'NZ Super only works if taxes rise 28%'

Investing

Financial Services Council warns of NZ Super unsustainability; growing savings gap between NZ and Australian and looming demographic challenges

11th Jun 12, 11:06am by Amanda Morrall

By Amanda Morrall

Tax rates will have to rise by as much as 28% to sustain the New Zealand Superannuation system in its current form, the Financial Services Council (FSC) is warning.

The council, whose members manage almost NZ$80 billion in savings, is the latest party to sound the alarm about a demographic timebomb which threatens to undermine the security of New Zealand's cherished pension system.

Kiwis aged 65 and older will by 2015 outnumber younger New Zealander's by 60%.

The Financial Services Council, in a report on the retirement and savings, predicts that the cost of funding the New Zealand Super will rise to 12% of GDP unless steps are taken soon to increase private savings along with other policy adjustments.

According to its modelling, the current 17.5 % income tax rate would rise to 22 %, the 33 % rate to 42 %, GST from 15 % to 19 %, and the corporate rate from 28 % to 36 %.

FSC chief executive Peter Neilson said if taxes weren't increased to fund the NZS as pressure increased, Government would be forced to cut retirement entitlements, "most likely be increasing the age of eligibility.''

"In this case people will have to fund their years in retirement between age 65 and the tine they quality for NZS by saving more by themselves or working past age 65.''

Last week, KiwiSaver provider and global consulting firm Mercer New Zealand, in a separate report, also highlighted the looming retirement problem facing New Zealand. The firm suggested the crush of baby boomers set to draw down on NZ Superannuation for an increasingly longer period of time, compounded by health care costs related to an ageing population, would effectively dwarf the global financial crisis economically. (See Amanda Morrall story here.)

From 2010, to 2050, the number of recipients on New Zealand Super will balloon from 500,000 to 1.3 million.

After reaching 65, New Zealanders are living an average of two years longer each decade, the Council noted yesterday in its release.

While in the past people lived 15 to 20 years after retiring, this could now lift to 30 to 40 years.

Alternatives

The council next week is poised to release a number of policy recommendations about how to address the savings crisis.

The Commission for Financial Literacy and Retirement Income in its 2010 Review of Retirement Income Policy recommended Government to raise the age of eligibility for New Zealand Super from 65 to 67 starting in the year 2020 and raising two month per year until 2033. That's in addition to a suite of changes also proposed by Commission which have been so far unheeded by Prime Minister John Key's Government.

It has suggested that a means-tested temporary benefit be introduced to offset any financial hardships by those affected by moving the age of eligiblity from 65 to 67.

The Prime Minister maintains that the New Zealand Super in its current form is sustainable until 2020 and argues that any signalled problems will be resolved by a return to a surplus. (See Alex Tarrant story here).

Radio New Zealand reported on Monday morning Key noted the report was regarding the future, and no one was pushing for the Super age to be raised now.

"It's talking about what the consequences are in 2080 and today happens to be 2012. Even the Retirement Commissioner basically says you don't have to do much until 2020," Radio NZ reported Key saying.

"As a Government we have an enormous number of problems which are in the here and now, and we're dealing with those at the moment," Key said.

Aussie vs NZ

In the absence of any major changes on the savings front, the FSC also sees the retirement income gaps between average New Zealanders and Australians doubling in come decades.

That's because Australians (with more than A$1.3 trillion in superannuation savings combined) pay 9% of their gross pay into a compulsory work place superannuation scheme matched by their employer. The contribution rates are gradually increasing to 12% by 2019 which New Zealand's KiwiSaver contribution rates are a mere 3%.

"Long term this means someone who works in Australia and is required to save for retirement, will retire on an income more than twice as high as a New Zealander of the same age and on the average income in each country,'' said Neilson.

Key findings:

Savings industry to launch new retirement income policy options report
Kiwis living longer: 44% of males born in 2011 will live to 100, 52% of females
Tax rates will need to rise 28% later this century to continue funding NZ Super at 65
Young New Zealanders can double their retirement incomes if they go to Australia
New savings system needed to keep NZ Super incomes for all from 65 – and nearly double the retirement income of younger and future generations of New Zealanders

The Financial Services Council is set to release its policy recommendations on how to address the savings crisis June 17.

(Updates with comments from PM Key this morning)

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101 Comments

by Elley | 11th Jun 12, 1:12pm 1339377163

If you mean Hollande, he's the new president. Btw, the retirement system in France is completely different to here in that people pay compulsory contributions out of their income for their entire working life (same as with health insurance).

by scarfie | 11th Jun 12, 12:38pm 1339375110

Well I think there is a differential between single men and married men also. Apparently married men do live longer, but are more willing to die.

by ngakonui gold | 11th Jun 12, 11:59am 1339372793

until kiwis give up on the cradle to the grave mentality we will always have problems in this area

by steven | 11th Jun 12, 12:09pm 1339373359

Well the problem wont go away....what you are saying is, let old ppl live in the poor house or starve to death as opposed to looking after them....

I choice coming to you.

regards

by printer8 | 11th Jun 12, 1:22pm 1339377753

Rather than a change in mentality of cradle to the grave, it is more of a case of a need for change in political parties thinking by coming to an agreement on how the ballooning cost of increasing numbers of superannuates will be addressed.

The key question is whether the cost of superannuation is to be either a societal responsibility, or largely an individual responsibility as is the case in Australia. This is a prerequisite to give certainty to both individuals for their retirement and society as a whole as to how the cost of superannuation will be met.

In the past forty years, two governments (both Labour) have set up funds to meet the expected shortfall for universal responsibility only to see subsequent governments (both National) cease continuing with the funds and contributions. While KiwiSaver is an attempt to develop individual responsibility, as a scheme it is woefully inadequate as it is neither compulsory nor is the levels of contribution significant enough.

