Young can no longer rely on Superannuation
As the goalposts shift, Millennials will have to take matters into their own hands.
MYfellow millennials, you’re probably aware that the government has hiked the age of eligibility for NZ Superannuation. Our working lives just extended by another two years. But this is only the beginning of a series of inevitable cuts to the scheme.
Picture five strong, healthy young workers, carrying a pensioner on their shoulders. It’s a bit of a burden, but the base of the pyramid is sturdy, and everyone’s looking forward to taking their turn on top. That’s the current situation.
The problem is, the population is ageing. In 20 years, the number of people over 65 will have doubled. By 2060, there will only be two working-age people supporting each pensioner. The weight will be staggeringly heavy, and the pyramid will collapse.
Let’s not be too glum. When the pension was introduced in 1898, anyone who survived to the ripe old age of 65 could expect only a few short years of respite before death claimed them. These days, sprightly sexagenarians still have decades left on the clock. By the time we turn 65, we might have halted the ageing process altogether, or uploaded our brains to the cloud.
Whatever happens, all those stubborn old people who refuse to die are going to blow out the cost of superannuation and healthcare. A hike in the entitlement age is entirely reasonable.
The prudent move would be to start raising the age as soon as possible, which the Retirement Commissioner and the Treasury boffins have been suggesting for ages. However, the government’s proposed plan won’t be complete until 2040. That conveniently lets the last of the Baby Boomers sneak past the threshold, while those of us who support them have to work for longer.
It’s important to note that NZ Super is not some immutable law, carved into golden tablets carried down from the mountaintop. It’s already changed several times, with various combinations of entitlement ages and meanstesting. Four decades from now, who knows what it will look like? Maybe it won’t even exist.
This week’s announcement poured petrol on the eversmouldering tire dump that is the Entitled Millennials vs Greedy Boomers debate. While frothing with outrage is great fun for the whole family, it’s not super useful. Intergenerational theft or not, this shift in demographics is really happening, and we have to figure out how to deal with it.
I urge you, my millennial brothers and sisters, to accept with serenity the things you cannot change, and focus your 123rf energy on the factors within your control.
Step one: make sure you’re getting the most out of KiwiSaver. Your employer matches the first 3 per cent you put in, plus you get a $521 tax credit if you contribute enough. Those sweeteners are mighty compelling for anyone in regular employment. Be sure to check you’re in the right fund. Not taking on enough risk could literally be . Check the fees, too. They can make a huge difference over time.
Step two: ramp up your savings. You could do that through KiwiSaver, but the money is locked away, and subject to the whims of regulators. Fortunately, there are plenty of non-KiwiSaver investment funds, most of which will let you set up an automated monthly drip-feed.
Step three: work towards a freehold home. Home ownership is linked with quality of life in retirement, and a mortgage can be useful as a sort of forced savings scheme. If you prefer to rent, be sure to invest all the savings you’re making, and automate it so you can’t self-sabotage.
I believe millennials can no longer rely on NZ Superannuation, at least not in its current form.
In theory, the government is meant to take care of us. In practice, votes and power matter more than sound policymaking or fairness. We have to take control of our own financial futures, rather than leave our fates in the hands of politicians.
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