Opinion: The time is right to break the impasse and raise the superannuation age

Opinion: The time is right to break the impasse and raise the superannuation age

By Roger Kerr, NZ Business Roundtable executive director

Public opinion sometimes runs ahead of political opinion.

A case in point may be the issue of raising the age of eligibility for New Zealand Superannuation, currently 65.

Last month a Herald-DigiPol survey showed a clear majority – 52.3% of respondents – thought the government should be planning now for such a move.

Prime minister John Key has promised that the age will not be raised while he is prime minister. (Technically, this could mean that a decision could be made now for a rise after he steps down, but that is probably not how his commitment is generally interpreted.)

It’s not hard to understand why that commitment was made. After a broad political consensus on superannuation was reached in the early 1990s, it became a political football again with fearmongering and vote-seeking among elderly voters by Winston Peters.

But the economic and fiscal case for changes to NZS, especially raising the eligibility age, is very strong.

The age at which a New Zealander could receive a universal (non-means tested) pension was first set at 65 years in 1940, over 70 years ago. Since then life expectancy has greatly increased – average life expectancy at 65 is now over 18 years, and life expectancy at birth is continuing to increase by between 1.5 and 2 years a decade.

Currently the fiscal cost of NZS is modest by international standards (it is well below the pension costs of some European countries). However, it is set to rise sharply with population aging. Just between now and 2015 it is forecast to rise by $3 billion – more than three times the net savings in last month’s budget.

People should continue to be free to retire when they wish but there would be major community benefits from a higher superannuation age. These include lower spending on NZS, higher tax revenue from increased participation of older people in the labour force, higher GDP per capita, and probably reduced health spending (people who remain active longer tend to keep in better health).

A good number of countries have raised their pension ages. Norway, Ireland, Australia, Netherlands, Denmark, the United States, Germany and the United Kingdom are heading to pension ages of 67 or 68. Australia’s move caused little controversy. Can New Zealand really afford more generous arrangements than Australia, a much wealthier country?

Governments should not lightly break promises. But if, as the Herald poll suggests, most people believe Mr Key’s commitment is unfortunate, what might be done?

I can think of three possibilities.

One would be for the government to seek a mandate for change at a general election. In Australia, prime minister John Howard was elected to office with a commitment not to introduce a GST. He subsequently realised the commitment was foolish and sought and won a mandate to reverse it at the next election.

Another might be to establish a consensus across political parties – or at least most of them – to increase the age. This would restore the earlier Accord and neutralise the scope for politicking.

A third option might be based on the idea that voters, not politicians, should have the most say on the issue and put it to them in a referendum.

Perhaps the referendum could be non-binding – a future government might have to overturn a no vote in the event of an economic crisis – but a yes vote would have persuasive force.

It would be necessary to put a clear proposal in front of voters. People over 65 and those close to it should not be affected. Last year the Retirement Commissioner recommended that the age should be gradually increased from 65 years starting in 2020 and rise by two months per year until it reached 67 years in 2033. This timetable could be somewhat faster, as in Australia.

A proposal should also include a transitional means-tested benefit to protect people over 65 who are unable to continue working.

If the issues were put to voters fully, simply and intelligently, why would their response not be equally intelligent?

The Herald survey revealed substantial support for the proposal across all age groups, including the elderly.

This suggests a sensible attitude on their part. New Zealand is already facing serious economic difficulties. If it does not take pre-emptive action to deal with longer-term threats, future governments may have to take more drastic action, just as some European countries are having to cut pension benefits.

For any of these three options, a useful backdrop might be a report by a Royal Commission or a strengthened Retirement Commission.

Other modifications to NZS may well be desirable. The 2025 Taskforce recommended that benefits should be indexed to the CPI rather than to after-tax wages. The Retirement Commission has proposed an index based on the average change in prices and earnings, with CPI adjustment as a floor.

But the most immediate issue is the political impasse on the eligibility age. I am not sure of the best way forward. But I am sure that if the can is just kicked down the road, the country will be the worse for it and the eventual adjustments could be more painful.
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Roger Kerr is the executive director of the New Zealand Business Roundtable.  www.nzbr.org.nz

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Why make it such a frightening proposition by going in whole year jumps? Why not monthly jumps if this was to be phased in? e.g. add one month to the age of eligibility every year for the next so many years until the books can be better balanced.

Its absolutely ESSENTIAL the age is raised ASAP. It was an idiotic promise by Key which he should never have made.

We can either do it voluntarily now or get it forced down our throats at a later stage when everything goes t*ts up.

you mean Greek style...

So the very rich want to further impoverish the poor. Tell us what's new.

All I can say is the Brashes, the Douglases and the Kerrs of this world will be gone soon and then we can perhaps get people who think.  Not people who just set up an argument to reinforce their own ideas.

The problem is a decreasing tax burden not like it was when the baby boomers were born when it was an increasing tax burden.  In those days the top tax rate was 66% - in USA it was 90%.  If the pension age is to be raised then the actual age a person  receives the pension must be looked at in accordance with the type of work a person has done in their life.  A person who does manual labour or a builder, a ballet dancer, a plumber etc etc cannot go on working until the same age as a person who has worked in an office all their life.