While successive governments continue to flip flop over societal or individual responsibility, we will continue to have uncertainty for the future and this is what needs to change.

by Alter Ego | 11th Jun 12, 12:17pm 1339373853

the young need the work,

watching the elderly work will never improve our financial well being.

a mate of mine still mows 17 lawns in a day at 75 and he has had prostate cancer to boot.

working is an attitude of mind.

and way too many do not have it.

seems these elderly ladies you wish to keep working, cannot get their lawns mowed where he lives, so he obliges.

far too many on the dole and welfare, wff, wtf.

do not blame the elderly for pension costs, they paid their way, with high taxes and interest rates and others wasted it on benefits for the idle and delusions of adequacy.

yes, they live longer your grandparents.....maybe you should look after them as they could teach you a thing or two

by rc | 11th Jun 12, 12:22pm 1339374178

Certainly is unsustainable. Looking at the figures for the current budget:

Income Tax = Welfare spend, approximately.

by scarfie | 11th Jun 12, 12:41pm 1339375280

What I find interesting is no one is asking why there is an imbalance. Usually it is dismissed offhand as the baby boomer problem, but again what are the underlying reasons for this?

Population projections tend to show a peak and then decline sometime in the next generation. That will mean a permanent imbalance of old people to young. Again the why answer sits unanswered.

by Ms de Meanour | 11th Jun 12, 1:11pm 1339377077

I would have thought no one's asking the question because the answer is obvious. Because people are living longer, thanks to medical advances, and having smaller families, thanks to the availability of contraception, improvements in women's education and employment prospects, and the reducing need to have lots of children to support you in your old age.

Yes, it's looking like a permanent shift in the old-young demographic ratio. It is emphatically not just a baby boomer problem that we'll get through in a couple of decades.

by scarfie | 11th Jun 12, 1:13pm 1339377204

People living longer would not affect the birth rate, or cause a decline in the rate of growth in population that is occuring.

by Ms de Meanour | 11th Jun 12, 1:26pm 1339377996

No, they are two different phenomena. The birth rate isn't going down because people are living longer. It is going down for other reasons, as previously explained.

by scarfie | 11th Jun 12, 1:32pm 1339378326

No you haven't explained it at all but you have made an assumption that I don't think you can support with evidence. That is exactly what I mean about dismissing it.

Saying people will have less children because the are not required to support them in old age is quite the opposite of what is really happening. I believe that people can't support big families and that is why the birth rate is shrinking. In nother words the free lunch has run out and resources are getting more expensive.

by Ms de Meanour | 11th Jun 12, 3:21pm 1339384893

Don't really understand why we are arguing. You asked why the population was ageing; I explained that it is down to two separate factors - rising longevity, and falling birth rates. Each of these is driven by a number of factors, which vary between countries, cultures, individual preference.

Certainly, some people will choose to have fewer, or no, children because they can't support a large family. Others will have other reasons.

Does it matter?

by scarfie | 11th Jun 12, 3:45pm 1339386354

Not arguing Ms, discussing :-) That was a bit strong of me last post.

I think it is a huge issue, because if declining resources are the cause then we need to address that. In fact what ever the cause it then that needs to be addressed. Discussions on superannuation are just talking about the symptom. The declinging rate of growth is a world wide phenomenon, not just New Zealand. The case at PDK puts it is that everything is underwritten by energy. So at the most basic level the assumption could be made that the declining birth rates are directly linked to energy becoming more expensive (because it is getting rare). It is important to address this because if correct then birthrates will decellerate dramatically as we fall of the downside of the Hubbert curve.

I have posted here before about the reserves of minerals, which is only 16 years for Chromium. Some other key minerals vary between 20-40 years of reserves at current rates of consumption. Zinc, Nickle, Lead, Copper, Gold, Silver, Cadmium. This is all from a reputable source at the US Geological Survey website so you can go and check that for yourself. This means a switch to electrical vehicles is likely to be a short lived solution, because there isn't the resources left to make the batteries. Try hauling 20 tonnes of roading metal with an electric truck.

What do you want for your children or grandchildren? Do you think it is okay just to sweep it under the carpet under the assumption that all is okay?

by Mark | 11th Jun 12, 12:41pm 1339375314

My my, Australia certainly is looking like a more attractive place to live!

by Ms de Meanour | 11th Jun 12, 1:17pm 1339377449

Why, exactly?

From the point of view of the working age individual: If you want to save 12% of your income to ensure a comfortable old age for yourself, there is absolutely nothing to stop you from doing so in New Zealand.

From the point of view of the taxpayer: The Australian pension system is costing them dearly in tax revenue foregone, most of the benefit of which goes to higher-income individuals.

From the point of view of the pensioner: Everything you have saved and everything you earn is additional to your NZS. It doesn't get taken away from you in the form of reduced pension entitlements, so you don't have to pay tax accountants to find ways of rearranging your finances to avoid the means test.

Remember that this report is produced on behalf of the Financial Services industry. Of course they want people to save more.

by Gummy Bear Hero | 11th Jun 12, 12:43pm 1339375388

....... take the burden of oldies off the taxpayer , and shift it back to the families .... easy peasy , just as they do in Europe and Asia , mulitple generations living under one roof ... Takes the pressure off housing demand too ...

Get the freakin' government out of micro-manging the citizens' lives ......

...... put the onus back on individuals to take responsibility for themselves .

by steven | 11th Jun 12, 12:53pm 1339375991

In terms of EU not so sure, certianly the UK system is very similar to ours....and again its really passing the costs elsewhere....there is still the costs....

regards

by notaneconomist | 11th Jun 12, 1:40pm 1339378800

Couldn't agree with you more GBH. The answer is easy and simple but they want complex, unworkable, highly inefficient and expensive solutions.

They have known about the baby boomers for a long-time and promised them something that they knew was going to be unaffordable to the generations doing the paying and then they call up on the young ones to help pay for the debts and end up reducing everyone's quality of life.

Well they've got a massive problem now - if anyone watched TV1's Sunday last night - children growing up now will die before there parents because of the over-consumption of sugar that's causing a plethora of health problems. While the article was on sugar there are a number of dietary problems from the rubbish in foods that is going to cause even more significant health issues in these young one's.

The whining Socialists have never understood the effects of all their do-gooder policies that actually have dire consequences to individuals.

It should be a families right, obligation and it's definately a privilege to be able to look after parents in their later years.

by Kate | 11th Jun 12, 4:10pm 1339387855

The whining Socialists have never understood the effects of all their do-gooder policies that actually have dire consequences to individuals.

I'm not sure its just "the Socialists" - all political flavours seem to be going down stupid do-gooder paths presently.

