By Alex Tarrant
Trade-offs are being made to keep the Super age at 65 and the pension payment for a couple at 66% of the average wage, Prime Minister John Key says.
That meant the policy was affordable and National would stick with it. Other governments raising their pension ages were facing double the pension costs relative to their economies than New Zealand was, he said.
Speaking on Newstalk ZB on Monday morning, Key said the current cost of Superannuation in New Zealand was 4.6% of GDP. While it would get worse - up to 8% of GDP over time - it was an affordable policy, he said.
“Of all the countries that are raising their age, either up to 65, because some of them are below, or above 65, only one of them doesn’t have a current Superannuation cost of 9% of GDP. So we’re under half their cost at the moment," Key said.
“We as a political party have got on top of the economic issues that we’re facing, in terms of just sheer cost. Yes, there are choices we all need to make, but we’re providing certainty for New Zealanders and we can afford it," he said.
On TVNZ's Breakfast programme, Key said National would stick to its choice to keep the status quo in regard to Super.
"And the choice is, I think, for New Zealanders, that they should be able to retire at 65, at 66% linked to average wages. And I think that’s affordable, but we’ve made some clear trade-offs to do that," Key said.
“The other political parties are wanting to make different trade-offs.”
'Hike KiwiSaver contributions'
Meanwhile, KiwiSaver contributions should be raised to 10% of a worker's income so those under 40 years of age now will have sufficient retirement savings when they reach 65, the Financial Services Council (FSC) says.
The group, which represents fund managers and the financial services industry, said contributions should be shared between employees and their employers, which is how KiwiSaver operates now. Minimum KiwiSaver contributions by employers and employees are set to rise to 3% each from next April.
Last week, the Council said taxes would have to rise significantly over the next 50 years to be able to maintain the rising costs of government Superannuation. If taxes weren't raised to help cover costs, Super payments may have to be cut, or the age of eligibility raised, the Council warned.
Worried about under-40s
Financial Services Council CEO Peter Neilson told TVNZ's Q&A programme on Sunday that the council recommended in its report, Pensions for the 21st Century: Retirement Income Security for Younger New Zealanders, that KiwiSaver contributions should rise by one percentage point a year - split between the two - to 10% of a person's income.
This would be for people who wanted to be in KiwiSaver - those on low incomes could exempt themselves. The Council did not make any recommendations on whether KiwiSaver should be fully compulsory.
"But, clearly, in most countries in the world, if you’re on an income and in employment, you are required to put some money aside. But because of that, most people in other countries of a similar income to ours are living on retirement on much better incomes," Neilson said.
"If we don’t do something about this, the future is we’re still going to be working at 70, and we’re going to be picking up the bags of people who are grey-haired tourists from countries where they have put money aside," he said.
It also did not give a position on whether Super should be means tested.
"We haven’t proposed any changes in terms of how New Zealand super is provided, other than suggesting that the age of eligibility will have to move out," Neilson said.
If the Superannuation age was raised from 65, say to 67, people could use their KiwiSaver savings to bridge the gap from when they retired at 65 to when they were eligible for Super.
"You use your KiwiSaver account to purchase a fixed-term pension to cover you up to the point when New Zealand super is available as a right. But also your savings would be sufficient to virtually double the income you get in retirement," Neilson said.
"Our grandparents lived for 15 to 20 years after they retired. Our grandchildren are going to be living probably 30 to 40 years. So, in other words, we’re not only having a large number of people move into retirement from the baby boomers; we’re also going to live a lot longer, so therefore it’s going to cost more," he said.
"We’re talking about 2050 outwards. We’re not talking about immediately tomorrow. This is about what’s going to happen to the people who are under 40 and what their future is for retirement."