Editorial: Kicking the can down the road

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23rd June, 2012 Leave a Comment

Diana Crossan

Two major humiliations in one week is probably more than enough for any government, so it’s no surprise that Prime Minister John Key is resisting mounting pressure to engage in a third by breaking his electoral promise not to meddle with the age of entitlement to National Superannuation. Fresh from overseeing Education Minister Hekia Parata’s back-down over teacher-student ratios, and the resignations of the ACC chairman and CEO over the Bronwyn Pullar saga, Key was this week holding firm on his long-held commitment over New Zealand Superannuation. That’s despite fresh reports from the OECD and from the financial services industry arguing the case for an increase in the age of entitlement, and evidence that the public increasingly understands the need for change.

“I have spent my career doing what I say, and for the most part, unless there’s some damn good reasons, I haven’t broken that,” Key told reporters this week in response to a TV3 poll showing almost two-thirds of respondents thought entitlement to Super should be raised from age 65 to 66 or 67 by 2020. Those “damn good reasons” might be more evident to Key if he pulled his head out of the sand on this issue. The OECD has advised that although the cost of New Zealand Superannuation is currently manageable and relatively low by international standards, the fiscal burden will mount rapidly as life expectancy continues to increase. It says the cost of the scheme will rise from 5% of GDP to 8% by 2050 on current eligibility settings. Over that same period there will be fewer people working and paying taxes to foot that bill: currently there are 4.5 people of working age to every one pensioner; by 2050, there will be only 2.4 for every superannuitant.

More than half of OECD countries are lifting their pension ages over the next decade in response to population ageing. Australia, the US, the UK and Ireland are moving to 68, and others, including Germany, Italy and Spain, are linking retirement to life expectancy, so that by 2050 they will have a retirement age of 69. The Financial Services Council is also mounting a concerted campaign to draw the Government into a debate about the age of entitlement, the level of the pension and higher KiwiSaver contributions. It says as New Zealanders live longer, people could spend 30-40 years on superannuation before they die. This, plus the large cohort of baby boomers who will be drawing the pension in the next two decades, will require massive tax hikes if the eligibility settings are kept as they are.

Given that the council represents the companies that have the most to gain from a roll-back of National Super and higher KiwiSaver contributions, its commentary comes with the usual health warning. But the outline of its demographic argument roughly chimes with the OECD’s report and the proposal put forward two years ago by Retirement Commissioner Diana Crossan to slowly lift the age of eligibility, starting in 2020 until it reaches 67 in 2033. There are difficult details that would have to be addressed in any change – for instance, equity for Maori, who do not live as long as non-Maori, and the difficulties that people doing heavy manual work may have in carrying on until age 67. But these should not be insurmountable.

For years there has been talk of the need for a genuine multiparty accord on superannuation, and that is no less true now than it was in the past. Labour has already adopted a policy of lifting the retirement age to 67, but Key insists that since the current system won’t pose a fiscal problem until 2020, there’s no need to do anything. Yet procrastination in the face of financial hazards is simply untenable – Eurozone commentators now ruefully refer to delay in the face of danger as “kicking the can down the road”. The sooner New Zealand’s demographic time bomb is confronted and planned for, the better off we, our children and their children will be. 

23rd June, 2012 Leave a Comment

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