 Whether a person can exist or not in their old age should not depend on how much money they have managed to accumulate; it should not be one of burden or do the Roger Kerrs of this world suggest we should go back to the days of society having Poor Houses.  

I remember my old grandmother, who had alzeihmers, and just used to cry and say "please do not send me to the Poor House". If governments keep lowering taxes then no you can't provide anything in society. Not hospitals not schools and certainly not  pensions.  The Roger Kerrs of this world may want that but I do not think that is what the majority of New Zealanders want.

You are of course quite right that Key and National should never have lowered the top rate of tax EITHER. The tax base is going to get whittled down regardless under the impact of rolling recessions, so making that worse by lowering taxes for the wealthier was another own goal.

The unfortunate fact remains that big chunks of our social spending will become progressively unaffordable and governments of all stripes need to rapidly recognise this.

" If governments keep lowering taxes then ... you can't provide anything in society. ...  I do not think that is what the majority of New Zealanders want". 

The majority of NZ-ers want to be taxed more and more, and then more and more again, unitl there's no point in increasing one's productivity, no point in taking risk and starting a business, no point in applying any effort whatsoever...

"Whether a person can exist or not in their old age should not depend on how much money they have managed to accumulate"

Nobody said that it should.  There's no question of people "not being able to exist".   If the age of eligibility for NZS is raised, then the worst that happens to those who don't have the means to support themselves is that they have to spend a few more years going through whatever hoops are necessary to collect working-age welfare payments, before they reach the age of entitlement to Superannuation.

Or shock, horro, even work...

;]

but, yes you are correct, in some ways its just a shift of who pays.

regards

Work types, office work etc, shows how little you know or understand....stress can actually be one of the most significant health problems, especially in old age.

Who suggested poor houses? however at the same time I dont see why someone's savings should be protected from being depleted into old age.....I think its prefectly reasonable to spend your savings in looking after yourself, and not have them "protected" say to hand onto your children....once the savings have gone, yes state support is appropriate.

Also raising the age when you can claim the OAP is probably simply the only economic way to cope with the increase in its costs that is coming, that is balanced by improved health...If you will that has to be a bit of give and take...

Taxes, yes they are set assuming a never ending boom and not at a rate that's sensible, so it needs to be addressed.

regards

 To meet standards/ requests - 73 of age for women 75 for male is about right.

Whose "standards" are those? Whose "requests" are those?

Why not make it 103 and 105?

Women live longer than men ...... us guys should be allowed to retire earlier than them , it's only fair . The ladies can stay out in the fields , cracking rocks & lifting turnips , til they're 83 ... The  blokes  can sit under a shadey tree , having a cold beer , at the Greek retirement age , 40 .

.......in fact watching woman work has been scientifically proven to help us relax

http://www.usatoday.com/NEWS/usaedition/2011-05-18-Marriage-and-stress-Study-from-_ST_U.htm

I felt it was a eureka moment, but my wife didn't buy it

I think the contrary to popular opinion, woman can't multi task all that well. So when they are working it means they are unable to nagg.

 Women work harder, have many jobs, more repsonsibilities - man earn much more, do less hours and with stupid periods

What about single men, versus married Gummy.

I remember debating this with a friend one time. I mentioned that single men live longer, you know less stress and all.

But he was adamant that married men live longer, but are apparently more willing to die.

Mr scarfie : Your friend is correct . From mortality sadistics , spinster ladies live longest of all . Indeed , Jean Calmet of France reached 122 years . ...

... . Married women still live longer , on average , than married men . Single men fare worst .

..... the upshot is , single men get to retire first , and under the generous NZ welfare state , some do , on " invalid pensions " and the like , in just their 20's .... when they prove too allergic to work for even WINZ to handle .

Single men live the shortest, then married men, then married women, then single women....so the old bat at home is good for you....shh I didnt say that......

regards

yes ! ...... and ssssshhh ,...  I didn't confirm that , OK !!!

Your friend is right on the first part ("married men live longer") but I'd like to think he's wrong about the "more willing to die" bit.

By the way, it's "nag" not "nagg". And with a little practice and dedication it's quite possible to work and nag ;)

Yes I am sure you are right, I have come across many women that are masters at it. Funny thing is that contrary to what Alistair Thompson says, when women are approaching that time of the month they end up even more productive at it.

Tell me there's no Mrs Scarfie...

Unfortunately the last three left.

I wasn't too upset about that, with thinking my longevity prospects had greatly increased. Now between my friend and Gummy my hopes are dashed.

Jokes aside there are those gullible(desperate?) enough to consider me, but one has to be careful about what is said on the internet.

I realised from your previous posts you were an older geezer, didn't realise you were 73

me - hmmm I think he (Gummy) is only 68 of age not 73.