The thing no one seems to report on is the forecast increased cost of medical bills for this new demographic in this new age of 'we can save anyone' medical procedures. Take Holmes' open heart surgery - don't know whether that was on the taxpayer coin, but if so just think of the number of those coming up of the BB generation that will be needing similar procedures. Then there is paying for all the consequences of an aging obese population - big bucks there as that TVNZ programme pointed out. Also on Sunday's Q+A programme - they were debating the raising of taxes on smokes and someone pointed out how (unlike alcohol over consumption) smoking was a victimless activity - to which some other person suggested the victims were those relatives left behind when smokers died early. I mean what are we aiming for - a far higher average life expectancy - and if so, why?

My point being - I think socialized medicine will go out the window before socialized retirement .. and the problem with that is that the end of socialized medicine will affect the younger generation as well.

Unless some political movement has a big re-think and re-set, NZ seems to be moving headlong into a far more unequal society generally.

by powerdownkiwi | 11th Jun 12, 4:36pm 1339389373

Kate - it's not just an economist that he's not. :)

by Kate | 11th Jun 12, 4:44pm 1339389887

:-).

BTW - had a read of Pure Advantage's recent report yet?

http://www.pureadvantage.org/PUA0018_GREEN_RACE_REPORT.pdf

I hope to get to it tonight - next in the series is going to be a macroeconomic piece - which sounds like it will be a bit more strategic/instructive - whereas this one (from reading a summary of it) sounds more along the lines of a 'report card' type report.

They are really good about responding to Facebook postings from the general public if you want to give them your thoughts on what they might want to consider in that macroeconomic study/report.

by Gummy Bear Hero | 11th Jun 12, 7:24pm 1339399491

..... whether you label it socialism or not , we currently have a bunch of parliamentary oafs hooked on political power at all costs , not at serving the citizens .

Shearer will be no different to Key , no different from Clark & Sir Michael . They all pander to the masses for their votes , bribing them , exactly as the Greeks have done . Grant yourself entitlements , welfare packages , cradle-to-grave central government " care " ....... until the debt load destroys the productive sector of the economy ......

..... the NZ needs someone other than Labour or National to lead it .....

Wolly !!!!!

by iconoclast | 11th Jun 12, 7:38pm 1339400308

GBH: At last - the SA heat must be bringing you up to speed - I told you at the beginning of last year when CERA was the hot topic, they needed to get all the boofheads in a room (paying attention), with WOLLY and PDK (up on the podium) and lock the doors.

by Alter Ego | 11th Jun 12, 8:39pm 1339403954

At least Wolly has my vote.

why waste it on more of the same.

Wolly serves up more brickbats of common sense, than the dingbats in power.

We need a lot of change, that will not be acceptable to most vested interests.

And therin lies the problem.

by Kate | 11th Jun 12, 8:03pm 1339401836

mist, that assumes we will somehow be able to continue BAU under the current system of debt-fuelled 'growth'. We won't.

by Mark | 12th Jun 12, 9:50am 1339451403

responsibility?.... individuals??..... take care of ourselves???.... sorry mate, I don't understand what you're talking about

by waymad | 11th Jun 12, 12:53pm 1339376006

Demographix101

The future belongs to those who show up for it....

Mark Steyn and David Goldman have riffed aboot this for years and years....

by jh | 11th Jun 12, 12:58pm 1339376325

We need to know the rules from day one and the rules need to spell out "what ifs".

Haven't we been told over the years though that science would keep coming up with things that would over come diseases and give us free energy? Weren't we meant to be travelling intergallactically by 2001? What I'm saying is that the free marketers have always pushed a message that there are no limits.

by jh | 11th Jun 12, 1:02pm 1339376532

I can't take any group seriously who will talk about self reliance while protecting property investors.

by Elley | 11th Jun 12, 1:04pm 1339376661

So taxes for people who do work need to go up a lot. What about welfare spending, would that be cut too to help rebalancing the equation? Or is it just those who (dare) work for their income who'll be targeted? As if the exodus wasn't bad enough...

by steven | 11th Jun 12, 1:04pm 1339376673

What I dont understand and no one has said a thing on it to explain is,

Whats the difference between having ppl such as labourers who are too old to labour at 65+ on the OAP or signed off by their doctors and claiming sickness benefits? or dole? (ie I assume no employer will employ them and why should an employer do so?)

Its still a cost just a different budget account by the look of it...

regards

by Ms de Meanour | 11th Jun 12, 1:23pm 1339377817

Unemployment benefit is lower than NZS, so one difference is the cost.

Another is that a conditional/targeted benefit inevitably has an incentivising, or disincentivising, behavioural effect. The fact that you get unemployment benefit only if you're unemployed, and sickness benefits only if you're sick, serves to encourage people to be (or pretend to be) unemployed and/or sick. That's one advantage of the universal, unconditional nature of NZS - it provides a basic standard of living for those who can't work, but it does not penalise those who can and do.

by steven | 11th Jun 12, 2:09pm 1339380540

I dont see you are answering with anything meaningful...

If on the OAP and you cannot cope financially then you can apply for extras but its means tested (got savings? yes? use that first and come back when its gone).....

This I think applies to un-employment and sickness benefit as well? so you can get "top ups", (need dental care? here's $300). Got no food heres $x (food stamps?)....etc. hence I query if there is any sudstantial difference, or where the difference is in the claimed savings for the unskilled section of the labour force. So the little I get from your reply is this unskilled/manual labour group still gets paid out in one form or another.... so there is no big difference.....

http://www.interest.co.nz/news/55459/pm-key-says-raising-retirement-age…

For skilled ppl you maybe force them to stay in the working system a bit longer...and not pay out a OAP.....so OK some savings there....doesnt strike me as significant.....not against having to raise tax 28%....

Now if we take the USA system, yes I can see savings...or rather costs stay with individuals....medicare etc dont kickin...if those are really savings of course....the effcet on GDP maybe not be of benefit.

regards

by Ms de Meanour | 11th Jun 12, 3:25pm 1339385144

Well I don't understand your answer or the point you are trying to make either, so I will make no further comment.

Satisfied?

by Robert M | 11th Jun 12, 1:43pm 1339379005

"Kiwis aged 65 and older will by 2015 outnumber younger New Zealander's by 60%."

This sentence is plainly absurd (and also has a rogue apostrophe). It would mean the under 65s would be 38.5% of the population, 65 and overs 61.5% (61.5/38.5 = 1.6).

