Editorial: Labour takes a bold step on retirement

Opinion

Having already grasped the nettle of a capital gains tax, the Labour Party has gone out on another limb by announcing it would lift the age of eligibility for superannuation to 67.

The risk inherent in this is obvious, especially with voters who are approaching retirement age. But that only makes it the more commendable.

For too long, the sustainability of NZ Superannuation has been sidestepped by politicians, not least the Prime Minister.

Now, Labour's retirement and savings policy means a much-needed debate on the age of eligibility and other options, such as means testing, will finally take place.

Several years ago, John Key said he would rather resign than raise the qualifying age above 65.

Labour has, until now, been only slightly less adamant. Its change of mind undoubtedly reflects a belief that the Prime Minister's remark looks increasingly ill-judged.

Even before economic gloom set in, Retirement Commissioner Diana Crossan was pointing out looming problems in superannuation's affordability because the lifespan of an ageing population had been underestimated.

The budgetary woes arising from the recession and the suspension of Cullen Fund contributions have served only to strengthen her case.

As much seems to be acknowledged by an increasing number of people. In a Herald-DigiPoll survey in May, 52.3 per cent of respondents believed the Government should be discussing raising the superannuation age.

Labour must have taken heart from this. Its policy is in line with Ms Crossan's recommendation that the age should be raised by two months a year from 2020, reaching 67 by 2033. Unfortunately, that is flawed because the increase would culminate as those born in 1966 reached the new eligibility age. The baby-boomer bubble will have passed its peak.

On the basis of demographics, any lifting of the qualifying age needs to happen before then. Equally, a decision needs to be made quickly, so people can plan for their retirement. Germany has acted and so has Australia, which will raise its age progressively until it is is 67 by 2023. Labour's policy would be much improved if it demonstrated a similar urgency.

The other main plank of its policy is compulsory KiwiSaver. In an ideal world, this would not be necessary. But the recession has revealed a serious shortcoming in the scheme. The subsidies and tax breaks designed to make it attractive are having to be financed by borrowing.

In such circumstances, and to create sustainability, it makes sense to move to compulsion and do away with the incentives. Oddly, however, Labour is sticking with carrots, such as a modified kick-start payment, even though compulsion would render them redundant.

An argument against this approach is that it is unfair for people who have made other retirement arrangements. For that and philosophical reasons, the National Party is less assertive. It plans to give employees not in KiwiSaver "a bit of a shove" by automatically enrolling them. But that would not happen until the Government's books return to surplus.

National's policy would mop up the pool of employees who have not changed jobs since KiwiSaver was introduced. But it hardly appeals as an approach that will greatly impress Standard & Poor's and Fitch, which downgraded New Zealand's credit rating on concerns about its reliance on foreign savings.

All in all, Labour's policy represents a bold response to changed economic circumstance. It confronts difficult issues that need to be addressed. For that, it should at least score points on the grounds of principle, if, not necessarily, popularity.