A poison pill we all need to swallow

The time has come for a meaningful discussion about superannuation.

Apolitical hot potato that no party wants to handle. That’s how The Nation‘s Lisa Owen last week described rising superannuation costs, and she’s almost right. Since Andrew Little last year abandoned Labour’s policy of raising the age of eligibility, ACT is the one party campaigning on sustainable super.

Politicians across the spectrum, including the Prime Minister, treat changes to super like a poison pill for how it polls with older voters. But if this Government doesn’t make changes, a future one will. By denying this, politicians deny younger Kiwis the chance to even discuss the issue. They are showing contempt for younger voters.

Politicians shouldn’t let polls paralyse them into inaction, and they certainly shouldn’t use polls as an excuse to accept myths. There’s a false idea that changing super means snatching the pension away from existing retirees. But that’s not what’s suggested by supporters of reform (who now include the Retirement Commissioner).

No-one wants to punish today’s retirees or near-retirees. The question is how super should work in the decades ahead. In the long term, policy change appears inevitable – we’re healthier, working and living longer, resulting in a rapidly aging population. This trend won’t stop – half of babies born today are expected to live until the age of 100, and in my lifetime we’ll go from five taxpayers per superannuitant to two taxpayers per superannuitant.

The effects of this huge demographic shift can’t be overstated, with its effect on super alone costing an extra billion dollars each year. It’s reasonable to assume taxpayers won’t tolerate this forever, and fair enough.

When asked about the problem, politicians gloss over the real scale of the cost and instead pivot onto smaller issues. A typical tactic is to focus on immigrants, who can receive the pension after just 10 years of residency. This period should be extended, but that would be just a drop in the bucket compared to the cost of super for the existing ageing population.

Another idea mentioned is flexisuper – letting some people take it earlier at a lower rate, or later at a higher rate. It’s a good idea, but ultimately doesn’t affect the policy’s cost. It needs to come with more substantial reform.

Some suggest means-testing – taking super away from retirees with high earnings. But it’s surely both unwise and unfair to punish those who choose to continue working and pay taxes.

So that brings us back to raising the age. We can start now, or kick the problem down the road until a future Government opens up its pocketbook, squeals, and pulls the rug out from under us without fair warning.

In the meantime, today’s young people would have to fund costlier super through either higher taxes, or cuts to essential spending, without hope of receiving their own pension at 65 (or perhaps ever).

The Prime Minister promised in 2008 not to make changes under his leadership. So be it. He need only forecast a future transition starting when he retires (in say, 2020). We could move from age 65 to 67 at a rate of two months a year, over 12 years. This would give us all the chance to prepare our finances and ensure we can retire comfortably.