Why wouldn't we expect to work longer as we live longer, asks Andrew Gawith, director of Gareth Morgan Investments.
Last week the Retirement Commissioner recommended increasing the age of eligibility for New Zealand Superannuation, and reducing the rate at which we increase the payments over time.
Prime Minister John Key immediately ruled out any changes to NZ Super. While this sounds like a politician with conviction, it is, in fact, an all too common example of political cowardice that will cost the country, and especially the younger generation, dearly.
Over the next 20 years the cost of NZ Super will rise rapidly. Numbers of retirees sucking at the NZ Super teat will more than double from half a million to 1.3 million. The cost to the rest of us will follow a similar pattern, even if we manage to keep the economy growing, because there will be fewer people around to pay taxes.
At the moment Super takes about four and a half cents in every dollar we earn. By 2050, 8 cents in every dollar will be spent providing a pension to people over 65.
This isn't the only cost hike on the horizon. Healthcare costs will continue to climb - roughly doubling by 2050 as the baby boomers demand all the operations and trimmings that tend to accompany the final few years of life. You can bet they won't go down without a fight.
Meantime the diabetes tsunami will also start hitting in 2020 as our current obsession with eating too much fat, sugar and salt reaches its inevitable and expensive conclusion. The sum total of this is that healthcare and Super bills alone could chew up a quarter of our pay packets.
The last time government spending, including NZ Super, got out of hand (in the early 1990s) a National government was brave enough to announce a phased increase in the age of entitlement to Super - the infamous "Mother of all Budgets".
Do we need to wait for a similar crisis before the Government is jolted into action?
Or is there a party (or politician) with enough courage and skill to argue the case for lifting the age at which we can draw NZ Super?
The Retirement Commission and the Treasury have done the analysis and presented a clear and compelling case for change.
The main argument against change is fairness. The older working-age generation (mostly baby boomers) has been funding NZ Super for much of the last 30 years via taxes, so don't the boomers deserve a comfy retirement too?
This broad social contract is fundamental to sustaining a pay-as-go Super scheme. That doesn't mean that the details must be set in concrete. The world changes and there are sound arguments for some of those changes to be reflected in the criteria that apply to NZ Super.
For instance, when Super was introduced by Robert Muldoon back in 1977 the average life expectancy was 73. It's now 80 and in another generation it could be 85.
Most people would accept that this increase in life expectancy needs to be reflected to some degree in the eligibility rules for NZ Super. It seems unrealistic to keep paying the same amount of tax and yet expect to get a longer period of retirement payments. Why wouldn't we expect to work longer as we live longer?
If Key really is committed to maintaining the retirement age at 65 then he should explain how such a commitment will be funded.
Former Finance Minister Michael Cullen's response to the demographic bulge and increasing life expectancy was to start the NZ Superannuation Fund which has so far delivered a return of around 1 per cent above what an investor could have got investing in the 90-day Treasury bills.
National decided to put this fund on ice in favour of tax cuts to boost economic growth.
A more honest approach might have been to wind up the fund and return the money to, say, people's KiwiSaver accounts (for those that don't have one it might be a much cheaper and more effective incentive to join KiwiSaver than the $1000 kick-start grant). At the very least the Government needs to make it clear that people must take more responsibility for their own retirement income, because Super will have to be pruned if we are to avoid persuading a lot more young people to emigrate because of ever-higher taxes here.
There's pretty good evidence that the elderly enjoy a comfy retirement in New Zealand compared to many other developed countries.
We have the lowest level of poverty amongst the elderly population in the developed world. Sadly, the same cannot be said for poverty in other groups.
According to the Ministry of Social Development, elderly people have the highest living standards of any group in New Zealand.
Who are the worst off? Kids under 18 years, closely followed by young adults.
If we look at those with the lowest living standards, elderly people are the least represented among this group.
NZ Super clearly avoids the elderly being poor in their old age. That's great, but should their relative well-being be preserved by making the working age population and particularly the young relatively worse off?
The Government's stance on NZ Super almost guarantees that outcome.
Our society takes better care of our elderly than we do of our young. The message is the same across health and welfare; young people, particularly young brown boys, miss out. The harsh reality is that spending on young people is a better investment for the nation than spending on old people - where we invest our meagre savings is really important to future economic well being.
Key has locked up on this issue. That opens an opportunity for another political party to initiate a mature debate. Interestingly, a number of European countries haven't even bothered with a debate, they've simply raised the pension age. That will happen here when the young get restless.