Retirement a big burden on economic horizon

By Susan Edmunds

David Kerslake says his skills are still in demand.
Photo / Getty Images
David Kerslake says his skills are still in demand. Photo / Getty Images

Murray Fielding would dearly love to retire. He lives on a quarter-acre section in a small Northland town and every day, all around him, his peers and colleagues are signing off from work for the last time and joining a golf or bowling club.

If he had the choice, the 66-year-old would be spending the day with his children and grandchildren, some of whom live by the beach at Mangawhai Heads. He wants to be part of their upbringing and would not say no to the occasional round of golf. Instead, he is still working, almost fulltime, at the Mitre 10 he has owned in Kaikohe for 25 years.

He can be found helping customers on the shop floor, ordering stock, paying the bills or in the office.

He is watching from the sidelines as his wife and friends turn their attention to hobbies.

"I have a cousin who's younger than me who's retired," he says. "She goes around the golf circuit having a great time, a better time than I'm having."

Despite being over the pension age, Fielding cannot stop working because no one wants to buy his business or the building that houses it.

"If I could sell the business or the building I'd retire tomorrow. I thought at 65, I'd put the business on the market and it would sell."

The question for Fielding is: Can he afford to retire? The question for New Zealand is: Can we afford to let him retire?

With an increasing proportion of the population over 65 and a decreasing proportion earning wages and paying taxes, the chunk of GDP being ploughed into NZ Super payments is forecast to double in less than a generation. Treasury warned that something has to give. The public purse can no longer afford to pay for fit and healthy 65-year-olds, mortgage-free homeowners with healthy retirement saving plans to retire.

But the very thing that is causing the crisis - an ageing population - has created an enormous voting bloc that can turn politicians into terrified, motionless possums in the headlights. No politician has been brave enough to introduce a law to raise the retirement age or means-test government superannuation.THREE HOURS south from Kaikohe, David Kerslake's story is quite different. Kerslake loves his work. He could be bowling or sailing like some of his North Shore friends, but every day the 64-year-old makes the 40-minute trip from his home in Milford to his office in Mangere, where he works as an IT analyst for Progressive Enterprises.

Although he is now legally blind, and his body is not as youthful as it once was, Kerslake feels lucky to hold a position where his skills are still sought after.

Wouldn't he like to retire?

"Not everyone has their health or enjoys their job," he says. "I have been very fortunate to have a job I enjoy, with a good salary, and I have the skills that are still needed by the company."

His wife, Anne, is retired but Kerslake can see years of work ahead of him yet.

Anne jokes he would just get under her feet if he were at home; Kerslake reckons that even if he were retired he would be searching for something useful to do.

If men like Kerslake and Fielding were 10 years younger, the question of whether they still worked in a regular nine-to-five job would be of interest to few. But as they hit 65 they are at the age where many Kiwis start living on the pension.

Most New Zealanders who are eligible for superannuation rely on it to survive. A person living alone receives $340 a week in super. Half of those aged over 65 receive less than $100 a week on top of that from other sources such as investments or part-time work.

For the recipients, that's not much to survive on; for the taxpayer it's an enormous and growing burden that is almost impossible to sustain.

In the pre-election fiscal update last year, superannuation was projected to cost $12.5 billion a year by 2016 - more than the entire government contribution to primary, secondary and tertiary education and 20 times the cost of the unemployment benefit.

So what are we to do?

As a nation, we are already working longer into our so-called golden years. Retirement commissioner Diana Crossan says that because we were one of the first countries in the OECD to eliminate a mandatory retirement age, we have one of the highest proportions of people aged over 65 still working.

For some people, it's for the job satisfaction, for others it's the social stimulation, and in other cases it's for financial reasons. Whatever the driver, it looks likely to become the norm.

And Martin Connolly, professor of geriatric medicine at the University of Auckland, cannot see any reason it shouldn't be seen as normal.

As one of the country's experts in ageing, he says there's absolutely no reason 65 should be the point at which we retire - 65 does not even count as old, he says.

"Thirty years ago, you might possibly call it old. Sixty years ago, definitely - 65 is a completely illogical age for anything."

We are becoming more and more a nation of elderly. In 2051 a quarter of the population - an estimated 1.325 million people - will be aged 65 or more.

That sector of the population is expected to grow nearly four times more quickly than other age groups over the next 15 years.

Meanwhile, the proportion of 15- to 64-year-olds - the productive taxpayers - is forecast to halve by 2060.

Not only will there be more elderly but they will live much longer lives.

Peter Neilson, chief executive of the Investment Savings and Insurance Association, is involved in work on the future of KiwiSaver. He says few people comprehend the dramatic changes in longevity we can expect.

Sixty-five may eventually start to look more like a halfway point than elderly. The Lancet medical journal says half the babies born since 2000 in the world's wealthier countries can expect to see their 100th birthday.

In 1840, the average life expectancy for a New Zealander was about 41 and had not changed for 300 years.