In fact the projected split is 85% - 15%, i.e, the under 65s outnumber the 65s and over by 5.6 to 1. In 2026 it is projected to be 81% - 19%.

http://www.stats.govt.nz/browse_for_stats/population/estimates_and_proj…

by iconoclast | 11th Jun 12, 1:56pm 1339379761

Of course it's absurd. That's the problem with parroting Press Releases without examining them. Who is the "Financial Services Council"? Another lobby group?

by David B | 11th Jun 12, 6:23pm 1339395789

Well called Iconoclast and Robert. It looks like a lobby group for the retirement savings industry as far as I can tell. But I stand to be corrected on that.

by David B | 11th Jun 12, 6:31pm 1339396288

Ok I was being lazy. It used to be called the Investment Savings and Insurance Association (ISI) but it has now changed its name to the Financial Services Council, FSC. I wouldn't want to accuse it of being biased out of hand, that's cheap and lazy; but that its members might benefit financially from any change in Govt. policy does need to be born in mind.

http://www.isi.org.nz/

by iconoclast | 11th Jun 12, 6:38pm 1339396687

DB: Vested Interests. Have a look at the FSC Members List on page 3

http://www.isi.org.nz/Media%20Releases/Speech%20Notes/2012/FSC%20Profile%20-%2013%20March%202012.pdf

Banks and Insurance companies abound ... the ticket clippers

Note the URL for this document is headed "Media Releases" look no further.

by David B | 11th Jun 12, 6:47pm 1339397277

Very interesting! A report to be read carefully with an extra critical eye methinks!

Sadly as you have already pointed out, it will be reproduced without critique by our thoughtless and all too often, lazy young media. Not that I am casting aspersions on Amanda of course. But rather, on the mainstream media.

by iconoclast | 11th Jun 12, 6:51pm 1339397484

Purpose : The objectives of the FSC are to:

• be recognised as an organisation that represents the interests of the NZ financial services industry

• promote, assist and generally advance the interests of Members.

by iconoclast | 11th Jun 12, 6:57pm 1339397874

DB: Read the following article critiquing mounting legal pressures (read muzzles) on main-stream-media and fringe-media and electronic-media. As the main-stream-media shrinks it is less able to sustain independent-opinion, and the fringe-media are scared sh*tless, hence 80% of the news these days is carefully managed press releases. enjoy

Australian defamation laws are among the most draconian in the world. Powerful vested interests persistently use their lawyers to threaten the mainstream press while bullying and shutting down small website activists trying to have their story heard.

http://www.smh.com.au/business/rollicking-times-for-con-artists-20120608-201di.html

by steven | 11th Jun 12, 2:21pm 1339381270

Today (roughly) we have 13% OAPs, in the future we get to 26%....

http://www.stats.govt.nz/browse_for_stats/population/estimates_and_proj…

and yes it looks like thats more or less correct...

26% ish for 65+ v 18% for 0 to 14 year olds....

regards

by iconoclast | 11th Jun 12, 3:35pm 1339385715

Playing with words steven, redefining the meaning of "younger"

Younger means exactly that, younger than 65 .. not as you postulate 0-14

by scarfie | 11th Jun 12, 3:55pm 1339386939

Pliny the Younger?

by Gummy Bear Hero | 11th Jun 12, 7:35pm 1339400115

... who is believed to have died when just 51 years of age , in 114 A.D.

" There is no book so bad that you cannot profit from it in some way " , he said .......

( they didn't have " Mills & Boon " back then ...... lucky baskets ! )

by steven | 11th Jun 12, 9:29pm 1339406985

No, commenting that the numbers might mean that is how they arrived at them...

regards

by KH | 11th Jun 12, 1:58pm 1339379930

Apparently you will have more retirement in Australia because they make you save more than in NZ where it is only 3%.

And these nerds think therefore that New Zealanders would be better off going to Australia.

Well that's true. But did they think that New Zealanders could also save the Airfare, and just voluntarily save to achieve the same result.

by Christov | 11th Jun 12, 2:02pm 1339380154

Hey Amanda....a little off topic , but I must express my disappointment in your sharing one of those holiday pics I sent you......it wasn't what you were thinking either..! I had lost my metal detector and spent the afternoon trolling the beach in that fashion.......a bit cool for the speedo's, but I'll be getting those to you at some point......

Have you any holiday snaps of Ralphie yet...? I bet you have eh, ya scamp !....

by KH | 11th Jun 12, 2:05pm 1339380319

Thank god this report does more than think of the age of superannuation is the sole issue.

We need a thirty year transition plan. Kiwisaver compulsory and universal. At about 15%. People currently on benefits pay into it too.

National Superannuation phasing out as the result of that move phases in.

And a mimimal, bottom level, almost impossible to get, universal benefit as the safety net.

by Andrew R | 11th Jun 12, 9:03pm 1339405410

Maybe the report looks at several pension options but there is a much wider issue to convas first. Pensions are affordable at whatever rate is we choose that over alternative ways of spending taxes. Then there is the whole question of how much tax to collect -- for example were the last income tax cuts for $70,000 plus really affordable.

It is simplistic to just look at pensions in isolation, it is even more simplistic to then jump to an older age for eligibility without first working out what we are trying to do with taxes, public spending and welfare support. And just to make it even more fun it really needs to be a multi-party agreement so there is certainty about the future.

A couple of other comments on this report. One from a person on Morning Report is that it was taking its population projections to far out into the uncertain future (80 years), 30 years was seen as more realistic (unless it is a treasury projection in which case it should be just a report of what happended to year before).

The second is that I think that the report seems to be using the "nothing else changes" assumption about other public spending to arrive at the "oh my god it is going to cost whatever per cent of gdp and need tax changes". How can anyone know that in 80 years time?

by John | 11th Jun 12, 2:24pm 1339381498

If we have a one off problem that we have to get through, i.e. this age hump, lets just use up some resources as they are a one off, for the purpose of making the transition easier on those left working. Suggest we opencast Pike river, get the miners bodies out for the families to have closure, we have enough snails in storage and aren't we finding them elsewhere in the south island, and put the money we earn from the mine towards this transition.

by Ms de Meanour | 11th Jun 12, 2:38pm 1339382306

It's not a one-off problem. It is a permanent shift, of which the baby boomers are only a start. We need sustainable solutions, not a one-off hit

by robby217 | 11th Jun 12, 2:39pm 1339382351

Lets face it, it's not just about saving 12% (or x%) of income for retirement, it is about trying to maintain the purchasing power of what is saved in a world of continual debasement. Sure there are various asset classes, shares, bonds etc, but it is very difficult for an entire population to realise gains in this area on a long-term consistant basis at the same time.

