Generation Doom fears s
An ageing population will push up the cost of the retirement savings scheme, writes Rob Stock.
MANY YOUNG people don’t believe NZ Super will be there when they eventually retire.
It’s a frightening thought for a generation which can’t see how they will be able to afford houses after paying off their student loans, let alone save the roughly $410,000 they’d need to replace NZ Super.
And there’s always talk about reducing NZ Super, or as the Rightwing political party ACT would like, eventually phasing it out.
Long-term forecasts from Treasury do indicate the cost of NZ Super is going to be an issue as the population ages.
Spending on NZ Super is projected to grow from 4.3 per cent of GDP in 2010, to 7.9 per cent in 2060, which perhaps wouldn’t seem so bad, except an ageing population would also see healthcare spending rise.
But should young folk be concerned for NZ Super’s future?
Peter Nielson, chief executive of the Financial Services Council, and a former cabinet minister, says surveys show confidence in the continued existence of a universal pension is lowest among the young who have been taught by student loans and high house prices that society has no problem stripping them of the benefits previous generations have enjoyed.
But as they age they will come to recognise the political realities that mean NZ Super is here to stay.
Neilson says: ‘‘My personal view is ... it’s one of the most popular policies with an extremely strong political mandate. I think it will remain in place.’’
An ageing population means an increasingly powerful block of grey voters, he says.
History shows however, that governments have made many changes to NZ Super in its relatively short existence, and with KiwiSaver balances rising, tweaking may become easier in the future.
Retirement Commissioner Diane Maxwell believes changes are inevitable, and that the universality of NZ Super, which is paid to millionaires as well as penniless souls, may not stand the test of time.
Maxwell says: ‘‘I think NZ Super will still be there. I’m not sure we will be calling it universal.’’
In the second half of this century there will be two non-workers for every worker, Maxwell says.
Maxwell believes that by the middle of the century some changes to NZ Super will have happened, including the age of eligibility rising from the current 65.
‘‘67-70 will be the new normal for eligibility,’’ she says.
With people living so much longer in retirement, many are calling for that change to happen sooner, though Maxwell says such changes need to be signalled well in advance.
And then there is the family home.
In Britain, Maxwell says, policymakers’ eyes are fixed on equity in homes as a means of partfunding retirement income.
New Zealand may one day follow. ‘‘I think we will be raiding all the pots, and the house will be one of those pots,’’ Maxwell says.
The end of universality of NZ Super raises the spectre of meanstesting.
That has proved costly elsewhere, and would certainly pose challenges in a country enamoured of family trusts.
Maxwell is certain of one thing, though. ‘‘The role of private provision will increase.’’
That will mean the young will indeed have to save more than their parents did, and the more they save, the easier it will be to scale back NZ Super.
But Nielson advises young folk to stop fretting about NZ Super’s continued existence. ‘‘A core pension will always exist for people in old age,’’ he says. ‘‘The real question is how much more would you need to have a comfortable retirement.’’
ANZ has tried to answer that, reckoning that figure to be around $622,000 based on recent research into the costs of living decently in retirement.
Actuary Jonathon Eriksen says too many people simply can’t afford to save the money they’d need to replace NZ Super.
Governments have made many changes to NZ Super in its relatively short existence, and with KiwiSaver balances rising, tweaking may become easier in the future.