Superannuitant numbers will grow from just over 500,000 to 1.3 million by 2050
Winston Churchill said that he had sometimes had to eat his words and found it a wholesome diet.
Prime Minister John Key needs to follow the great man's example with respect to his pledge to resign rather than tamper with the entitlement parameters of New Zealand Superannuation.
The long-term fiscal projections the Treasury released late last year show that current policy settings (not just for super but across the board), combined with prevailing trends in underlying economic variables, set us on a course for a crushing level of public debt by the middle of the century: twice the size of the economy, give or take, compared with just 15 per cent now.
To calibrate the scale, in round numbers 1 per cent of GDP today is about $2 billion.
One major driver of that scary run-up in debt, of course, is the impending movement of the babyboomers from the workforce into retirement, with implications for both superannuation and health costs.
The number of superannuitants will increase from just over 500,000 now to 1.3 million by 2050, doubling the cost of New Zealand Superannuation, relative to the size of the economy, in the process.
The Treasury's long-term fiscal statement is not an exercise in policy advice, but usefully it quantifies the fiscal impact of dialling back the three main parameters of super: the age of eligibility, indexation and universality.
By mid-century the cumulative effects on net debt, and therefore the burden on the taxpayers of the day, are large.
On the age threshold, the Treasury modelled a scenario under which it was progressively raised from 65 to 67 over the period 2017 to 2023, and thereafter increased in line with rising longevity until it reached 69 by mid-century.
The year 2017 was chosen as the starting point because that is when the Australians start raising theirs, and it gives people at least a few years' notice.
Such a change would curb the increase in super costs, relative to the size of the economy, from about 4.3 per cent now to 6.5 per cent by mid-century, rather than 8 per cent if the current age is retained.
It would reduce net debt by some 22 per cent of GDP.
Put another way, if it is assumed future governments curb public spending generally to keep debt at sustainable levels, raising the age of eligibility would allow the basket of public services the average person could expect to receive to expand by 11 per cent by 2050, instead of a miserable 2 per cent otherwise.
Another theoretical option is to switch the indexation of superannuation payments from the average wage to the consumers price index.
The existing rules require that the payment to a superannuitant couple, net of tax, must be at least 66 per cent of the average wage after tax.
The Treasury model assumes that will mean rises of 3.5 per cent a year, based on real wage growth of 1.5 per cent a year, in line with long-run labour productivity growth, and an average inflation rate of 2 per cent.
If instead the pension were simply indexed to inflation, it would curb the increase in the cost of super to 5 per cent of GDP by mid-century, instead of 8 per cent, and reduce net public debt by a hefty 60 per cent of GDP.
But it would mean the relative value of the pension would fall from a third of the average wage - which, let's face it, is itself nothing to write home about - to just a fifth by 2050.
It would preserve the purchasing power of the pension at current levels, but it would create an ever-widening gap between the retired and those still working.
Clearly there are other options, like setting the pension at a lower percentage of the average wage, or indexing it to the CPI plus 1 percentage point, which would soften the blow but also reduce the fiscal savings.
But when Dame Jenny Shipley's Government tampered with indexation in the wake of the Asian crisis, the electoral reaction was swift and ferocious.
The problem is, most superannuitants are overwhelmingly reliant on the state pension for their income. Statistics New Zealand's household economic survey found that for about three-quarters of those aged 65 or older, it makes up more than 80 per cent of their income.
But for the other quarter it is only about 20 per cent.
That raises the obvious question about whether New Zealand Superannuation should continue to go to everyone who attains a given age, whether they really need it or not.
Universality is a time-honoured feature of the scheme. It is one of the things which distinguishes it, both in fact and in people's minds, from welfare benefits.
Any form of means testing would set up a boundary which some people would seek to burrow under or do an end run around (as they have with Working for Families), arranging their affairs so that they would still qualify.
But the potential fiscal gains from means testing super are large.
The Treasury modelled two scenarios: one where, starting from 2017, the richest 25 per cent of people over 65 (by income) get half the normal superannuation and one where they get none.
All else being equal, net debt falls by 38 per cent of GDP by 2050 in the former scenario and by 76 per cent in the latter.
Remember that 76 per cent of GDP today would be about $150 billion. That is a lot less debt to have to service.
Any such change would be an exercise in trade-offs.
One trade-off is the need to give people decent notice of any change to their retirement income entitlements versus the arithmetical fact that the sooner any such change is made, the greater the long-term fiscal savings.
That makes the Government's craven policy of refusing to even talk about the issue all the more irresponsible and costly.
The Australians plan to move the age of entitlement out to 67, a decision which seems to have been accepted without popular uproar.
The Americans are already half way towards a similar age for Social Security.
Any move to means test would be easier, and more likely to be seen as fair enough, in the context of changes to income tax or the tax treatment of savings likely to benefit those on higher incomes.
But first the Prime Minister will need to figure out how to clamber out of the hole he has dug for himself on this issue and apply his political skills to selling a policy he must know makes sense.