Little wonder people opt fot housing, but of course govt increasingly will need to get its debasement tentacles into that area as well via incr. rates, taxes and property related charges.

by David George | 11th Jun 12, 3:23pm 1339385002

So the Financial Services Council wants us all to be forced to save more money, and, no doubt, hand it over to their members to invest. As if the finance sector parasite isn't already too big.

The whole problem is that the world is awash with so called savings that are nothing more than the counterparty to a mountain of un-payable debt. The rentiers - managed funds, pension funds, landlords, sovereign wealth funds etc. are not going to be getting a reasonable return (8%?) or their "money" will be debased beyond recognition or the debts will be defaulted on. The real economy can't afford to support retiries and rentiers,either through interest and rents OR Taxes. Something's got to give.

by steven | 11th Jun 12, 4:04pm 1339387473

All looking for a (bigger) slice of the ever shrinking pie......

"savings that are nothing more than the counterparty to a mountain of un-payable debt"

yes a total screeeeeeeeam.......there will be a lot of wailing that is a cert...paying it out + interest seems so unliekly....even the capital back seems unlikely....others have already taken that out as interest for themselves.....

Yes, so now we have the above bozoes desperate for a guaranteed capitive audience because few have a hope of a real job making a good....

Just waiting for the day GBH jumps on a plane back to NZ hoping to get a OAP as all his "investments" have gone down the tube...........time to work will be the answer......

regards

by steven | 11th Jun 12, 9:46pm 1339407966

At present the NET left over pie is smaller as energy is expensive ie an increasing % of GDP, seems 6% sends the US for instance into a recession. The next phase is oil output is going to decline.....4%+ per annum seems likely.....based on to grow the world economy 4% takes 2.5% more energy.....suggests world GDP is going to be shrinking at somethig like 6%.....a smaller pie....yet of course we are promised 5% growth to get us out of the debt hole.....cant see it myself....hence why Im a "gloomster".....

;]

regards

by Gummy Bear Hero | 11th Jun 12, 9:52pm 1339408378

mist42nz .... possibly due to overhandling of the dough mix , ....

Or the incorporation of too much butter .....

by Gummy Bear Hero | 11th Jun 12, 10:02pm 1339408979

..... my " go to hell " investments are a group of properties in the Philippines .... small farm lots , forestry , and two beach frontages ....

If the world really does " go-to-hell-in-a-hand-basket " ( which I doubt ) I'm prepared ...... better a quiet life in the tropics , when all is lost , than freezing me Gummy arse off in a tent back in Christchurch...

... hence why I'm a " pragmatic optionmystic " ...

:-)

regards

by Matt in Auck | 11th Jun 12, 3:30pm 1339385413

appropriate photo - head in the sand!

Of course, if the housing problem was sorted out that would make a big difference to the retirement savings issue.

by powerdownkiwi | 11th Jun 12, 3:48pm 1339386538

meaning that if we could get the deck level, the deckchairs would stay put?

Missing the point.

Fiscally, the problem is unsolvable. As is the inability to underwrite permanent growth. Two sides of the same rapidly-devaluing coin.

The problem is solvable socially, however. Last time I checked, intergenerational goodwill could be had for free. All a matter of attitude.

by Kate | 11th Jun 12, 4:49pm 1339390173

So true!

by Ms de Meanour | 11th Jun 12, 5:04pm 1339391088

"Last time I checked, intergenerational good will could be had for free>"

What exactly was the nature of this "check"? Not, I would suggest, consideration of the comments that invariably appear in response to any electronic media article about this matter, where invariably younger people whine about how selfish older people didn't have to pay for their education and older people gripe about how younger people don't have to pay 60% top rate tax etc etc.

Secondly: Can you give any other examples of public policy problems that have been successfully addressed by relying on people's goodwill and "attitude"?

by powerdownkiwi | 11th Jun 12, 9:56pm 1339408617

last time I checked was the last time I did something for an older citizen without asking for reward. Twice in the last week.

Yes - we wouldn't have have the female vote if enough males hadn't had goodwill and attitude. How they came by it though..... The whole welfare state idea, unfortunately unsupportable indefinitely with so many people within a finite physical arena, must have been the result of majority altruism.

by Ms de Meanour | 12th Jun 12, 11:29am 1339457350

Sorry, but the assumption that everybody is as public-spirited and generous-hearted as you are is not a sound basis for public policy making. People cannot be assumed to be willing systematically, consistently and reliably to put the interests of complete strangers ahead of their own and their families'. The welfare state is possible only because the State uses its coercive power to force people to hand over earnings - how long do you think it would last if it were dependent on voluntary contributions?

by robby217 | 11th Jun 12, 7:45pm 1339400701

Nothing a good bout of dictatorship wouldn't fix eh pdk?

by Gummy Bear Hero | 11th Jun 12, 9:48pm 1339408111

" fiscally the problem is unsolvable " ...... you read it here first , robby217 !

Off to the caves with you , grab the candles & tins of spam , nibble on your toe-nails for sustenance .... all is lost , woe .......

..... aha ha ha de haaaaaaaaaaaaa ! ..... your buddy PDK is a hoot !!!

by powerdownkiwi | 11th Jun 12, 10:14pm 1339409685

Actually, it's only woe of you think it soe. It's all the fear in your mind, is clouding you.

http://cluborlov.blogspot.co.nz/2012/06/fragility-and-collapse-slowly-at-first.html

"If you wait until that last moment when, in a spasm of horror, you suddenly think to yourself “Oh shit, Dmitry was right!” then indeed Doom and Gloom will be your charming new bunkmates. But if you start your collapse early and get it over with quickly, then your chances of surviving this are quite likely to substantially exceed zero".

by Gummy Bear Hero | 11th Jun 12, 10:16pm 1339409771

Did you know that a company called " CORDLIFE " has just listed on the Singapore stock-exchange ?......... these guys will store your babie's umbilical cord blood for you ....

..... or provide stem cell transfusions if necessary .....

