Pension Age Increases Can Lead to Unintended Shrinkage of Volunteer Workforce in Australia

Volunteering is fundamental to the active functioning of a society. Around 6 million Australians devote their time, energy and expertise to voluntary activities each year. Australians aged over 65 years contribute more time to unpaid work than any other age group.

My recent study published in the Journal of Economic Behavior & Organization shows that Australia’s ongoing Age Pension reform to increase the eligibility age can lead to an unintended shrinkage of the volunteer workforce as the reform delayed older people’s retirement and subsequently reduced their ability to contribute their free time and effort to volunteering.

The relation between retirement and volunteering

Theoretically, there are two broad reasons why people contribute their time to volunteer work. For some, volunteering as an altruistic behaviour can bring personal satisfaction. These people will increase voluntary work provision after retirement as they have more free time. However, others may consider volunteering as an investment in career development and expect job-related benefits in the future. To them, voluntary activities help them to develop skills, expand networks, and enhance future earnings. It is likely that they will volunteer less after retirement.

Hence, the overall direction (positive or negative) of the relation between retirement and volunteering is unclear and should be tested empirically.

The ongoing pension eligibility age reform

To identify the causal impact of retirement on volunteering, I exploit the ongoing reform of the Australian Age Pension, which has significantly changed the retirement incentives of older people. Since its introduction in 1908, the Australian Age Pension has been working as a safety net to ensure an acceptable standard of living in retirement among older Australians. Over 70% of elderly people in Australia are eligible recipients, and about two thirds of pension beneficiaries receive full benefits.

Age Pension entitlements in Australia are subject to age requirements. Between 1910 and June 1995, the eligibility age for men and women remained constant at 65 and 60, respectively. Since July 1995, the age threshold for women started increasing progressively at a rate of six months every two years. The eligibility age for women reached 65 in 2014 and became identical to that for men. Then there was a temporary pause in the increase of the age threshold in 2015 and 2016. From July 2017, the qualifying age for both men and women started rising again by six months every two years and will continue until it reaches 67 years of age in July 2023. By exploiting this exogenous variation in retirement decisions induced by the birth-cohort differences in pension qualifying ages, I estimate the causal effect of retirement on voluntary work provision.

My research uses data from Waves 2001 to 2019 of the Household, Income and Labour Dynamics in Australia (HILDA) Survey, which is a nationally representative household panel survey in Australia. HILDA collects annual information on labour market dynamics, life events, and economic well-being.

Empirical findings

I find that being age eligible for Age Pension increases the probability of older men and women to retire by around 15 and 12 percentage points, respectively. Delayed age eligibility to receive pension benefits thus induces later retirement among elderly people.

Retirement, as a discrete change in lifestyle, leads to increased voluntary work. On average, the propensity to be a volunteer increases after retirement by 25 and 29 percentage points for men and women, respectively. Moving into retirement also drives up the time dedicated to voluntary work. After becoming retired, older people are about 21 to 23 percentage points more likely to volunteer for at least 2 hours per week. Their propensity to volunteer for 5 or more hours per week is 9 to 13 percentage points higher when retired.

A longer retirement sees an increase in volunteer labour supply of older women. A 10% increase in the duration of retirement leads to an increase in women’s propensity to participate in volunteering of about 1 percentage point. Women also devote more time to unpaid work if their retirement becomes longer.

Additionally, I show that an individual’s retirement can result in increased provision of volunteer work by their family members. Therefore, the societal benefits of retirement for volunteering are greater if such intra-household spillovers are accounted for.

Overall, the estimated results suggest that the delayed receipt of Age Pension entitlements would result in postponed retirement, which would have a subsequent negative consequence for the labour supply of voluntary workers in Australia.

Rethinking pension age increases

It is important to reflect on the findings of my research in the context of global population aging, increased life expectancy, and the social security reforms currently happening in many countries. To relieve the financial burden of publicly funded pension schemes, many governments have extended the age thresholds for pension-related entitlements. However, policies aiming at prolonging working lives and increasing workforce participation are not without costs. Older people who are induced by pension age changes to retire at a later age provide significantly less volunteer labour supply to the society. Since older people’s paid work and volunteer work are substitutes, policymakers should consider the trade-offs between the market and non-market labour supplies of the elderly population.

Further Reading

Zhu, R. (2021). ‘Retirement and voluntary work provision: evidence from the Australian Age Pension reform’, Journal of Economic Behavior & Organization, vol. 190, pp. 674–690.