Retirement Commissioner Diana Crossan could be excused for feeling a little deflated by the Government's response to her suggestions to help pay for New Zealand Superannuation and KiwiSaver. Finance Minister Michael Cullen did not mince words. "We are opposed to raising the age of superannuation entitlement, cutting superannuation rates or cutting KiwiSaver entitlements," he said. National Party leader John Key also ruled out raising the age of entitlement. So much of what Ms Crossan suggested has been ruled out of bounds. Further, the Government seemed to imply this was not an issue of great moment or concern. In that, it was wrong. The potential difficulties identified by the commissioner demand public and political attention.
At the heart of Ms Crossan's review is the belief that current planning probably underestimates how long people will live. If so, the cost of superannuation will be higher than envisaged. Her preferred option for dealing with this is to raise the age of eligibility by one or two years. This, she says, would not affect current superannuitants, and would fit likely trends in life expectancy and the increasing number of older people working.
The commissioner lists other options, including some form of income targeting, lengthening the residency qualification period, reducing the superannuation rate and the KiwiSaver incentives, or raising taxes.
All these she finds less palatable than the lifting of the eligibility age to 66 or 67. That, she notes, has been the preferred course in countries such as Germany. It has the same ageing population as New Zealand but has had to confront the problem earlier because its scheme is far more generous and is financed from a payroll tax.
New Zealand's framework is far more straightforward, and Dr Cullen has worked assiduously to develop the Superannuation Fund and KiwiSaver. But that does not necessarily make it immune to accelerating demographic woes. If, as the Finance Minister insists, lifting the age of eligibility or cutting superannuation rates or KiwiSaver entitlements are not tenable, other options might have to be considered. Lengthening the residency qualification period does not appeal as a way of making a significant impact, and raising taxes would not only be ill-advised but suicidal politically.
That leaves a form of income targeting, an option rather skated over by the Retirement Commissioner, who notes only that it, with longer residency qualification, would be at odds with a universal entitlement. Maybe so, but a form of targeting has appeal, if only because many people receiving superannuation have much higher incomes than most of the taxpayers providing it. The Todd task force recommended means testing, or some other form of targeting, and nothing has changed to negate that.
Means testing would be totally transparent, unlike the despised surcharge. At present, it is applied to almost all benefits. Nonetheless, politicians continue to run scared, not least because of the difficulty of setting the superannuation eligibility threshold at a universally acceptable level. It seems the Retirement Commissioner has recognised this resistance in making only a passing mention. In effect, she has placed means testing in similar territory to a capital gains tax.
That tool, however, has won increasing currency as housing affordability woes have deepened. The onset of similar sustainability issues in superannuation, as envisaged by Ms Crossan, should bring means testing more to the fore. People may begin to ponder if superannuation should be paid only to those who need it, or if other options are preferable. Either way, this is a debate New Zealand needs to have.