Call ole Gummy an optimistic prat if you will , but every week mankind surprises me with amazing advances in medicine , engineering , and astronomy .......

...... I reckon the future will be remarkably different for us , and on the balance ...... better .

by Neville C | 11th Jun 12, 4:46pm 1339390010

There is another way to look at this.

A the moment (2011) 13% OAP and 20% 0-14 so working age pop 67%

2061 15% OAP, 26% 0-14, working age pop 59%

The question is whether the economy can run on 8% less workers or will the 65+ keep on working to increase the workforce?

if a third of the over 65's keep on working that would have implications for the tax take and dependancy ratios.

http://www.stats.govt.nz/browse_for_stats/population/estimates_and_proj…

by steven | 11th Jun 12, 5:56pm 1339394189

"All else being equal" I think you missed...

15% OAP in 2061 will be a drop from the peak which is 26%+....2030?

Not to mention with no fossil fuels the economy will be massively different and a lot smaller...

regards

by Neville C | 11th Jun 12, 6:10pm 1339395011

Sorry, wrong way round, should read

2061 26% OAP, 15% 0-14

The other point is that it assumes the Aussie investments hold their value. The USA pension system which is a savings system is billions underfunded and will start paying out more than it receives in the next few years. A pay as you go system has the advantage that value of the $ received is the same as the $ paid.

by Patricia | 11th Jun 12, 6:02pm 1339394525

I don't really see why I should get super at the age of 65 if I am still working. Surely Super is for your retirement at the time you retire.

by Neville C | 11th Jun 12, 6:20pm 1339395657

We had that system (where if you earned over $24000 your pension abated) till the mid 90's when Winson Peters got rid of the 'super tax'.

I remember the talkbacks full of little old ladies ringing up and saying 'I only have the pension and I am going to vote for Peters because he will get rid of the supper tax.'

They were confusing the normal income tax paid on pension payments with the abatement but Peters rode to power on this misrepretation. I wonder how many were left disappointed when the 'super tax' was abolished and they got nothing but the rich got their pensions back for that extra overseas trip!

by Patricia | 11th Jun 12, 7:02pm 1339398136

No, I am not talking about a super tax I am talking about not getting super at all if you continue working in your same job. I wouldn't like to see a means tested Super introduced for it would cost an arm and a leg to administer. But why should Dame Margaret Bazley get super. She has been working forever. Surely super is not a reward for reaching the age of 65

by Neville C | 11th Jun 12, 7:44pm 1339400652

'continue working in your same job' is a strange criteria for deciding whether you get super.

A 66 year old lawyer that becomes a judge would get super but a 64 year old judge would lose the super at 65!

Under your criteria, Dame Margaret Bazley would get super as she change jobs and became Commissioner, Commission of Inquiry into Police Conduct when she was 66

http://en.wikipedia.org/wiki/Margaret_Bazley

by Patricia | 11th Jun 12, 8:34pm 1339403640

Yes you are right. But the same reasoning applies when they increase the age of eligibilty. Some how super has to apply to retirement rather than reaching a certain age.

by steven | 11th Jun 12, 9:24pm 1339406643

I sort of agree, but it opens a whole can of worms.....for instance....

Say at 65 my private pensions kick in, so with the OAP I can afford to retire. Now supposing I have no private pensions so continue working part time say and earn the same $s as the private pensions plus OAP....what is the difference? Under your suggestion I'd be penalised for continuing to work....yet I'd be clearly be productive (ie I assume an employer profits on my work) and paying tax....

Indeed it could be argued that my private pension is an income so I never get the OAP.....say if Im a PI and live off the income of my properties.........what is retirement?

Or I could get a lump sum payout, say its $400k....I could get a property....or shares....or etc etc....

So while I agree with what you say trying to do anything about it just wont work.

regards

by waymad | 11th Jun 12, 8:55pm 1339404952

Too many moving parts, chaps and chapesses. Same as with the climate models: a few faulty assumptions (clouds don't affect things much) IN, Garbage OUT.

What assumptions could be changed in all this, and with what effects?

A sampling:

Real Interest rate on savings (return to savers)
Savings rate (% of income effectively saved)
Workforce participation rates (self evident)
Inflation rates (affects real interest rate and returns)
Unemployment rates (affects use of taxes for the benefits and opportunities for all)
Capital formation rates (affects productive/tradeable sector opportunities)
Taxation rates (affects what stays in yer pocket)
Population replacement rate (affects supply of new taxpayers)
Death rates/average age lived to (affects demand for public pensions)
Immigration rate (affects population positively)
Emigration rate (affects population negatively)
Natural disasters (affects public spending priorities)
Rate of consumption of transtion resources (e.g. dig up the 300+ years of Southland lignite fuel equivalent and convert it all to diesel - slow or quick?)
Model of central gummint - affects deadweight losses to the whole economy
Model of local gummint - affects business input costs directly and hence capital formation
Oh, and of course climate and temperature - hard to grow grapes on Hadrians' Wall if'n yer get a Little Ice Age....affects agricultural output

Twist a few of these 'ere dials, and watch those outputs swoop around......

by powerdownkiwi | 11th Jun 12, 9:28pm 1339406891

Try working it backwards from absolutes.

If we live on a finite planet, and as a species require some parameters - chemical, physical and biological - to survive, then the only regime capable of being sustained, is one which uses resources at a renewable rate, and keeps within the envelope.

We ain't doing that, and we're doing the ain'ting at an exponentially-increasing rate.

The above debate is related to an artificial proxy system, faulty to it's core due to an inability to differentiate between minus and plus, and which has managed to ignore what actually undrerwrites it. There is not enough underwrite for my era (8 years from the pension currently) to ever see any pension, let along a fraction of one.

That there will be a major reset is not an if, it's a when.

by waymad | 11th Jun 12, 10:16pm 1339409784

When I was born, computers weighted 3-10 tons, took up a room, and had the calculating ability of a pocket calculator (itself an Old phrase now!)

When minicomputers took off, they still weighed a hundredweight, had a solid copper-wound 4" voice coil to move the disk heads, and the 15" wide platters held a whopping 6Mb of data.

When PC's took off, I signed the PO for a single IBM PC, for $10,330. Half a year's salary for the average grunt.

When servers took off, I paid $38K for a top-of-the-line Compaq to run an Oracle fixed asset register. A year's salary.

