 25-34 bracket, so suggests a wider gap between these generations than has been present for previous cohorts.” A similar gap exists between those aged 45-54 and those aged 65-74. Those in the older cohort are pulling away from both younger groups.



The domains measured, and relative weightings, are economic and fiscal (30%), housing (10%), health and disability (20%), social (15%), education (10%) and environment (15%). The work includes reviewing indicators as diverse as poverty, average wages, teen pregnancy rates, changes in average rainfall and temperature, under-employment, home ownership, and the proportion of Australians completing a bachelor’s degree. Each indicator provides nuance to measure impacts on the lives of three distinct age groups: those 25-34, 45-54, and 65-74. The impacts of the COVID-19 pandemic, while not yet visible in the data underlying the AAIEI, are also discussed; in many ways the pandemic has accentuated intergenerational issues.

“We are all very used to the idea our children will live better lives than we do,” Dr Miller said. “We expect continuous improvements in government services, better products, higher incomes, and improved health. But an increasing majority of parents fear that as today’s children grow up, they will be worse off financially than their parents. There are a broad range of economic, housing and environmental issues that appear to be worsening.”



“It is very important to understand how equity is changing between generations over time,” said Elayne Grace, Chief Executive of the Actuaries Institute. “It helps inform public debate, and government policy, to deliver the best and fairest outcomes for all Australians. We need policy and outcomes that are sustainable.”

Ms Grace said the Index, designed by the Actuaries, is the most detailed of its kind in Australia and is intended to provide an objective foundation for important public policy discussions. In their report, the authors outline a number of policy options to address inequity issues including reviewing the rate of unemployment benefits, tightening superannuation tax concessions and greater action to mitigate climate change.

“Actuaries are well placed to unpack the underlying domains and indicators that drive the numbers,” said Actuaries Institute President Hoa Bui. “Our skill set allows us to examine large data sets, weigh risks and outcomes and deliver evidence-based reports,” Ms Bui said, launching the Index.

The Index shows today’s young people have significantly better health, education and social outcomes than older cohorts. “But we can see large deficits for economic, housing and the environmental domains,” Dr Miller said. “When focusing on change, particularly over the past five years, it is the movement of economic, housing and environment components that causes the slide in relative score.”

He said the findings gel with modern concerns prominent for young people. “Wage growth has been weak, often negative in real terms recently, and low unemployment (prior to the pandemic) masked under-utilisation that was particularly prominent for younger workers.”

The AAIEI’s absolute values show the gap between the 25-34 year olds and 65-74 year olds has increased from -10 around 2006, to -46 in 2018. “This suggests that younger people have been relatively disadvantaged across a range of measures,” the Green Paper states.

The gap between those aged 25-34 and those who are 45-54 has remained relatively steady. But the absolute index for the 65-74 year old age band has pulled away. “We regard this as a material and adverse shift for younger and middle-aged Australians and an indication of worsening intergenerational equity.”

The Green Paper states one relative driver of better outcomes for older Australians is a rise in government spending from 3.7% of GDP to 4.5% on those aged 65-74. This compares to a flat share over time for those aged 25-34 or 45-54.

Not all indicators point to worse outcomes for Australia’s young. “Poverty rates are high for certain groups, with single pensioners who rent a major issue,” the Green Paper states. “Obesity rates are growing, with higher rates in older Australians.”

Older people may be more vulnerable to the health implications of COVID-19, but the economic impacts of the pandemic have bought many intergenerational issues into even sharper relief, the paper states.

“Young workers have been more likely to lose income and less likely to qualify for government payments such as JobKeeper. Significant increases in government debt will take decades of fiscal restraint to reduce as a fraction of gross domestic product (GDP),” the Green Paper states.

The report adds that for decades to come, today’s government spending will be a claim on the future earnings of the younger generation.

The implications of growing inequity are widespread and are felt across all communities. The Green Paper doesn’t make detailed policy recommendations, but states: “While the current global focus is on COVID-19, climate change and the environment remain urgent and important areas requiring policy attention.

“A key question around all of this is how much of the recent change will persist in the ‘new normal’, and how much will prove a temporary change to Australian society. Any crisis also represents an opportunity to make policy reforms that will provide lasting benefits.

“Put simply, policies that advance the needs of older Australians while those of working age go backwards are not sustainable. “We need not live in a country where most people believe their children will be worse off; such a system is not sustainable.”

A copy of the Green Paper: Mind the Gap – The Australian Actuaries Intergenerational Equity Index is available here.

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