retirement superannuation pension

Retirement age: fiddling with the system won’t work

Bill English’s announcement on raising the retirement age is fiddling with the system — delaying action until far into the future, and achieving little other than political signalling. It relies on untested assumptions that the system is unaffordable and that we need to do something.

Instead, we need a vision for our superannuation system and how it can best serve our needs into the future.

National’s main rationale for increasing the age of eligibility is that the current system is unaffordable as the numbers of older people rise. This is apparently justified by projections showing that the costs of superannuation would rise to 7.1% of GDP by 2060 (from 4.1% now). It is worth noting that this is still less than the OECD current average of 7.3%.

The Government’s proposal is to increase the age of eligibility from 65 to 67 years old, phased in from 2037 to 2040, and to lengthen the qualifying residency period for immigrants from 10 to 20 years. These changes would reduce the costs by 0.6%. That’s apparently affordable, whereas 6.5% of GDP by 2040 apparently isn’t.

Some context on GDP

We will live in a different society in 2040. The Government’s own predictions are that economic growth in New Zealand will be around 2.5% each year for the long term. So, our GDP will be around 76% higher by 2040 (ie. 2.5% growth for 23 years). Putting aside the fact that GDP is a deeply flawed measure of income and affordability, looking at it in these terms puts the 0.6% into context. On the raw numbers, could we afford it? Of course we could. An extra 0.6% is easy to afford when national income is 76% higher.

The real issue is who captures this future growth. Going back 23 years to 1993, most of the economic benefits since then have gone to a small proportion of the population, as New Zealand has gone from one of the most equal societies in the world to one of the most unequal. We can afford our current superannuation so long as we don’t continue with the policies that have driven inequality over the past two decades.

But this National Government clearly has little interest in greater equality.

Our system of universal superannuation looks unaffordable if you spend all of the future growth on further tax cuts for the wealthy. This government has already started talking up another round of tax cuts. That’s on top of their decision in 2010 to cut taxes for high-income earners, instead of contributing to the future via the NZ Superannuation Fund or investing in the health and wellbeing of our kids. This shows where their priorities lie. Put simply, talking about the affordability of superannuation disguises the real issues of inequality in our society.retirement superannuation

Future societal changes

The other issue about projecting change so far into the future is that it ignores the important changes that will happen in our society by then. The nature of work is changing at a rapid rate, driven by disruptive innovation, automation, and robotics amongst other changes. Climate change will also drive changes to jobs and the economy. The innovations that we are already seeing in moving towards a more circular economy, using fewer resources and less energy and producing less waste, are the tip of the iceberg. Work will be profoundly different in 2040.

Trends suggest that we should not rely on the assumption that there are full-time jobs available at decent wages for all the working age population. We will need to find ways to support a decent standard of living for those of working age in society. The current welfare system is broken, with too many holes in the safety net, punitive approaches to getting people into work and high costs. We should instead be investigating ways to extend our system of universal superannuation. Rather than fiddling with our system of universal benefits for the elderly, we need to think more broadly about our systems of taxation and income, with a view to extending it to others in society. The highest priority is sufficient income for our children. It is a travesty that so many kids are growing up in poverty.

New Zealand’s superannuation system is unique in the world at having virtually wiped out poverty amongst older people, supported by a high rate of home ownership. Reducing its effectiveness is the wrong answer, particularly with the dramatic fall in rates of home ownership and rising costs for rent as property prices have become unaffordable.

Already the impacts of cuts in health spending are creating major problems in the aged care system, as shown in the inquiry the Green Party is undertaking with Labour and Grey Power. The current superannuation system will not look so super in 2040 and many more people enter retirement without savings in the form of their own home.

Let’s look through a different lens

Instead of reducing the age of eligibility, we should look at how the benefits of superannuation are distributed. The affordability of NZ Super looks very different when the top tax rate has been reduced to 33%, as at present, instead of 66% for the top tax bracket in 1982-86. In those days, two-thirds of the NZ Super payment to the rich came back in taxes. Now only one-third does. These changes have meant that more of the benefits from superannuation have gone to those who need it the least.

There are other issues. Flexibility is needed to cater for very different working lives. Those doing hard manual labour may need to retire before 65, while increasingly there are others who are happy to work on into their eighties.

Women enter retirement with far fewer savings than men due to the injustice of lower pay for their work. And some groups within our society benefit far less because their life expectancy is far lower. Māori can expect a full four years less of benefits than non-Māori.

Greater flexibility in the system would allow for more choice in the ways that superannuation meets the differing needs of our ageing population. A broader look at the overall system is needed, instead of fiddling with a small increase in the age of eligibility.

But instead of an informed discussion about our future needs, the superannuation debate has been dominated by a narrow view of affordability, using a framework of austerity rather than priorities.

Generational unfairness

Far more useful have been the voices that have identified the deep inter-generational injustices.

I am part of the baby boom generation, and I think it is deeply unjust the way that we have lived beyond our means, and loaded debts onto the generations that follow. Not only are the post-baby boom generations saddled with student debts and having to pay for their kids’ education, they can’t afford to buy their own home, they have the future costs of climate change and environmental degradation to pay for, and they have had to pay for our retirement costs. It is no coincidence that the Super changes start in 2037, just after the baby boomers have qualified. This Government and its predecessors have loaded massive costs onto subsequent generations and are now denying them the opportunity to be paid superannuation at 65 years old.

While the inter-generational injustices are real, so are the intra-generational injustices. The problem isn’t that most of our generation has got rich off the back of future generations; it’s that a few have. Most New Zealanders are working hard. They work longer hours that any almost any other OECD country, and yet most are struggling to make ends meet. They aren’t the people who gained the benefits from this unsustainable system. I was the head of Oxfam New Zealand when we released the glaring statistics showing that 85 rich men had more wealth than half the world’s population. On a New Zealand scale, two billionaires are wealthier than 1.4 million New Zealanders. The economic system is oriented to benefit the few, at the expense of most of the population.

Where we stand

The government is playing politics with this superannuation “announcement”. There’s a pattern. If there is public concern over an issue, announce minor changes that take place far into the future and don’t require any action now, and carry on with business as usual. Hopefully, the public is now waking up to this dribble tactic. It didn’t work with the fiasco over the Government’s announcement on clean rivers and it shouldn’t work on superannuation.

The Green Party stands behind universal superannuation kicking in at 65 years old. And we are committed to ensuring that there is an effective and accountable health system that supports aged care. Beyond these foundations, we need a discussion about greater flexibility to meet people’s needs as they age, about reform of our welfare system and start to deal with the changing nature of work. The context for future changes must be to achieve greater equality and a transition to sustainability. These are the issues that we need to be addressing now, as part of a coherent vision for the future.

For More:
  • Participate in our survey: what do you think of National’s Superannuation changes?
  • Read Julie Anne Genter’s blog
  • Read Denise Roche’s blog