While there’s no quick fix, a few proposals for tackling the rising cost of our universal pension scheme get thrown around regularly. So what’s the best plan of action? The Spinoff asked three experts to weigh in.
Every day, New Zealand spends $39 million to provide a pension for those aged 65 and over. By 2040, that daily cost will triple to $120m. The rapidly rising bill is thanks to an ageing population and a changing demographic makeup: w hen Robert Muldoon axed Norman Kirk’s short-lived retirement savings scheme in 1975 in favour of a universal pension, the country had eight working people to a single retiree. Fast forward 50 years, and that number has halved. In another 50 years’ time, it’ll halve again.
With fewer young working New Zealanders around and an ageing population to care for, what’s the answer to creating a more fiscally sustainable pension? Is it by doing a line-by-line review of a retiree’s assets? Could it be achieved by raising the age at which they can stop working and receive a pension? Or is there another solution?
The Spinoff asked three experts – Eric Crampton, chief economist at the New Zealand Initiative, Shamubeel Eaqub, chief economist at Simplicity, and author and researcher Max Rashbrooke – for their thoughts on the levers that could be pulled, and what would happen if we did nothing at all.
Two thirds of the coalition have signalled their desire to see changes to super, but any plans risk remaining dreams with NZ First in the mix. (Photo: Hagen Hopkins/Getty Images)
Raising the retirement age
If there’s any change to superannuation in the coming years, it’ll likely be this. On the surface, raising the retirement age – the age at which every New Zealander is eligible for NZ Super – makes sense. In 2001, when the retirement age was set at 65, life expectancy was lower: New Zealanders are now living about four years longer than they were then, which means longer retirements and more super being paid.
It’s a policy the National Party has campaigned on in previous elections, often eyeing up a rise to 67 by 2040. Prime minister Christopher Luxon has confirmed the party will be campaigning on a similar policy this year, after finance minister Nicola Willis made no secret of her desire for change. Act is similarly keen to see the age lifted, but NZ First is dead set against it. Labour, meanwhile, has pledged to raise the age in the past, but current leader Chris Hipkins favours the status quo, as do the Greens. Te Pāti Māori has proposed lowering the retirement age for Māori to around 55-58, to account for shorter life expectancy and therefore a likely shorter retirement period. (The current life expectancy for Māori is 75.8, compared to 82.8 for Pākehā. It’s 76.9 for Pacific people and 86.3 for Asian people.)
The pros
Crampton: “A one-off increase in the age of eligibility, perhaps to take effect a decade from now so people would have time to plan for it, combined with an automatic ratcheting-up of the age of eligibility as healthy life expectancy increases, would do a lot of good.”
The cons
Eaqub: “It’s grossly unfair; it feels really cruel to say that because you’re brown, because you’re poor, you deserve less rest and security in older age. And we know it’s not because people are brown that they are living less, it’s because they have grown up in poverty, because they’re working in physical jobs.
“If we want to have a higher eligibility age, my main concern is that NZ Super is so much more generous than unemployment or disability benefits. What it says is that because you are physically no longer able to work, somehow you deserve less than somebody else who’s in good health but happens to be 67. Until we fix that inequity in the welfare system, it becomes a real punishment for those who are no longer physically able to work.”
Economist Shamubeel Eaqub
Rashbrooke: “I think [this is] the second-worst option. Raising the retirement age sounds simple in theory, but it’s actually very complex and very inequitable in practice. You’re basically leaving poorer people with quite short retirements; the loss of two to three years will mean more to them than it will to richer people.
“And what about all the people who are physically really broken down at 65, because they’ve been in manual labouring jobs? How can you just say to them, ‘sorry, I know you were hanging out until 65, but you’re gonna have to wait much longer.’ That is very hard to justify, I think. Also, how do you make a system like that work? A precedent of that would be the police early retirement fund, which had to be wound up in the 2000s because police were using it [inappropriately] to get signed off early.”
Max Rashbrooke.
Crampton: “It wouldn’t help us over the next decade, and those costs will be rising considerably over that decade. I’d be happy to do it a lot faster, but I doubt there’d be broad agreement. Any proposals in this space always couple it with some form of disability payments for those t…
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