Now I have a coupla smartphones, total cost under a grand, that is around 4 days salary.

They weigh around 100 grams, and most of That's the battery.

So I'm afraid, pdk, that the 'we're all gonna run out of Resources' gig is looking a little frayed.

This ain't Pollyanna. It's out there all around us. Smartness. Miniaturisation. Maker Faire.

Nuclear reactors that you bury a few tens of metres down and run 'em till they drop. 3-D printers.

See? Even the V&A is seeing the light: the 'Power of Making' is definitely worth a look....

A good primer: that ol' hippy, Stewart Brand. Nukes, genetic engineering (just like the ancient Americans did with maize...), climate engineering and so on.

Solutions. From a pragmatist. For the Whole Earth, no less. Think globally, act locally and a'that. Engineering, not doomsday cultism.

by steven | 11th Jun 12, 10:42pm 1339411366

When you were born I think IBM? said the world demand was how many computers?

something like a few hundred? thousand? (I forget the quote and im to in-accurate on the words for a score on google) Today the smart phone even if its 100grames dwarfs the main frames in weight because of the shear number......and thats the problem, population....

and in terms of frayed Im afraid you clearly dont get expotential growth on a finite planet....either that or are willfully ignoring it......

Really just like your throw away line on clouds......totally wrong.....engineering, science and maths is on PDK's and my side.....

regards

by Plutocracy | 12th Jun 12, 7:37am 1339443478

Ironically, a lot of the problems societies currently face are due to engineering 'solutions' in the past. There was a good link to a TED talk posted here recently in which a physicist explains we humans have to innovate faster and faster each time just to prevent ourselves from hitting the next limit etc. He concluded with eventually we won't be able to keep up the pace of innovation needed.

Good presentation to watch.

http://www.ted.com/talks/geoffrey_west_the_surprising_math_of_cities_an…

by powerdownkiwi | 12th Jun 12, 9:03am 1339448618

Waymad - you mix your metaphors, and skew fact with fiction.

The 'price' you paid for something, doesn't represent the true cost of the item in terms of resources contained therein. It represents the cheapest cost that could be gotten away with, extraction-wise. Then the cheapness was just the spread of R&D and set-up costs over more and more units.

The problem is that your touted 'gains' are all just efficiency gains, cherry-picked without the sheer numbers consumed (global copper consumption continued to rise during the period). Efficiencies can only be 100%, as I've often pointed out here - molecular cross-talk is the obvious limit for electronics.

The signal that the game is over the top, is the source of resources. When we're down to deep-sea drilling, Fracking, and - worse - shale plays, and - heaven help us - lignite proposals, we're not going up. They're even looking at deep-sea robotic retrieval of copper - why, pray tell? Because there is more and more being found because there are more and more people?

Get a couple of metres of something dropped in your driveway. The first night, shift one shovel-ful away. The second night, two. Then 4, 8, 16, you get the picture. I'll allow you the miniaturisation; get a bigger shovel every 4th night. Tell us when you finish. A pragmatic demonstration of reality.

Hint - it's easier to see a shovel if one's head is not in the clouds.

by deepred | 11th Jun 12, 9:39pm 1339407571

All thanks to Rob Muldoon and the Dancing Cossacks. Ironically he got even more socialist than Norm Kirk could ever be.

Britain isn't much better - it had all that North Sea oil wealth, and it all got squandered in the name of short-termism. And spare a thought for Japan. Only Norway, it seems, had the foresight to future-proof for a grey wave.

by recision | 11th Jun 12, 10:27pm 1339410449

If the govt is borrowing $100million+ a week, then it is unaffordable NOW - not just in 2020.

Any expectation that we will be back in surplus in X years, is a wild arsed guess.

Any raising of the age of entitlement, is a hope that sufficient people will die before they are eligible to draw N/S, that it will make a significant difference. (why not then just raise the age to the average life expectancy, problem solved...)

The one solution that is strenuously avoided, is making eligibility for a Pension essentially the same as for an unemployment benefit. (the problem isn't pensions, it is universal pensions to everyone regardless of income - that is insane, it is welfare for the rich)

by steven | 11th Jun 12, 10:46pm 1339411576

I think the argument is that there are so few rich that giving them the OAP is cheaper than trying to not give it to them (admin costs etc) ....Bear in mind that they will be paying tax anyway.....some you win, some you lose.....NEt is what counts.

regards

by recision | 12th Jun 12, 1:45am 1339422321

Yes, and that was always a fatuous argument.

In any case, lets try framing the argument to say - if you get more than $10-12,000 independently, before receiving National Super, then you don't get it at all (or at the very least only a small percentage of it: say an extra $5,000).

Then the numbers of "Rich" become quite a bit bigger don't they.

In fact that whole argument about "Rich" is a red herring. Rich is relative.

Paying benefits to the comfortable and middle-class is the problem because of the huge numbers involved. And yes they ARE rich, whatever their own opinion.

Can't impact their standard of living though can we... /sarc.

On top of which - also paying the same benefit to the wealthy is simply obscene.

by steven | 12th Jun 12, 8:50am 1339447814

Or is it obscene they take it?

regards

by Uninterested | 12th Jun 12, 8:08am 1339445316

If I was in Oz I would be very worried about having so much super locked in until I'm 67. Look at all the changes that have been made to super in NZ over the years. And the changes to super that are being forced upon the public in Europe.

It is great that Kiwisaver is set at such a low 2+2% (and later 3+3) value. I don't trust future govts to keep the retirement age at 65 and I don't trust the banks to ring fence the super from their ponzi banking balance sheets.

I suggest putting extra money away as well. On short term term deposits with multiple banks. So you can use it up according to your own timetable.

by steven | 12th Jun 12, 9:17am 1339449435

Personally at some stage I expect a future govn to raid or at least total co-opt kiwisaver accounts/funds. Labour by the look of it wants to co-opt when it says invest in NZ only.......very few options in NZ......NZX has been gutted of value.......Council/Govn debt is just rubbish longer term...and is in effect tax rises via can kicking....but that is where the Govn will force kiwisaver to go.

