Another report by the Retirement Commissioner containing another warning about the need to address the rapidly rising costs of superannuation has been greeted by yet another government statement saying it foresees no problem.
At a first glance, it seems nothing is changing. But that disregards the cumulative impact of the commissioner's triennial reviews and long-term projections by the Treasury, as well as thoughtful contributions from the likes of the Financial Services Council and former Reserve Bank Governor Don Brash. Polls indicate a majority of people now believe the Government should be discussing raising the age of entitlement to New Zealand Superannuation. That represents a triumph for common sense and persistence and a reward for keeping the issue before the public.
With the widespread acceptance of the need to raise the age of eligibility to keep NZ Superannuation fair and affordable, the major outstanding question is how quickly this should be done. Former commissioner Diana Crossan believed the age should be lifted from 65 to 67 in annual steps from 2020. It would not reach 67 until 2033, a timetable that suggested a lack of urgency in terms of the demographic bubble.
Unsurprisingly, the new commissioner, Diane Maxwell, traverses the same territory, concluding that the age of eligibility should be linked to lengthening life spans. That would see it rise to 66 by 2036 and 67 by 2046. This age adjustment is also open to question given the daunting nature of the superannuation figures.
AdvertisementAdvertise with NZME.
The latest review does, however, seek to address that issue by suggesting a new way to make this schedule affordable. It suggests super payments, which are now indexed to wage growth, should be tied to the average change of the Consumer Price Index and after-tax earnings. This would save $1.5 billion a year, in addition to the similar sum achieved from the lifting of the age of eligibility. That saving reflects the fact that wage growth is increasing faster than the cost of living, as measured by the CPI.
The simplest response might be to place superannuation in the same camp as benefits by tying it to the CPI. But the review says that index is not a totally accurate measure of the true cost of living. Using it, it says, would risk driving more people into poverty. Therefore, it opts for the hybrid model, subject to some of the savings from this being used to maintain the real living standards of older people. There is, the review concedes, a political risk that governments would not apply this money to the areas of greatest need.
It would be foolish to underestimate that danger. Every government has its own priorities. Some may be striving to pay off debt; others may be eager to tap into any source of funding for their pet projects. The issue of trust suggests, in itself, that this new indexing proposal, however well-intentioned, will struggle to gain popular acceptance. The savings required to ensure superannuation remains affordable - its cost will reach 7.9 per cent of gross domestic product by 2060, up from a current 4 per cent - will have to come from elsewhere.
Therefore, it is back to the age of eligibility. The Government continues to duck the issue, perhaps believing such a move would be akin to political suicide. But the age of eligibility was raised by five years in gradual steps through the 1990s.
There was no massive outcry. A further lift is now widely accepted as necessary. Today's "old" people will not be affected; this is not an issue for Grey Power or the old dogs of New Zealand First - but for young Baby Boomers and Generation X.