The perpetual problem of superannuation sustainability

OPINION: Twenty years ago, as a shadow minister, I was wrestling with the sustainability of national superannuation. The Rogernomics revolution had run out of steam. The economy was listless in the wake of the 1987 crash. A generation of angry superannuitants was on the warpath, enraged by the duplicity of a surcharge that was designed to claw back superannuation as a universal entitlement.

The Rogernomics  revolution had run out of steam. The  economy was listless in the wake of the  1987 crash.

A generation of angry  superannuitants was on the warpath,  enraged by the duplicity of a surcharge  that was designed to claw back  superannuation as a universal entitlement.

My job was somehow to honour a political promise to scrap the surcharge and simultaneously keep faith with future generations of taxpayers. While most of my colleagues were content to win the elderly's votes, a smaller band felt that we had to level with younger voters about the nature of the promises we were making about their retirement income.

My solution was direct, not artful. We promised a universal pension funded from taxes, the value of which would be adjusted to compensate only for inflation. In other words, while 1990's crop of retirees would receive a pension linked directly to the living standards they were enjoying as they reached 60 (as it was then), those retiring in 2010 would only "enjoy" the spending power of a 1990 pension.

The gap between the two living standards would need to be bridged through savings invested in a growing economy.

The idea was that the balance between relying on future taxpayers for retirement and relying on savings would very gradually shift more in favour of the latter. It all seemed so simple: the further away from retirement you were, the bigger the gap between future living standards and the level of the pension. But the younger you were, the more time you had to adjust.

To those who cried foul and alleged a plot to see state pension levels drop without limit, I replied that I could not bind the hand of future governments or guarantee unknown future living standards. I said I thought it highly likely that a new linkage to wages or "floor" would be established. But there was general agreement that linking a universal payment to 80 per cent of the average wage from 60 years of age was unsustainable over time.

Uncoupling pensions from wages appealed to me as providing an honest basis for asserting to my own generation that we would have to earn our right to better retirement incomes, not just assume that future taxpayers would look after us.

On our election in 1990, the policy went straight out the window. It was, I freely admit, a flawed policy. Raising the age of entitlement - which we did - made better sense. But I remain firmly attached to the idea that politicians should be absolutely candid about what they can and cannot guarantee and resolutely resist the temptation to claim they have "solved" or "put to bed" long-running issues that will depend on events over which they have no control.

LOOKING back, I seem to have specialised in failed attempts to make frank disclosures about the limits of political action.

My core health services debate on what health services could reasonably be provided with the limited resources available tackled the other big, long-term fiscal risk. It was hastily conceived and conducted in the worst possible environment - a full-blown fiscal crisis. But again, I think the questions we tried to raise were legitimate ones.

Increasing life expectancy coupled with a tsunami of technological innovations mean the opportunities to divert national income to healthcare and the further prolongation of life are almost limitless. Is it - and was it ever - defensible to give warm assurances about healthcare without disclosing the complex queuing and rationing mechanisms that are applied around the clock?

I am firmly of the view that the avoidance of poverty in retirement and reasonably equal access to good healthcare are legitimate goals of social policy. But we will only be able to afford the retirement income and healthcare we earn from taxes and dividends extracted from a productive economy.

If life has two certainties - death and taxes - then superannuation and health policies are deeply implicated in both. Previous fiscal crises have stirred deeply ideological responses to debates about affordability. The scars are still visible with politicians unwilling to talk openly about the tensions between demography, life expectancy and economic productivity. It is easier to bet on growth than talk about gradual but significant adjustments.

New fiscal pressures are building. We can either head them off or park them. I think it's a pity John Key felt constrained to rule out any increase in the age of retirement. It is the most sensible way of easing the pressures that will build over the next 30 years. He did so to eliminate outlandish and ideological claims from his opponents. But the manoeuvre will only delay a debate that cannot be avoided. Will the Opposition start it or trap itself in turn?

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