From an economic perspective, national superannuation is an unaffordable welfare benefit paid to the nation’s wealthiest age demographics with no means testing, forecast to increase in cost by about a billion dollars a year in perpetuity: a lavish fiscal catastrophe.
But from a political viewpoint, few people over the age of 50 regard superannuation as a benefit. Instead it’s a pension scheme they’ve paid into their entire working lives, via their taxes. They’ve made profound financial decisions based on the state’s commitment to provide for them in retirement, and any attempt to renege on that commitment would be a violation of the social contract, punishable by the annihilation of that government by millions of vengeful voters. Unfortunately, both of these perspectives are valid, leaving politicians with a looming disaster they cannot avoid but cannot solve.
The origins of the problem are the stuff of political legend. In 1975, Roger Douglas implemented a compulsory retirement savings scheme. Just months later, Robert Muldoon won the election by campaigning on the premise that Douglas was a communist, and killed his policy. He replaced it with universal super from age 60, depriving the country of an estimated $800 billion in foregone investment savings from the Douglas model, leaving us instead with a looming fiscal crisis.
The sheer unaffordability of Muldoon’s scheme was always obvious, and its prospects grew worse as life expectancies rose and births declined: the long-term trend was an economy in which a smaller number of workers paid tax to finance a large population of retirees.
Over the 1990s, the Bolger government incrementally shifted the age of eligibility to 65.
Flip-flop on savings
In 2001, Helen Clark and Michael Cullen established the New Zealand Superannuation Fund to help meet the cost, and in 2007 they introduced KiwiSaver, an attenuated version of Douglas’s original scheme. Australia had introduced compulsory savings in the early 90s and it was supercharging their economy; Cullen wanted to do the same here.
But John Key’s government suspended payments into the super fund in its first Budget and spent most of its term in office chipping away at KiwiSaver.
Our savings culture remains a shadow of Australia’s. Key pledged to resign rather than make any changes to superannuation, and this promise was repeated by his eventual successor and spiritual heir, Jacinda Ardern. Both leaders prioritised popularity and the crafting and polishing of their personal brands over addressing the long-term fiscal and economic challenges facing the nation.
There are lessons in all of this: beware politicians promising generous welfare schemes that make no financial sense; stop elevating charismatic cynics to the heights of political power.
Tentative moves
National’s current policy is to raise the super eligibility age to 67 … in 2044, bravely committing some hypothetical future government to implement their change for them. Winston Peters’ policy is “not on my watch”.
It’s hard to imagine National forming a government without New Zealand First, which is either level with, or ahead of Act in recent polls, so even this hilariously spineless solution is off the table.
Labour’s policy is to keep it at 65. Te Pāti Māori’s policy is to lower the retirement age for Māori by 7-10 years to reflect lower life expectancies, inviting a fraught conversation about health demographics (should men retire earlier than women? Should Asian New Zealanders who enjoy longer life expectancies work longer to make up for it?).
So it’s simpler for Chris Hipkins to take the entire conversation off the table. But it means that every year, his choice for finance minister, Barbara Edmonds, will have to find that extra billion dollars, either by raising taxes, cutting spending somewhere else or borrowing. Of course they’ll borrow, at least until bond markets grow sceptical about the long-term viability of an economy consisting of retirees playing golf while their grandchildren flee the country en masse.
Economic madness
What about means testing? From an economic perspective, paying 66% of the average salary to wealthy people who don’t need it is madness.
But politically, the public hates means-testing. It punishes people for saving and working past the age of eligibility – not such a problem in Australia, which claws back payments over certain income and asset thresholds. Across the Tasman, retiring with $1 million is not uncommon. Over here, the average KiwiSaver account contains about $40,000.
Means testing also requires a bureaucracy to test those means (which may sound attractive to Labour: it could be repurposed for a wealth or capital gains tax). No party currently supports a means test, but every year we drift on without a solution brings us closer to drastic measures introduced in a crisis: some desperate combination of age increases, means testing and cutting the base rate.
In 1930, John Maynard Keynes published an essay called Economic Possibilities for our Grandchildren, which looked forward 100 years to 2030 and predicted that the wealth-creating powers of technological capitalism would make future generations so rich we’d only have to work three hours a day. Our real problem would be deciding what to do with all our free time.
We’re five years away and his prophecy has proved both true and false. We are just as rich as he predicted, but the only life of leisure that approximates his utopia is a retirement funded by national superannuation. It should have remained affordable, with the age threshold lowering still further as our economy grew.
Instead, it’s in danger of collapsing before our eyes – like a sinkhole beneath a bowling green – because we’ve consistently failed to get the politics right.
