Editorial: Time to face up to looming pension crisis

Opinion

Eighteen months ago, Retirement Commissioner Diana Crossan was given short shrift when she suggested raising the age of superannuation entitlement by one or two years. The Government of the day rejected the idea, as did the National Party leader, John Key.

Yet even then, Ms Crossan could argue cogently that this was the most sensible response to planners' underestimation of how long people would live and the consequent rise in the cost of superannuation. Now, with a forecast decade of deficits and the suspension of Cullen Fund contributions until 2020-21, her reasoning becomes ever more relevant.

The Prime Minister is continuing to insist there is no need to look at raising the entitlement age to, say, 67, and says that superannuation will not be cut. He is far from reassuring. Indeed, his stance bears the hallmarks of a politician happy to postpone a difficult and unpopular solution to a looming problem.

The contributions holiday means, effectively, that the baby-boomer generation will unburden itself of a significant part of the future cost of its own superannuation. That load will fall on a generation fewer in number and grappling with its own priorities.

It is sometimes claimed that the voting clout of the baby-boomers will enable them to dictate a generous superannuation regime. That could be so, but it overlooks the compelling need for intergenerational fairness. This demands the boomers accept a way to lessen the superannuation load.

The foundation of the problem is the parlous economic state implicit in a decade of deficits, and the Government could help there by taking tough decisions on eligibility for the likes of Working for Families grants for the wealthy, free early childhood care and interest-free student loans. So far, it has sidestepped these.

Barring an unexpectedly strong revival of the global economy, it seems inevitable that the cost of superannuation will have to be addressed specifically. There are four main options: raising taxes, reducing the rate of superannuation, some form of means testing, or lifting the age of entitlement.

The first two are politically untenable. Means testing, or some other form of targeting, was recommended by the Todd task force but this is an area of universality where any government would fear to tread. The political fallout from the 1985 superannuation surcharge still carries a vivid message, especially when placed alongside the baby-boomers' electoral bulk. Equally, means testing would be inequitable, given the tax model already applied to private retirement savings.

That leaves the age of entitlement. Raising this to 67 is not a move that should be welcomed. Indeed, those in manual work, especially, will be justifiably annoyed. But it is, as Ms Crossan suggested, the most realistic option.

It is already the preferred course in countries such as Germany - which has had to confront the problem earlier because its scheme is more generous - and, most recently, Australia. It is also the most politically palatable. People have become accustomed to the twists and turns of superannuation policy. Many would probably receive an entitlement setback with a resigned shrug.

Some may even welcome the opportunity to work longer. Encouraged by the marked rise in life expectancy over the past 20 years, an increasing number are already doing this. It could even be that future practice makes any rise in the age of entitlement fairly much a non-event.

Nonetheless, New Zealanders need to be discussing and debating the superannuation options. The Government, for its part, should be seeking to gauge their preference, not placing its head in the sand.