With an ageing population and questions over the sustainability of the current superannuation scheme, pension tension in New Zealand remains high. So, should the superannuation age change?
When it became clear that National and ACT would need the support of NZ First to form a government late last year, something else became immediately apparent: New Zealand’s superannuation age would not be raised any time soon.
Despite National and ACT’s pledges to lift the superannuation age from 65 to 67, NZ First’s stance on the issue was unequivocal: “The age of retirement will remain at 65 years. No ifs, buts or maybes.”
But as New Zealand’s population continues to age, the debate about the economic challenges and social implications around superannuation is as intense as ever.
The Retirement Commission wants some political consensus on how to assess the country’s superannuation system rather than having a debate about the issue every three years at election time. That’s why it’s holding a Super Summit in Wellington this week to gather perspectives from economists, politicians and social policy experts.
So, what do we need to know about the superannuation debate?
Who would be impacted most by a change in eligibility?
Retirement Commissioner Jane Wrightson released a paper last month detailing the policy options for New Zealand’s superannuation; however she said keeping the age of eligibility at 65 was the best of those options for now.
“I don’t necessarily think the age should stay at 65 forever,” she told 1News. “But there’s certainly no compelling case to raise it at the moment.”
Wrightson said raising the superannuation age without looking at all its knock-on effects would be poor policy.
“The first question is ‘who does it hurt?’” she said. “It's very clear it hurts women, Māori, Pasifika, and manual workers, all for different reasons, and not because any of them are stupid or feckless. We just have different economic lives.
“So, without considering how they might be treated to get a more equitable outcome, the blank decision just to raise or not to raise [the age] becomes unhelpful.”
Wrightson said the overall issue was considering what kind of country New Zealand wanted to be for older people.
“Do we want to have pension poverty like some countries do?” she said.
“Do we want to have increasing numbers of older people who are renting - and we know that's going to happen - getting more and more financially squeezed when some of this is preventable.”
Wrightson said these types of discussions around superannuation could be very uneven.
“Well-paid professionals in suits are very good at saying let’s do things like put the age up because the country can’t afford it – and they’re often men and they’re often the people who will be least affected by such a change.”
Is the status quo sustainable?
One of those people who thinks New Zealand needs to look at the affordability of its superannuation scheme is economist Cameron Bagrie.
He said Treasury’s modelling of the fiscal cost of an ageing population showed rising expenditure on both superannuation and health as a share of GDP, along with less growth in the working age population.
“What that combination tells you is that on the assumption of no change [to the superannuation age], it is very, very clearly unsustainable,” he said.
“We are at the stage where we are now spending more per year on New Zealand superannuation in regards to operational spending than we spend on the entire education sector.
“I look at that through a common-sense lens and that just doesn’t seem intuitively right that we’re spending more on the elderly than we’re spending on the kids.”
The Retirement Commission argued that claims NZ Super isn’t affordable “are not supported by independent, publicly accessible analysis”.
It said New Zealand’s expenditure on its pension is relatively low compared to other OECD countries.
Bagrie said he’s aware of those arguments.
“That just means we've got less of a problem compared to other countries; it doesn't mean we do not have a problem,” he said.
“It's fine to say let's have no change, as long as we are very upfront with society, that society is well aware of the choices that we make, because if we make that choice … that leaves less available resources for spending in other areas such as law and order, transport, roading, education. Or we just get people to pay more [taxes].”
Is raising the superannuation age the only option on the table?
Bagrie said there were different arguments for tackling the superannuation equation if the country did support keeping the status quo.
“The bottom line is that someone's going to end up paying,” he said.
“If you support the status quo or not much of a change to the status quo, then either expenditure outside of superannuation or health needs to decline as a share of GDP – i.e. we need to spend less in other areas – or we lift taxes, so society just has to pay more to support the fiscal cost of an ageing population.”
Introducing asset and income testing had long been touted as another option and Bagrie said he believed superannuation should be there as a safety net for the people who needed it.
“I do not see the logic at all as to why everyone is entitled to New Zealand superannuation,” he said.
“People say, ‘I’ve paid high taxes all my life’ and, look, some people pay more taxes than others, right? But it's the way things are. If you've done better, then you pay a bit more to support others.
“Just because you retire, in my mind, does not mean you should magically be entitled to superannuation because you've paid more taxes during your working life.”
The Retirement Commissioner’s latest report on policy options for superannuation included what Wrightson said were “really unpopular” choices.
“If you’re really worried about expenditure, then you should target expenditure to those who need it – and the paper suggests income testing, which is humongously unpopular," she said.
Wrightson said officials should also be looking at schemes like KiwiSaver.
“If you’re going to work on the basis that at some stage the [superannuation] age will go up, then what are we doing around the KiwiSaver system to encourage private savings at a higher level?” she said.
“KiwiSaver is a brilliant mechanism, but the contributions are too low - so what can we do in the way of incentives and tools to help people save more because they'll need more. You can't just make these decisions in isolation.”
So, what needs to happen now?
Wrightson said the main challenge for the superannuation system is that it needs to be stable over time.
“The issue with NZ Super is that it becomes a political football, and the conversation gets very heated and very binary and it isn’t particularly well informed,” she said.
“A better way to think of it in the future would be to try and get some sort of cross-party political accord or some kind of legislative review that investigates this issue, say every five or 10 years, directed by the government of the day, which would then assess how the economy's changed, how the population’s changed, whatever other environmental changes are necessary, and then puts up recommendations again.”
Wrightson also wanted people to understand the impacts of any decisions in this area.
“[People] understand the impact on themselves and their family – they don’t necessarily think more broadly than that,” she said.
“I think it's incumbent on people like me to go ‘yeah, your focus group of one or five is fine, but there are other focus groups reporting very different experiences.'”
Wrightson said that while there were some very wealthy people getting the superannuation payment, around 60% of pensioners were having to live just on that payment or slightly more.
“That 60% of people are living not far off the minimum wage. [Superannuation] is not a system that should be taken for granted, and it’s a system we should be really proud of, actually.”
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