In terms of daylight robbery though the private sector is worse. My main pension lost 1.8% last year despite being a dead cat bounce for shares, how they managed that I dont know. At the moment it looks to pay out <2/5ths of the projected amount at 65 that was said at 18....and it could easily be barely 1/5th (only the 1/5th is "guaranteed") the rets is "bonuses"..... though I fully expect it to be zero within a few years mind.

regards

by Gibber | 12th Jun 12, 10:20am 1339453257

In Australia, the pension (Government provided) is means tested and will eventuall kick in at 67. So, if you have lots of assets and lots of your own Super, you don't get the Government pension.

But, you can access YOUR SUPER, which is either self-funded, or in a Super scheme of some sort, in an account in your name, earlier, so long as you have decided to categorize yourself as permanently retired

And if you have had 9% or more put away into a scheme for several decades, there just might be enough in there to get you to 67. Or even give you a half way decent retirement.

by Ms de Meanour | 12th Jun 12, 11:20am 1339456814

All true. And all something you could do for yourself - except the bit where you get penalised for having worked and saved - in New Zealand without bothering to get on a plane to Australia. Just save your 9% in a savings account other than KiwiSaver and you're away

by waymad | 12th Jun 12, 10:01am 1339452118

Just too easy to wind up the Malthusians, so I will refrain.

Hey, it's a new day, the beach was same-but-different this morning and Pippa's Morning Song is running through my old grey head.

The one issue where I thoroughly agree with pdk and the rest of the 'there's too many Hoomans!' crew is that notion of - too many. However, I suspect this is a self-fixing problem.

The trouble with the sort of long-term predictions that are being tossed around here is that they neglect two obvious factors: demographics and black swans.

As David Goldman points out at book length in 'Why Civilisations Die', the future is set in stone for a great number of countries: China, Japan, Germany, Russia, Italy, Spain amongst others - who currently face the prospect of each successive generation halving in size. Bit like PDK's manure pile in reverse. So by EOC21, there will be a significant population shift all around the civilised world, unless the birth rate doubles, and soon, to at least reach replacement levels.

This will, at the least, affect export markets, earnings, savings rates and employment back here in Godzone. All of which affect the ability-to-pay for stuff, including welfare.

Black swans is the long-tail event that is usually dismissed,: NNT is the master here. It's often been noted that a planeload of AK47-toting hard men landing simultaneously at each airport in Godzone would rule the country by lunchtime. Then there's foot-and-mouth, Repo Man (creditors taking assets rather than fiat currency repayments), and of course that old favourite amongst Che-T-shirt wearers, the Tuhoe Republick. To say nothing, in the wider sense, of war, famine, and the other Horsemen.

History, which always rhymes even where it does not repeat, is rife with unintended consequences, which is why solemn predictions aboot 2050 plus, need to be consumed along with the pile of salt (sea-salt, courtesy of the Grasmere Salt Works, natcherally) they deserve.

by powerdownkiwi | 12th Jun 12, 10:14am 1339452871

Funny, I had Greig's 'Morning' from Peer Gynt running through mine. Quite an optimistic piece. The chooks were the same but the same, the goats were the same but that's random so they were different, the Border Collie thinks I should throw the ball more, and the cat is conserving energy.

But

we still have to get onto a sustainable basis, to be sustainable.

Waiting and doing nothing with vague cherry-picked excuses for the inactivity, just isn't my way. Sure, we can't do much about being overrun, but you can do proactive things about just about everything else. Once you've acknowledged what the problems are....

by steven | 12th Jun 12, 10:29am 1339453767

funny....."dont understand...so dont care"....try burying that head of yours further....

"Repo man" misses some relevent points, death of globalisation, lack of fuel oil to hold very little piece of dirt and too many assets too widely dispersed to hold with too little return...

It all changes post-peak oil.....previous assets and outlook now look like liabilities and pointless.

"AK47s" again co-operation needs organisation which needs energy.....a mini versionof repo man really....doesnt work.

Grasmere does industrial quality salt btw.....last time I was there anyway they didnt do human quality stuff...

"halving in size" that's everyone....not just the listed.

regards

by steven | 12th Jun 12, 11:13am 1339456398

This will keep you happy,

http://www.designspark.com/content/raspberry-pi-vax-cluster

$35 x 2 and some serial cables, serial monitor and a second hand box.....

regards

by waymad | 12th Jun 12, 11:18am 1339456727

If'n yer know the right folks (a hallmark of hooman socitey forever) the salt can be lifted straight from Gaia's bosom: directly out of the evaporation paddocks. No industry has sullied it.

Grandson ate the last salt lick some time agao - time to re-stock....

by Mike B | 12th Jun 12, 3:49pm 1339472995

"the Financial Services Council (FSC) is warning.

The council, whose members manage almost NZ$80 billion in savings

Last week, KiwiSaver provider and global consulting firm Mercer New Zealand, in a separate report, also highlighted the looming retirement problem facing New Zealand"

Amanda, what would you expect these people to say when they get all the money to play with?

Do you honestly believe this is an unbias report?

Have you allowed for the taxes paid from superanuation going back to the government?

Some time back Alex did an article on the OCR in which he interviewed all the bank economists (self interest) and i commented upon. Those economists were saying OCR going up, OCR going down, up, down, up, down and i said "why dont you just listen to Steven he is more consistent and accurate than those economists. Yet still we get you people giving us reports from these self interest groups, WHY?

Remember two or three years ago, it was all doom and gloom about how the world was going to be destroyed by HYPERINFLATION?

Ever since then it has been people prattling on about the PROPERTY BUBBLE and how we will all be destroyed.

Oh! but that's not all, they keep prattling on about how, we are doomed by

PEEK OIL

PENSIONS

GLOBAL DEBT CRISIS

and on, and on, and on

Of course the baby boomers are to blame for all this.

So, what will the crisis be next week?

Still, throwing crap at your readers is what we call GOOD JOURNALISM.

I don't deny that these are real issues, but looking down a tunnel and giving self interest groups free range at a each problem is just sh_t stirring.

Who do you think takes the prize as the biggest sh_t stirrer on this site?

by Stephen Hulme | 12th Jun 12, 4:39pm 1339475962

Mike B, I couldn't agree more - similar virtuous nonsense was proposed, circa 2002-4, by Mercer et al in respect of continuous long term investment in stockmarkets.

Bond holdings were dismissed without any evidence other than an outdated historical perspective. The impact of derivatives and RP on asset choice were hardly acknowledged, if at all, in the studies presented to justify such failed investment stategies.