The Keating government agreed to abolish forced retirements for its public servants despite the potentially escalating costs of keeping people in work after turning 65, newly-released cabinet documents reveal.
Papers released on Monday by the National Archives of Australia show the Labor government in 1995 grappled with possible growing compensation bills and voluntary redundancy costs that threatened to accompany any decision to remove compulsory retirements.
Prime Minister Paul Keating's cabinet agreed in-principle to abolish the age limit for government employees, as long as new public service legislation was formed preventing bureaucrats keeping their jobs regardless of performance.
New public service laws came into effect in 1999 removing compulsory retirement for public servants on the grounds of age, and last year 7 per cent of the bureaucracy's workforce was aged more than 60.
The 1994-95 cabinet documents warned that potentially greater use of voluntary redundancies to rid agencies of staff who could no longer be forced to retire may add up to $26 million in costs between 1995 to 2020.
Ministers were also warned of greater costs if younger public servants were displaced by those aged over 65 as agencies downsized.
If roles identified in the future as redundant were occupied by staff over 65, 241 redundancies over the next five years could cost the government $9.3 million, ministers were told.
Potentially growing costs could make the compensation scheme for public servants unviable without change, adding up to $13 million per annum in premiums, and $10 million and compounding in outstanding liability for new claims.
Cabinet documents show the Keating government agreed to let public servants work past 65 on the same terms and conditions as other APS employees, except under a temporary arrangement that restricted superannuation payments and based their compensation on an income maintenance scheme managed by the federal workplace insurer Comcare.
The Public Service Commission in 1995 rubbished concerns about increased costs of redundancy payments flowing from the removal of the age 65 barrier.
"The inappropriate use of redundancy as a means of separating staff would be alleviated if more effective strategies for dealing with diminished efficiency and under-performance were developed," it said in a submission.
The government's move to abolish compulsory retirement came after the Office of International Law told it the arrangement did not meet its obligations under an international convention against workplace discrimination.
Its debate came after laws came into effect in 1994 prohibiting employers from sacking workers on the grounds of age.