In the modern world, for every 10 years that pass, people can expect to live two years longer. Connolly says: "For every 10 days you live you get an extra weekend."

Maori and Pacific Islanders live on average a decade less than Pakeha New Zealanders but are experiencing gains in life expectancy. Connolly says when he qualified as a doctor in 1980 he saw hardly any patients over 90. Now, the median age on his wards at North Shore Hospital is 86.

Perhaps most remarkable of all, he says, doctors do not really notice much difference in the way people respond to illness until patients are about 80.

Until then, a pensioner can brush away the flu almost as easily as someone in the prime of their life.

While this might be good news for the 75-year-olds among us, all this longevity will cost the country.

Crossan says the super scheme will cost nearly 8 per cent of gross domestic product by 2030, compared with the existing 4 per cent.

The Treasury's briefing document recommends reducing the level of government funding allocated to retirement income, or superannuation, as a key way that the country's long-term fiscal pressures can be addressed.

"Leaving current retirement income settings unchanged would necessitate increases in tax revenue, which would harm growth, or large reductions in other government expenditures, such as health or education," the report says.

Crossan agrees, saying that something has to give.

If the Government is determined to maintain the present pension level and age until 2025, as it has outlined, then she says it must be quietly planning to drop something.

Finance Minister Bill English is adamant that raising the age of eligibility is not on the cards.

"Ministers have made it clear, including during the election campaign, that the Government's policy is to keep existing New Zealand Superannuation entitlements.

"Having made that promise, it will keep to it.

"This has been written into the long-term fiscal forecasts."

Crossan cannot see how that has been done. "Unless he's saying [the money] will be taken from somewhere else. Or they might have the economic growth moving faster than other predictions."

But the money will have to come from somewhere - whether it's cutting education funding, stopping building roads, or closing prisons. Crossan says she can see putting up taxes as a way to keep the age at 65, but it would not be palatable for the public.

It is a worldwide problem. Australia will raise its pension age to 67 in 2050, Britain to 68 the same year and the United States to 67.

Crossan says at this point New Zealand is comparatively well-placed. The country's system is straightforward, simple and administratively cheap.

Some other nations are looking at having to fund increases three times the size New Zealand is facing. Some are facing pension bills of up to 12 per cent of GDP.

Former US President Bill Clinton, in his 1999 State of the Union address, called it a high-class problem.

We have developed a situation where retirement is seen as a right rather than a privilege. The OECD itself says retirement used to be the luxury of a few. "Now it is an expectation for the many.

"The huge increase in life expectancy in the 20th century is a wonderful achievement; however, when added to the decline in the birth rate, the result is rapid population ageing and a rapidly growing cost of paying for pensions."

So, that question again, what can be done?

The Treasury report says: "The fiscal challenge is considerable and there is no way to avoid making trade-offs."

In simple terms, the pension age has to rise.

The report recommends a phase-in period to increase the retirement age, to allow people time to adjust and prepare savings.

Crossan's commission agrees, suggesting a gradual increase in the age of eligibility, a change to the way the pension is indexed to link it to the CPI and a transitional means-tested benefit for people over 65 who will be affected by the change.

Provided those changes are implemented by 2025, the scheme should stay affordable for at least the next 30 years, the commission says.

Even the Labour Party, a longstanding bastion of workers' rights, outlined a policy to raise the eligibility age to 67.

But the phase-in would not be completed till 2033 - and it seemed to some that the policy was a rhetorical indulgence for a party that knew there was little chance of being elected to government and having to keep its promise.

The delayed implementation seems to be a feature of many political proposals to address the problem: push the changes off into the distant future to avoid scaring the horses.

Nielson says people shouldn't worry about anything substantive happening over the next 10 years; no one would have the time to prepare, so it won't happen.

In other words, 55-year-olds are safe. It's the 18- to 30-year-olds who look likely to cop the big change in retirement age. By the time they retire they will have to pay for that luxury themselves - in part through the nascent KiwiSaver scheme.

Nielson would not be drawn yet on what his working group reviewing KiwiSaver will conclude - but he does say one of the key issues is the longevity of KiwiSaver.

The Labour Party would make it compulsory and increase employer contributions. Without such dramatic reform, it may struggle to fly.

The OECD has made this recommendation: "Working longer and private pensions will inevitably have to fill the gap. Taking the long view, a diversified pension system, mixing public and private provision - and pay-as-you-go and pre-funding as sources of finances - is not only the most realistic policy but the best policy."

Connolly suggests anyone struggling with the idea of working past 65 needs a reality check.

"There are mountain runners aged 100," he exclaims.

"The retirement age was just arbitrarily decided by a politician in the 1930s, based on what Britain could afford at the time."

Humans, it appears, may live to a maximum age of about 130, and Connolly says more and more people can expect to reach that.

As for David Kerslake, he has no plans to work for another 60 years - but he does hope more people take the chance to contribute long past the traditional age of retirement.

"I do believe that older people have a lot of experience and knowledge that shouldn't be just thrown away."

- Herald on Sunday

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