Tony Blakely and Alistair Woodward: Why the retirement age must go up

Your chance of living longer and in better health has improved dramatically in the last century, and is likely to keep improving. Photo / Getty Images

Opinion

It's because we're living longer and longer say Tony Blakely and Alistair Woodward.

England and Wales have done it. Australia has done it. The Italians are about to do it. It is time New Zealand also increased the age of entitlement to government superannuation. But it has to be done fairly, by ensuring people who cannot work past the age of 65 receive a benefit equivalent to super.

It is more than 100 years since 65 was set as the age when people were eligible for pensions. Since then life expectancy at birth has increased a whopping 20 to 25 years.

Before World War II, most of this improvement was due to falling infant, child and younger adult mortality. Since the 1960s the expected number of years left to live if you reach the age of 65 has also steadily increased, from 13 years in 1966 to 17 years in 1996 for males, and from 17 to 20 years for females. Death rates at older ages are now falling fast, so life expectancy at age 65 will increase steadily.

But what about your expected level of health and ability to live independently, and work for a few more years? More good news - most studies show that healthy life expectancy has gone up as fast as, if not faster than, total life expectancy. Your chance of living longer and in better health has improved dramatically in the last century, and is likely to keep improving.

The biggest social welfare expenditure in New Zealand is on superannuation - about $7-8 billion dollars a year, or 60 per cent of total benefits. Given population aging and increasing longevity, the super payout will increase sharply, unless we change the rules.

Statistics New Zealand's "period" lifetables for 2006 report that the life expectancy at age 65 is 21 years for non-Maori females, 18 for non-Maori males, and 16 and 14 years for Maori females and males. But this is based on the assumption that death rates observed in 2006 will apply into the future. Actually, between 1956 and 2006 the mortality rate at age 75 reduced by about 1.5 per cent a year, and there is good reason to believe mortality will fall further in the future. If we assume the 1.5 per cent trend continues for the next 20-40 years for men and women in all ethnic groups, the actual life expectancies at age 65 are as shown in the graph.

This is good news if you are about to turn 65! A non-Maori female who turned 65 years of age in 2006 probably had about 30 years of expected life left. Extrapolating out to the future a non-Maori female turning 65 in 2036 will have a good chance of living to 100.

But these improvements bring with them a serious challenge. The age of entitlement to government superannuation simply has to increase if we want to keep super universal, and keep it tied to the average wage. Not lifting the age of entitlement means that New Zealand will shift even more of its benefit spend into the older age groups. There are good reasons to re-balance our social investment across the age span. For instance, rates of child poverty in New Zealand are shamefully high.

The graph also shows inequalities by ethnicity. Maori on turning 65 are likely to enjoy about six fewer years of life than non-Maori. As a society we want to close this gap, and maybe we will see it reduce in the next 20-40 years through faster mortality rate reductions for Maori consistent with what has happened at younger ages in the 20th century. Regardless, there is a sizeable gap now and into the near future. How do we address this gap? One suggestion is to have different ages of entitlement by ethnicity. In our view, introducing different ages of entitlement for different groups in the population would be unworkable. Health inequities must be tackled in other policy.

In order to fairly increase the age of entitlement, there is another change that should be made at the same time - this is making the invalid's benefit, or what National is proposing to call the Supported Living Payment, the same amount as the superannuation benefit. As argued by Gareth Morgan and Susan Guthrie in their book The Big Kahuna, it is bizarre and unjust that we have such profound differences between benefits. The Big Kahuna, a single living wage for every New Zealander, may be some way off, but equalising the superannuation benefit and the invalid's benefit is a sensible starting point. And it would help to settle the concern that disease and disability will prevent some working beyond 65. The Retirement Commissioner has advocated an increase in the age of entitlement if there is also targeted-based-on-ability-to-work early eligibility for super. We are arguing for using the invalid's benefit, and making it the same amount as super.

Lifting the age of entitlement is a no-brainer. It is, simply, recognition of the fact that New Zealanders live longer now and will continue to live longer in the near future. The debate should be on the fairest way of lifting the age without penalising people who are unable to work beyond 65.

CORRECTION:

In the opinion article "Why the retirement age must go up" by Tony Blakely and Alistair Woodward the estimated number of years left to live on turning 65 in particular years were overestimated in text and an accompanying graphic by between six to nine years. However, the argument and conclusions arrived at remain unchanged. The correct figures on turning 65 in specified years are stated in the table below:

2006 2016 2026 2036
Non-Maori female 22.8 24.0 25.3 26.5
Non-Maori male 19.9 21.1 22.4 23.8
Maori female 17.6 19.0 20.4 21.8
Maori male 15.0 16.3 17.7 19.1

Tony Blakely is a Professor in the Department of Public Health, University of Otago, Wellington and Alistair Woodward is a Professor in the School of Population Health at the University of Auckland.