Government has head in sand on Super
As unfair as the economics of New Zealand’s looming pension bill might seem, history is set to repeat. Cameron Bagrie, opinionated former ANZ chief economist, appeared to touch a raw nerve this week when he warned that the superannuation system was unaffordable and it was ‘‘inevitable’’ that the age of eligibility would increase.
It is good that he has entered the debate, which has largely gone quiet since the government changed late last year. But sadly, on this issue, the new boss is the same as the old boss.
During a live-television campaign debate, Jacinda Ardern committed to quitting as prime minister rather than raise the age of eligibility, echoing the promise made by John Key in 2008.
Since taking office, the new Government has not even tried to create room to manoeuvre on the issue.
In December, Finance Minister Grant Robertson insisted the current age of eligibility is sustainable into the future.
Asked if he really believed that, and that there would never be a day in his career when he would admit he wished he had done something different, Robertson simply shut the argument down. ‘‘It is the commitment we’ve got. It’s not even an issue for me to debate.’’
Once again the problem is being kicked down the road, partly because, right now, the country can cope. But each year, the problem gets a little bigger, as New Zealand gets a little older. Every year, life expectancy increases by about a month.
In 20 years, the number of New Zealanders aged 65 or over is expected to have roughly doubled to about 1.3 million. Many of them will be wealthy, but, just like now, no one is discussing means-testing NZ Super payments.
Treasury’s long-term forecasts suggest that as a share of the economy, the cost of Super will increase by 30 per cent between 2015 and 2030, and by 50 per cent between 2015 and 2045.
All this as that same ageing population is also adding more costs to the health system.
Labour has tried to make out that its position is about fairness. It argues that if the age of eligibility were raised there would have to be exceptions for those who spend their working lives in manual labour, and so are unable to work as long as office workers; or for Ma¯ ori and Pacific populations, which have shorter average life expectancies.
The argument is full of holes. Firstly, Labour tried to raise the age of superannuation, in two successive elections, when the same issues were well known. The reason the party dropped the policy is nakedly political: voters did not like the idea.
Secondly, there are other issues of fairness which the argument ignores. As time goes on there will be fewer workers who will be required to support more retirees.
One estimate said that while now there are five working-age people for every pensioner, if the current demographic trends continue, by 2060 there will be just two working-age people for every pensioner.
But what dooms the Government on the issue is, it is not as if it is suggesting an alternative.
If raising the age of eligibility is not the solution, the Government needs to come up with an alternative, whether it is meanstesting, compulsory savings, cutting the amount superannuitants are paid, something else, or a combination of all of these.
Labour deserves at least some credit over National. It has restarted contributions to the NZ Super Fund, paying in $500m in the current fiscal year.
This is a welcome move, but is less significant than it looks.
Under the formula established by the fund’s founder, Sir Michael Cullen, Labour should be contributing about $2.7 billion a year. Even using Treasury’s rosy economic forecasts, it will not get to that annual level until 2023. Will the Government really keep ramping up contributions when the rainy day of a recession comes?
It is not as if National can claim any credibility.
Once John Key had made his commitment not to touch the age of Super he simply dismissed warnings that the age of eligibility would have to be addressed, gracelessly mocking Treasury’s research as if the problem did not exist.
Even when National was finally able to address the issue, it didn’t. As prime minister, Bill English said he was proposing to raise the retirement age to 67, but his plan would not have even started for 20 years, leaving ample scope for it to be curtailed.
It was also willing to drop the policy if that was what it took to get Winston Peters into government.
Deep down, both sides of the political divide know the issue needs to be confronted, but for at least three years, and probably longer, nothing will be done.
Like so many problems, it will be passed to another generation. In the case of Ardern, she is leaving a growing problem to a generation she claims to represent.