As much as the Government tries to brush aside concerns about the rapidly-rising cost of superannuation, the issue keeps bouncing back. The latest catalyst is a report by the Financial Services Council that suggests young New Zealanders will have access to universal superannuation only if they pay substantially higher taxes or accept a smaller pension. This was seized on by Labour leader David Shearer, who repeated his call for "genuine cross-party talks and a nationwide discussion" on superannuation affordability. Act leader John Banks was more specific, saying the problem should be solved by increasing the age of super eligibility by two months a year, every year, until it reaches 67.
The resumed focus is welcome. It is untenable for the Government to maintain there is no problem when the superannuation figures are so daunting. This financial year, it will cost $9.6 billion, or 4 per cent of gross domestic product. As the population ages, the Treasury estimates, this cost will climb, reaching 8 per cent of GDP by 2050. Viewed from another, equally alarming, perspective, there are now about five workers supporting one retiree. By the late 2020s, this ratio will drop to three workers, and by 2050, only 2.5 people will be working to support each retiree.
The Financial Services Council says that to retain the current form of superannuation, tax rates would have to rise 28 per cent to pay for the growing number of retirees. The alternative, it says, is to cut entitlements, which would force people to increase their personal savings. Neither of those options is politically palatable. That means any move to address the affordability issue is far more likely to involve one of two other alternatives - means testing, as recommended by the Todd taskforce, or lifting the age of entitlement from 65 to 67.
Means testing has some appeal because many of those receiving superannuation are better off than those paying taxes. But the fallout from the 1985 super surcharge still carries a powerful message. Any form of targeting would be politically dangerous for any government. That leaves raising the age of eligibility as the most realistic option. Far more people would be receptive to this if the problem was explained effectively. The age of eligibility was raised by five years in gradual steps through the 1990s. It could be done again, judging by the result of a 3News-Reid Research poll that found 63 per cent of respondents believed the age should be lifted to 66 or 67 from 2020, or even earlier.
Previous attempts to detail how such a change would occur, notably by the Retirement Commissioner and Labour, have been marred by a lack of urgency. Under their scenario, the eligibility age would not start rising until 2020 and would not reach 67 until 2033, effectively when the demographic bubble passes its peak. Mr Banks' proposal would be a major improvement because the age of eligibility would reach 67 in 12 years. This approach has become necessary because of the Prime Minister's head-in-the-sand inaction and the effect of the global recession.
New Zealand would not be out of step in pursuing this course. A third of the 27 countries that the International Monetary Fund ranks as advanced, including Australia, Britain and the United States, are raising the age of entitlement.
John Key says this is "not a priority", but they clearly see matters in a different light. Above all, they have acknowledged a matter of intergenerational fairness. Young New Zealanders should have security for their retirement.
If the age of eligibility is not raised as a matter of some urgency, more abrupt and more unpalatable steps will have to be taken one day for the sake of the economy we expect to support us.