Choosing to defer pension for more later would reduce growing cost.

On Tuesday, right on my 63rd birthday, a press release from the retirement policy and research centre at the University of Auckland announced that New Zealand now has one of the developed world's highest proportion of people over 65 in paid work.

At last year's Census, about 130,000 over-65s were still working. More than half of them were doing at least 30 hours a week and 40 per cent were doing 40 hours or more. This is very good news because it means most of them do not need the national superannuation they are also receiving.

The number of pensioners in paid work has risen by 12 per cent since the 2006 Census and the latest count has caught only the first two years of the baby boom's retirement. As those born in the 20 years between the end of the war and the arrival of the pill steadily pass the age of 65, that number's going to rocket, along with their life expectancy.

We can already expect to live well into our 80s thanks to medical advances that are adding to the costs our children's generation will face for our pensions, but none of that needs to be said again. This time I have a proposition.

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Since so many of us want to work well past the age of 65, paying income tax the Treasury did not expect, it should be possible to offer an incentive to defer national super for up to five years with savings for the public purse.

This is one of few developed countries not raising its pension age and the reason is not very good. John Key made a solemn promise when coming to power six years ago that the terms of national super would not change for as long as he was Prime Minister.

On the strength of his third election he could be in power for another six years. That is a long time to do nothing about a generally recognised problem. If nothing is done until after 2020, fully half of the demographic wave will have passed pension age.

Our high and rising rate of workforce participation post-65 enables Key to lighten the load on future taxpayers without breaking his promise. Everybody would retain the same entitlement to national super at age 65 if they want it. But if they chose to defer it they could be given an entitlement to a higher rate for the rest of their life.

There could be a graduated rate between the ages of 65 and 70. The additional amounts could be a proportion of the savings to taxpayers from the years of pension they have not had to pay, or maybe the rate could be a return of all income tax paid by the earner since the age of 65, measured over the population's life expectancy at the age they claim it.

The post-65 increment would be an individualised rate of superannuation, a personal fund like KiwiSaver, and it would mean the taxpayers' entire saving of up to five years of the standard pension could be left in the public purse.

What could be wrong with this? An optional rate of super seems preferable to an increase in the age of entitlement for everyone to 67 as recommended by the Retirement Commissioner. Some people need to retire on a pension at 65. Those in physically demanding jobs probably need an option to retire even earlier but Peter Dunne's proposal to let them do so at a lower rate has not won favour.

Critics of Dunne's scheme do not like the idea of people accepting a lower rate of pension for the rest of their life. That objection could not be made of an incentive to defer the pension. The standard rate, which Dunne's critics consider essential, would remain.

With a decent incentive to delay national superannuation I suspect we would see far more people working past 65 than the Census trend already suggests. If the incentive was weighted to age 70, that might quickly become the new generally recognised "retirement age".

I ran this idea past Michael Littlewood at the retirement policy and research centre and he didn't much like it. Using the individual's tax to pay the extra pension would be too difficult to monitor, he thought, "and changes the nature of New Zealand Superannuation". It would be less equal. Some superannuitants would receive more in their 70s and 80s.

But retirement incomes already vary greatly when private savings are taken into account and the elderly don't appear to mind. The state will contribute to that inequality when KiwiSaver accounts kick in.

Littlewood likes the right to work on national super as "a nice mix", letting people make a gradual transition from full-time work. Our generation has had it nice all along. The kids deserve a break.