Australia is entering the largest transfer of private wealth in its history as an ageing population reshapes who owns the nation’s assets, who spends them and who inherits them, with new research concluding the country’s greatest long-term challenge is not a shortage of money but a shortage of people and capital in the right places.
The study, the eighth report in The Balance Sheet research series, finds Australian households now hold $19.2 trillion in wealth, with ownership increasingly concentrated among older Australians. Households aged over 65 now own about one-third of that wealth, up from about one-fifth two decades ago, while inheritances and gifts already total around $120 billion a year and are projected by the Productivity Commission to rise to about $500 billion annually by 2050.
The report estimates roughly $3.5 trillion will change hands by the middle of the century, describing it as the defining economic consequence of Australia’s demographic transition.
Australia’s population is ageing rapidly, with the median age rising from 32 in 1990 to 38 today and projected to reach 43 by 2062-63. By then, almost one in four Australians will be aged over 65, while the number of working-age people supporting each retiree will fall from 3.8 today to 2.6, continuing a decline from 6.6 in the early 1980s.
Yet the report argues Australia’s demographic outlook is often presented without international context.
Even at the end of the official projection period, Australia will still be younger than Italy or Japan are today. It also concludes migration can slow ageing but cannot prevent it. Drawing on Productivity Commission modelling, the report notes that an additional 13 million migrants would reduce the proportion of older Australians by only about five percentage points by 2060, while research by demographers Peter McDonald and Rebecca Kippen found migration beyond about 80,000 people a year becomes increasingly ineffective at slowing population ageing.
Rather than focusing on population numbers alone, the report argues the economics of ageing are fundamentally about wealth.
It finds wealth peaks among Australians aged 65 to 69, the same cohort the Retirement Income Review found typically dies with most of its assets still intact. While it rejects the commonly repeated claim that Australians over 65 own half the nation’s wealth, it concludes wealth has shifted decisively towards older households through decades of rising housing values and compulsory superannuation.
The average inheritance, about $125,000, is received at around age 50, meaning wealth is increasingly transferred between generations approaching retirement rather than predominantly helping younger Australians purchase their first homes. At the same time, the so-called Bank of Mum and Dad is already estimated to provide around $35 billion each year to assist more than 60 per cent of first-home buyers.
The report also challenges assumptions about inheritance and inequality.
It concludes the wealthiest households receive larger inheritances in dollar terms but smaller inheritances relative to their existing wealth, meaning transfers appear to reduce relative wealth inequality while widening absolute differences between households.
The research identifies what it describes as “Peak Boomer” over the period between roughly 2032 and 2050, when Australia’s post-war generation moves through its oldest years. During those two decades the country is expected to record its highest annual deaths, its largest inheritance flows, the biggest transfer of housing between generations, the fastest growth in superannuation death benefits and unprecedented demand for aged care, all driven by demographic change rather than government policy.
Housing forms a major part of that transition.
The average inheritance, about $125,000, is received at around age 50, meaning wealth is increasingly transferred between generations approaching retirement rather than predominantly helping younger Australians purchase their first homes. At the same time, the so-called Bank of Mum and Dad is already estimated to provide around $35 billion each year to assist more than 60 per cent of first-home buyers
Home ownership among Australians aged 25 to 29 has fallen from 54 per cent for those born immediately after the Second World War to 36 per cent for those born in the early 1990s. But the report finds older Australians rarely downsize, with about 60 per cent remaining in the same home fifteen years later. Instead, most housing stock is expected to change hands through deceased estates during the mortality wave of the 2030s and 2040s.
The report also rejects a frequently quoted claim that one-quarter of Australian homes will become estate sales by 2040, noting the figure originated in the United States and that no comparable Australian projection exists.
The fiscal consequences, it argues, are substantial but manageable.
About 40 per cent of projected Commonwealth spending growth to 2062-63 is directly attributable to demographic ageing, largely through health and aged care. By contrast, Age Pension spending is projected to decline from 2.3 per cent to 2.0 per cent of GDP as compulsory superannuation continues to mature.
Instead, the report argues Australia’s greatest constraint will be labour rather than public finances.
The paid care workforce is expected to roughly double by 2049-50, creating demand that the report says cannot realistically be met under current wages and workforce settings through higher participation or automation alone.
The study also highlights evidence that ageing brings important economic offsets. Labour force participation has reached record highs, with participation among Australians aged 55 to 64 rising from 47 per cent to about 74 per cent since 2000 and participation among those over 65 increasing from 6 per cent to 16 per cent. International evidence also suggests ageing societies invest more heavily in automation, while Australia’s compulsory superannuation system keeps retirement savings invested in growth assets rather than predominantly in bank deposits.
Its overall conclusion is that Australia faces a demographic transition rather than a demographic crisis.
With household wealth of $19.2 trillion, a superannuation system exceeding $4.4 trillion and comparatively low government debt, the country possesses ample financial resources. The greater challenge, the report concludes, is directing workers, investment and accumulated wealth towards the sectors where an ageing society needs them most.
“Those are allocation problems, and allocation problems are solvable,” the report concludes. “That is what distinguishes a transition from a crisis.”
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