Those who think tax rates can be raised to pay the pension to superannuitants (rich or poor) are dreaming.  We have to compete with other countries for skilled labour, so watch the exodus of our brightest and best increase if the tax rates are ratcheted up too much.

In my opinion National Super age needs to be gradually lifted to a sustainable level and eventually (say 15 year's time) it should just become like any other benefit, ie means tested like the dole.  People below 50 shouldn't expect to receive NS and should be saving for their own retirement.

Ideally this should all be set out in a cross party agreement with lots of lead time and probably compulsory Kiwisaver, so that the people have time to adjust to the idea.

The longer we wait to tackle the problem, the uglier it will get.

Hi,

Try looking at other countries tax rates, other countries are in the same boat in terms of tax rates (which are usually higher) and OAP entitlements, so we just have to go to 67....and rise the top rate by 3~5% and we are about norm.  Ignoring all the other nasties like Peak oil, GFC etc....Uglier, yes....but right now its not to hard to do something...

regards

So as a result increased retirement age?

A lower unemployment rate may be needed first, graduates would probably leave at a faster rate than what they are already or end up on the dole.    

Then again, raise the age, sack everyone at 55 to keep graduates in the country, and if the lazy buggers can't survive until 70 or so they don't deserve super anyway....

Half my working life has been for someone else to take it easy, now I'm going to lump it. 

ha ha

It sounds like the people whinging about the increases to the age of super are the people that are about to get it and won't be affected by any change.  Adding two years to the retirement age is not that much and  we could make people 55 and over immune to the changes as they could argue they would have saved differently had they known. (of course they could have anyway)

The problem with our country and every other country is people are selfish and can't see the bigger picture.

Been saying on this blog for the past 3+ years that there will be no pension for us younger lot when we're 65

Come on Mr Key surprise us. At least talk about the age. Problem with Key he makes unrealistic promises.

Where's Wolly? Is it pension day today? :)

Wolly likes to lecture everyone, but you can bet your boots he's got his hand out for his weekly national super, no worries

Bite your bum Muzza...I'll take my pension when I turn 65..sorry bout the lectures...they are free Muzza!...and usually informative, helpful, uplifting and rude....what more do you want. Least I'm not wanting you to vote for me. That reminds me...the liars are posting out leaflets and other crap between now and November...letterbox filling rubbish....I must collect it and post it 'return to sender'.

Its a bit of a pity that its Kerr & his BRT paymasters making this argument.  They are saying it for self-serving reasons (so that there can be more tax cuts for the rich, who don't have to worry too much about pensions, of course).  They never consider other ways of making the super more manageable, eg CGT taxes or Tobin taxes etc., which would impact on the rich.  No, its just Dickensian taking away of benefits. 

BRT making the argument will politicise it.  In fact that is a pity, because there are sound economic reasons for raising the age of eligilibility to super. 

It is a lot better when the arguments come from dispassionate observers, who aren't open to attacks on their extremist ideologies.

Cheers to all

Is this the most pressing issue of the day?

It's not exactly a business issue that should concern the Business Round Table. Its a social issue best left to others. The BRT should be applying its resources to finding ways of increasing employment opportunites, new businesses, worlds best practice, etc etc ..

This is because Kerr uses the business roundtable for his far right wing political soap box, ditto farmers union....simple they are ACT or to the right of ACT, in which case a tiny if noisey minority....

regards

 

The age for men should be raised to 70 on the 16th Dec 2014, the day after I reach 65.

Hmmm? One day's super, then wait five years for the next.

Indeed they should, Iconoclast.  However one of the favourite pastimes of lobby groups like the BRT is to campaign for lower taxes.  It doesn't matter what's sacrificed to get lower taxes - the end justifies the means.  They'd prefer that the plebs just jumped off a cliff and disappeared, frankly.

Die, resource-consuming pensioner, die...  

Yawn.  We can afford the super scheme at the age it is now.  All we have to do is decide that we prefer spending money on that than on something else (such as coporate welfare for Kerr's mates).  

Really what it means is that we need to be looking at the whole package, getting the overall picture right, not chipping away here a bit and there a bit as is suggested by Kerr et al who just say increase the age.

I very much doubt you are correct in fact im 99% sure you are wrong.  Today we can, but in the future OAPs just about double from around 13% today to 26%.  Plus that extra 13% are working right now and are in about their biggest earning category so pay a lot of tax.  So its a double whammy, they are contributing tax to support the 13% but they wont be in the coming decades and will be drawing OAP instead....so therefore we had the Cullen fund to try and survive double the OAPs and far less PAYEs to support them....something has to give....

Also throw in the younger PAYEs will be paying off thier education debt, huge over-priced mortgage debt (but if they are lucky housing pprices collapse 50%+ in which case not so bad), lack of energy because we will be well past peak oil so a shrinking GDP, double the structural un-employemnt we have today (ie 16% if we are lucky, but it could be 24%)  expensive food and power....probably horrendious council rate bils etc etc...

Faced with all that, you think its doable? no way...in fact I think we'll be lucky if there is any OAP at all...

regards