Is lifting the retirement age really inevitable? Experts weigh in
At what age do you hope to start getting the pension? Former ANZ chief economist Cameron Bagrie reignited the debate this week when he said it would not be able to remain at 65.
National committed to increasing the age by two years in 20 years’ time, but that was scuttled when they were pushed out of government in the most recent election.
Bagrie said, with an ageing population, there would be fewer workers supporting more retirees.
‘‘It doesn’t look good. Something has to be done. Raising the retirement age at some stage, is, I think, inevitable.’’
Is change inevitable?
Many agree with Bagrie. By international standards, New Zealand’s pension is generous because it’s given to everyone. All you need to do is turn 65. Other countries are already pushing up their age of eligibility.
As part of her most recent policy review, Retirement Commissioner Diane Maxwell called for the age of eligibility to increase here to 67 by 2034.
She said that would reduce the cost of the scheme by 10 per cent, or $3.56 billion a year.
Economist Shamubeel Eaqub said there was no disagreement among commentators and policymakers that something had to change. The issue was getting politicians to agree, he said.
Labour campaigned at the 2014 election on the promise that it would increase the age, but has since done a U-turn.
‘‘It’s affordable for now and we don’t tend to deal with things until they are well and truly broken,’’ Eaqub said.
‘‘We shouldn’t expect something that’s so distant is going to be exercising the minds of politicians who’ve explicitly promised it’s not going to change.’’
He said politicians did not want to upset voters, who were often the part of the population closest to retirement and saw the pension as an entitlement.
Jess Berentson-Shaw, codirector of research and policy collaborative The Workshop, said the issue was the cost of the pension compared with other social welfare spending.
‘‘Up until now the approach has been to squash other social spending while keeping super at the same level. As an approach to supporting your population it does not really work, as failing to ensure the young generation thrive will create a problem with the next group of retirees.’’
However, she said raising the eligibility age had the potential to disadvantage Maori, who have a lower life expectancy, as well as those with disability or health issues, who needed to retire early.
Maybe we shouldn’t touch it
Michael Littlewood, former codirector of the Auckland University Retirement Policy and Research Centre, says it’s incorrect to say that our pension system is unaffordable.
Estimates are that the cost of superannuation could rise to 7.9 per cent of New Zealand’s GDP by 2060. But Littlewood said that in itself did not pose a problem.
Other OECD countries already paid more than that, he said.
New Zealand should not just move because other countries were. ‘‘As with anything, it’s how the Government spends its money. It’s a question of priorities.’’
The $40 billion question
KiwiSaver hovers around the edges of pension conversations.
Officially, it’s a scheme designed to supplement what Kiwis get from the Government in retirement. But how long before we rely on it to play a bigger role?
There are about 2.5 million of us enrolled in the scheme and more than $40 billion invested so far. If it were made compulsory, which is easier now that there’s no $1000 incentive attached for new enrolments, it could be leant on by a government seeking to make the pension less generous.
A few problems would need resolving first, though.
Last year, more than a million KiwiSaver members did not put in enough money to receive their full member tax credit. That means they put in less than $1042 over the course of the year. Even over 40 years, saving at that rate wouldn’t give you a lot to live on.
The Government could opt to means-test pensions, although this would be politically unpalatable.
Berentson-Shaw said total wealth and income testing, though complicated, was a better option than means testing.
‘‘The complicating factor is housing. Older people of this generation do better now because many have no accommodation costs, so super in the main works to ensure a certain standard of wellbeing. This will not be true in the near future.’’
Cameron Bagrie: ‘‘Raising the retirement age at some stage, is, I think, inevitable.’’
Retirement Commissioner Diane Maxwell wants the age of eligibility to increase to 67 by 2034.
Jess Berentson-Shaw says the issue is the cost of the pension compared with other social welfare spending.
Michael Littlewood: ‘‘It’s a question of priorities.’’