The pension age must rise and be linked to health expectancy, recommends Research Fellow Jenesa Jeram, to maintain a relevant relationship between retirement and receipt of superannuation.
“NZ Super is a success story. New Zealand has one of the lowest elderly hardship rates in the world, and the costs of our universal pension are lower than many OECD countries. Specific features of the model contribute to its success but keeping the eligibility age at 65 is not one of them,” says Jeram.
If trends continue people will be living longer, retiring later, and drawing on Super for a longer period of their lives.
“The pension age is the same as it was in 1898 when fewer than half of all males were expected to live that long. Times have changed, and the pension age is a historical artefact that should be reviewed.”
The good news is we can preserve New Zealand’s superannuation system if we have the will. The bad news is the future funding of NZ Super may be at the expense of more needy groups.
“Our tax and welfare system is generally progressive: money is transferred from the rich to the poor. This could be reversed as the population ages and fewer people work, so that more money is transferred from the working poor to the relatively rich.”
“The public should be aware that maintaining the pension age comes at an increasing cost, when that money could go towards people in real hardship.”
Jeram concludes, “Retirement policy changes need to be signalled well in advance to give people time to prepare and make their own arrangements. Consecutive governments do taxpayers no favours by refusing to tweak Super. Governments could be spending taxpayers’ money more efficiently, and the public needs warning of proposed changes to make other arrangements.”
The Taxpayer’s Union agrees that people need notice.
“The New Zealand Initiative’s suggestions of linking the eligibility age to health expectancy, and pegging pay rates to inflation instead of wages, are certainly taxpayer-friendly. But the politicians need to forecast changes of this type as early as possible, so New Zealanders can adequately adjust their financial plans,” says spokesman Louis Houlbrooke.
“It is clear that increasing costs will lead to changes in policy, but both major parties are doing savers a disservice by remaining silent on the issue. It is not, for example, clear whether Simon Bridges is retaining Bill English’s policy of lifting the eligibility age to 67 in 2040. And while the current Prime Minister has pledged not to change the age, she has not explained whether her Government will means test Super or alter the payment rate.”
Embracing a Super model recommends the following:
• Link the pension age to health expectancy.
• Index NZ Super to inflation (CPI) only rather than both inflation and wages.
• Contributions to the NZ Super Fund should not come at the expense of paying down debt.
• Raising productivity growth makes NZ Super (and everything else) more affordable.