'Not really such a great idea" is senior actuary Geoff Rashbrooke's verdict on Peter Dunne's Flexi-Super proposal.

Flexi-Super would allow people to start drawing New Zealand Superannuation at any age between 60 and 70 instead of the current 65, receiving a smaller or larger weekly sum as the case may be.

Rashbrooke, a senior associate at Victoria University's institute for governance and policy studies, is a former Government Actuary responsible for the regulation of retirement savings schemes and in a recent paper he argues that the proposal is fundamentally at odds with the nature of NZ Super.

Moreover the "illustrative" increases in the Government's discussion document for people who opted to defer their super are far too high, he says, so much so as to undermine the usefulness of submissions in support of the scheme which rely on them.


Rashbrooke challenges the claim that the proposals would just give people choice, arguing that those who might see early uptake as attractive are not likely to have much choice in any meaningful sense of the word.

And he questions the wisdom of introducing risky changes into a scheme the cost of which is already under pressure as the population ages.

Before exploring his arguments, some statistics might illuminate the debate.

People over 65 are carrying on working in increasing numbers.

Last week's household labour force survey found 125,000 people over 65 are still employed and the labour force participation rate for the age group is 21 per cent. Ten years ago it was 41,000 and the participation rate was just over 9 per cent.

Dunne says that Flexi-Super is the only proposal currently on offer which seeks to address the problem of the "burned out and the worn out". A survey of working life that Statistics New Zealand did last year found 8.2 per cent of workers aged 55 to 64 said they always or often had physical problems or pain because of work, but that is not much higher than the 7.2 per cent of all employed people who said they did.

Older workers seem to be less stressed than their workmates. The same survey found the proportion of workers over 65 reporting they never or hardly ever found work stressful is far higher than among the employed as a whole - 64 per cent as against 41 per cent for all employed.

Of those aged 55 or over one in five expressed a preference to work fewer hours.

Dunne says Flexi-Super "is about individual choice and empowerment. The implication which I reject utterly seems to be that older New Zealanders or those nearing retirement cannot be trusted to, or worse still even allowed to, make independent decisions for themselves about their futures".

Rashbrooke says: "People who arrive at age 60 with no prospect of finding work, or indeed unable to work having been in arduous occupations and worn out ... will not really have options, but will feel compelled to exercise early uptake in the absence of any other resource."

You could reasonably argue, he says, that they deserve some better support than they get now.

"But attempting to provide this by rearranging super provisions is not giving meaningful choice. And it means abrogating our current policy of ensuring those over a certain age have enough to live on in order to participate in society at least to some extent."

Behind the idea that one can choose the age at which super begins is the notion that it is an individual entitlement or property right, a pot of money if you will, Rashbrooke says.

"This is unambiguously wrong. The object of New Zealand Super is to ensure all residents above a certain age, currently 65, have sufficient income to be able to participate in society, at least to a certain minimum acceptable extent."

It is a concept founded on egalitarian solidarity and fundamentally different from those pension systems where pension entitlements differ based on individual contributions.

He goes on to point out the technical difficulties of calculating how to stretch or compress the flow of super payments on an actuarially fair basis.

A key decision in estimating the net present value of any future flow of payments is what discount rate to choose.

In this case it has to be a rate, net of tax, that allows for indexation of New Zealand Super, currently the greater of wage inflation or consumer price inflation. Estimating that over a long period, say 30 years, is a dodgy business.

The British, Rashbrooke notes, have recently revised their deferment provisions downwards as a result of the previous rates having been set in a higher interest rate environment. "In this instance those in the UK who deferred before the revision have been advantaged." Another key call would be whether to take a one-size-fits-all approach to longevity or allow for the fact that it varies with gender and socio-economic status, and has tended to increase over time.

There is also the question of whether the relativities should be adjusted for any tax advantage in deferral.

Varying these parameters Rashbrooke estimates that someone taking up super at age 60 could get anything from 69.1 to 80.2 per cent of the age 65 rate.

For someone deferring to age 70 it could be 120.2 to 153.3 per cent of the age 65 rate. The high end of the range assumes a man of low socio-economic status defers super until age 70 and that the most favourable discount rate applies.

By contrast the distinctly perfunctory discussion of this in the Government's discussion paper just offers as an "illustrative example" a 10 per cent increase for each year after 65 and a 6 per cent decrease for every year before age 65.

"However, the 160 per cent proposed in the discussion paper for deferral to age 70 appears much too generous and it is unclear how this figure could have been arrived at," Rashbrooke says.

"Were the discussion paper to have put forward the 125 per cent that analysis here suggests, or even a tax-favoured 130 per cent, say, it seems likely that enthusiasm would be considerably muted."

Another difficulty with Flexi-Super is what insurers call adverse selection: "When people can make a voluntary choice on an option priced on an average, then choice will give rise to a bias against whoever is making the offer."

He concludes that Flexi-Super would do nothing for the poor and be of use only to those in robust good health with sufficient private means that they can allocate part of it to increase their state pensions, to be underwritten by all taxpayers.