Peter Dunne deserves credit for suggesting an incentive to take state superannuation later in life. His proposal - a varied rate depending on the age at which the entitlement is taken - could solve a number of problems, not least the need for earlier retirement from heavy physical work.
Mr Dunne suggests a pension below the present rate of superannuation could be made available from age 60 for those who wish to retire before they are 65. They would then receive the reduced rate for the rest of their life. On the other side of the ledger, people who decided not to pick up the pension until they are 67 or perhaps 70, would receive a higher rate.
The obvious objection is that it would widen inequality in old age, but it would be a personal choice. Some people would find early retirement more attractive than the higher rate, others would prefer to work longer. Health might be a factor in the decision as well as the difficulty and personal enjoyment of the job.
There is nothing wrong with designing a benefit that can respond to different circumstances.
Another objection is that it does not reduce the overall cost of superannuation to taxpayers and might well increase it. But that would depend upon the rates the Government is prepared to set. It might not require more than a small incentive to induce most people to work to 67 or even 70. Many happily do so already, pocketing the pension from age 65 as well.
The age of entitlement is being raised in developed countries not just to reduce the burden of an ageing population on fewer taxpayers, but also to reflect increasing longevity. With advances in healthcare most people now are quite able to work well past 65 and commonly live into their 80s. A higher superannuation age makes sense.
The only reason New Zealand has no increase under consideration is John Key's regrettable promise of five years ago not to raise the age of entitlement. Mr Dunne's suggestion offers him a way out and offers the country a better policy than it can have by keeping the Prime Minister to his word. The Government has agreed to study Mr Dunne's proposal, though Mr Key sounds too anxious to remind us the proposal would not reduce superannuation's cost to taxpayers.
Well, that depends on him. If the incentive was offered from age 67 the savings of two years might not outweigh the cost, but an incentive offered at age 70 might well work to the taxpayers' advantage. Five years of superannuation would be a significant saving, and those who decide to work an extra five years would be paying income tax into the bargain. The savings and revenue could outweigh the additional payment to them from their 70s.
The harder budgeting task might arise in the arrangements Mr Dunne suggests for earlier retirement. Nobody would want to see those who take the pension at age 60 having to live on a rate far below the standard rate once they pass 65. Yet the cost of paying a pension close to the standard rate from age 60 is fiscally prohibitive. It may be that the present welfare entitlement is the best the country can do for anyone unable to continue a strenuous job to age 65.
But we need to recognise that most people pass the age of 65 today still fit, active and able to travel the world. They are the baby boom generation that has enjoyed generous state benefits in childhood, tertiary education and lower taxation in recent years.
As they retire their numbers present an increasing problem for their children's taxation. They should not need too big an incentive to support themselves for another few years.