Editorial: Super fiction cannot continue
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Last week's suspension of contributions to the Cullen superannuation fund has made one unpalatable fact painfully clear. The age of eligibility for national superannuation is going to rise.
That is not what the Government says. Both Prime Minister John Key and Finance Minister Bill English say NZ Super will continue to be paid at a minimum of 66 per cent of the average wage from the age of 65.
But that is a fiction that it suits both the Government and existing superannuitants to maintain; the Government because it does not want to break its pre-election promise not to tamper with super, and retirees because it is not in their interests for it to become too apparent that they are enjoying a higher level of entitlement than those funding their pensions will get.
The reason the scheme will have to change is that there is a $31 billion hole in the government accounts. That is the hole that will be created over the next decade as a result of the Government's decision to "temporarily" halt contributions to the fund established by former finance minister Michael Cullen to partially pre-fund the superannuation costs of baby boomers.
Stopping contributions to the fund was the right thing to do. Despite the protestations of Labour, it makes no sense to borrow money to speculate on the world's sharemarkets. Doubters should consider the performance of the fund since it was established in 2003 with the objective of exceeding the risk-free rate of return the interest rate on Treasury bills by 2.5 per cent. Its annualised rate of return is 3.26 per cent about half the Treasury rate and, in the year to April, the fund suffered losses of almost 30 per cent, more than double the average losses of retail managed funds.
Sure, the world is in the midst of the worst economic downturn since the Great Depression; sure, markets will eventually bounce back; but there is no certainty about which ones or when.
Politicians who think they can read economic portents are free to play the markets, but they should use their own money. What is required of the Government is an honest reappraisal of the economic predicament New Zealand finds itself in thanks to the international economic crisis.
If working-age New Zealanders want the same superannuation entitlements as their parents and grandparents, they should make collective provision for them. As things currently stand, they or their political leaders have chosen not to do so. Despite a dramatic deterioration in the state of the books, the Government has decided to keep spending on health, education and welfare at a similar rate to that of its predecessor.
That is sensible, given that the economic crisis is, it is to be hoped, only temporary. But having failed to make adequate provision for its own future, it is not reasonable for this generation of taxpayers to pass the bill to future generations. It is also not credible to expect that those generations will pay it, especially when many of them will be burdened with student debts that their forebears did not have.
At some point, a government will have no choice but to raise the age of eligibility, as has occurred in Australia and Britain. The sooner the change is made, the more evenly the pain will be spread.
- © Fairfax NZ News
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I cannot think of any recent issue about which there are so many mixed messages.
On National Radio this morning we had one expert telling us, "we should all shut-up and see what happens". I do not think we need to be reminded about that - the disengagement, or general apathy, is alarming; particularly amongst the "Y" generation. There are so many lovely young people, but the so-called hippies of the 60's would leave them for dead as far as interest and activism about their futures are concerned.
Other experts said the discussion was good and that it should take place, but each thought the public was misinformed in one way or another and there was a lot of disagreement amongst themselves.
Jeff Todd said the NZ National Superannuation scheme was one of the best in the world and was quite sustainable, but that did not mean there would not be changes to the rates and the age of eligibility.
I thought that maintaining the rate and the age of eligibility (66 at 65) was the issue that everyone was concerned about? What does Jeff Todd regard as the laudable features of the scheme?
Someone stated categorically that New Zealand's savings record was quite adequate, and yet we are always hearing from many quarters that our savings record is poor.
They all did appear to agree that wholesale borrowing by the government in order to maintain contributions to the NZ Superannuation Fund was a bad idea, but on the same grounds did not maintain that it was inadvisable for taxpayers who had debt, or would be incurring debt, to be contributing to KiwiSaver - or that it was imprudent that the Government should be taxing them and appropriating this taxation revenue to encourage and enhance KiwiSaver accounts.
I think this inter-generational disparity route is a dangerous one for us to tread. The editor states,
"..... and retirees because it is not in their interests for it to become too apparent that they are enjoying a higher level of entitlement than those funding their pensions will get."
Forgetting about those who actually went to war, but comparing the "asset value" of the country at the time of the war with its present day "asset value", the present-day retirees added a lot of value to this country and on average will leave a lot behind for posterity compared to the position from which they had to start. It might be due to the fact that the present "X" and "Y" generations have not had to start from such a low base as have the wartime and baby boomer generations that explains the apparent apathy of the former.
An academic, Tim Hazeldine and Gareth Morgan say disband the Super Fund, but Johnathan Eriksen said,
"the concept of merging the Super Fund and KiwiSaver was a naive, simplistic viewpoint of the world".
Today's Dominion Post also quotes Eriksen as saying,
"To say scrap the Super Fund is absurd .... If you take the fund away, the risk is - when you retire - you might not get the same level of super as I hope to get in a few years time when I retire".
That is fine if Johnathon Erickson does retire in a few years, but my first question is, if there is something which has to go,
"If Johnathon Erickson chooses to carry on working from the date of his 65th birthday, why should he recieve full National Superannuation when this is essentially a welfare benefit?"
I would say let him keep his savings and investment income without taxation abatement because I am in the camp who think New Zealanders are not saving enough, and that there should not be any disincentive towards generating this class of income, but an abatement regime should apply to employment/business income.
The public needs a lot more information and there should be a lot more debate, and hopefully those whom it really concerns will start participating.
As well as raising the age of eligilibility for super they also need to introduce means testing so that people who don't need super don't get it.
As a young working New Zealander I dread the day when the voting majority consists of those aged 65+. just imagine the power organisations like grey power and parties like NZ First will have! The non-working population will be able to control where the taxes of the working population will be spent (and you can bet it won't go towards education etc). Instead we will have free healthcare, transport etc for over 65s while the rest of us are saddled with tax rates on the wrong side of 50%. The result? - byebye NZ from our best and brightest!
As an aside, if the eligibility age for super goes up then it will for KiwiSaver too (as they are linked). Is that fair for those who joined on the expectation that they could access their money when they turned 65?
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Phil(#1) has a good point about the age for accessing KiwiSaver.
Private superannuation schemes, in general, still recognise age 60 as being the age of retirement.
When does a senior citizen become a senior citizen?
The age should not waft around due to an arbitrarily determined age for eligibility to National Superannuation - that will most likely be determined by political and economic factors.
A young person should have the hope and choice of a known period of "retirement years", and saving and providing for these years have been a strong motivating factor to a very large group of people.
What we actually choose to do when the day arrives might be different from our concept as a younger person in the workforce.
BUT WE SHOULD HAVE THE CHOICE.