Retirement Commissioner Diana Crossan says affordability of New Zealand Superannuation will be a key issue for her report to the Government next year on retirement income policy. Photo / Supplied

Retirement Commissioner Diana Crossan says affordability of New Zealand Superannuation will be a key issue for her report to the Government next year on retirement income policy. Photo / Supplied

Kiwis will have to work longer and be paid less in retirement, Treasury has warned the Government in a sobering report about the fiscal state of the nation.

Soaring Crown debt and an ageing population mean the country cannot afford to maintain current New Zealand Superannuation (NZS) entitlement.

Treasury proposes increasing the age of eligibility to 67 from 2017 as well as indexing the entitlement to 1 per cent above inflation instead of the average wage - an effective payment drop.

Both Prime Minister John Key and Opposition finance spokesman David Cunliffe are promising to keep superannuation as it is, but Mark Brighouse, managing director of Brook Asset Management, says the current Government won't be the one that makes the decision.

"Reassurances are not a helpful message for New Zealanders in their 40s who have time to address their situation if they are given the facts."

Public debt will blow out to 223 per cent of gross domestic product (GDP) by 2050. By that time, the number of people over 65 will have grown 2 times, while those 85 and over will grow five-fold.

The shift to an ageing population will accelerate as the first baby boomers begin to retire and receive superannuation from 2011 - and then live more than another two decades on average.

That magnifies the major fiscal challenge facing Government: spending that is a lot higher than revenue.

The unprecedented demographic trends mean the ratio of people aged 65 and older relative to the working-age population aged 15 to 64 climbs from 19 per cent in 2009 to 42 per cent in 2050.

There will be relatively fewer people to drive the economy and more people requiring government services and support. Part of the solution to both issues will be for people to continue working later in life.

Even so, many New Zealanders are unlikely to have the financial resources to provide the lifestyle they expect in retirement, Brighouse says, and Treasury's report shows they can't depend on the government.

A 2007 report by the Ministry of Social Development suggested older people generally have adequate incomes that provide them with a reasonable standard of living.

But Brighouse says that's because people born soon after the Depression who lived through the war years are frugal and self-sufficient, but boomers are used to different lifestyles. For them to drop to the superannuation income is a big adjustment.

Retirees need a nest egg equivalent to 20 times the difference between their estimated annual spending and their income from pensions or superannuation, he says.