Pragmatism trumps populism in NZ Super decision
THE nightly television news provides a sobering reminder that we are fortunate to live in a stable, democratic country.
However, the current experience of our American friends is a timely reminder that if we don’t take the time to become more informed, and think carefully about the challenges that face our country, then we too could easily be swayed by populist political rhetoric high on emotion but low on fact. It seems that the more emotive the issue the more susceptible we are to this cognitive shortcut.
When it comes to emotive issues in New Zealand, they don’t get much bigger than New Zealand Superannuation.
Last week, the Nationalled Government signalled a new policy direction for NZ Super. Its proposal suggests that the age at which we will be entitled to receive NZ Super will progressively increase from 65 to 67. The first people to be affected by this change will be those born in July 1972. In their case, they will not be entitled to receive NZ Super until they are aged 65 and six months. Those born in the following year will quality six months later. In this way, the transition to age 67 will occur in six month increments and be completed in mid2040.
The second element of the proposed change (which has received less comment) is a move to change the date at which you can access your KiwiSaver account. Currently this date is ‘‘pegged’’ to the date at which you are entitled to receive NZ Superannuation. The proposal would change the legislation to allow access to remain at the present age of 65.
This is an important issue for our country and thankfully the current Government has moved beyond the populist ‘‘not on my watch’’ mentality. It is of course ironic that just three years ago the recommendation to increase the entitlement age was part of Labours policy but has now been removed. Clearly, policy decisions driven by populist thinking are not just the domain of our previous PM!
Lets be clear about this, all the analysis I have seen concerning this issue suggests that change to NZ Super needs to happen. According to the Commission for Financial Capability, NZ Super currently costs the tax payer $30 million per day and we are on course for this daily figure to balloon to $98 million in just 20 years time.
The disproportionate number of retirees, relative to those of working age, caused by high fertility rates in the 1950s to 1970s, combined with an increasing life expectancy, means that increasing the age of NZ Super entitlement will most likely be forced upon us at some point. Is it not better to give the population plenty of time to adjust to the new reality?
Yes, there are other ways to help manage this spiralling future cost.
We could (and probably should) recommence contributions to the ‘‘Cullen Fund’’ that was specifically designed to help combat the baby boomer retiree bubble.
Income and or asset testing is always an option. We have had income testing before. It resulted in the development of complex structures to avoid such tests and also created a general disincentive to save.
The level of NZ Super benefits could be reduced. The prospect of a large proportion of the retired population on an increasingly meagre NZ Super has real social implications.
Increase New Zealand’s GDP growth rate. The last few years have demonstrated that by opening the immigration ‘‘flood gates’’ we can increase our growth rate. However, the question is: does this increase average economic productivity and make our NZ Super framework more sustainable?
There are issues that need further debate:
Is a 20 year lead time too long and does it further exacerbate the issue of intergenerational fairness? For those in occupations that are physically demanding working to age 67 is sometimes not possible.
Not all ethnic groups within our society experience the same life expectancy. How, or should, we address this?
I applaud Bill English for his rational pragmatism in announcing this policy. My hope is that as an educated, democratic society that we will be able to see the ‘‘big picture’’ and not retreat to views that reflect only our own interests.