Why's everyone talking about the pension age?

Four reports out this week raised questions about how we can afford New Zealand Superannuation in the future.

The Organisation for Economic Co-operation and Development warned New Zealand that it is out of step with most other countries, which are increasing the age of entitlement to state pensions.

A Financial Services report says Kiwis are living two years longer each decade and by mid-century could be alive 30 to 40 years after retirement. This demographic timebomb means tax rates will have to rise by almost a third to pay for our pensions.

A couple of days later, a survey by ANZ Bank discovered that people want at least an extra $100 a week above what New Zealand Super pays out. And an ASB poll revealed that many New Zealanders would have to sell the family home or keep working into old age if they relied solely on KiwiSaver and the pension.

All this came on top of a TV3 poll that showed 63 per cent support for increasing the pension age.

Should we be worried?

Well, other countries are. In the OECD group, 13 nations – including Australia and Britain – have either lifted the age of entitlement or are planning to.

The Paris-based think-tank agreed the combination of NZ Super and private schemes is not enough to provide retirees with a high-enough income.

The Financial Services Council concluded that by 2080 New Zealand Superannuation will cost $24 billion a year – 12 per cent of our national income – if we don't lift the age.

Treasury's figures are more conservative; if there is no change, its officials estimate it will be 8 per cent of GDP by 2050. But that means New Zealand still has to find an extra 3.3 per cent of income to pay for us to retire.

Labour says by June 2016 the pension will cost more than the education budget – and will be nearly 20 times the cost of the unemployment benefit.

Yikes. So what's the Government doing?

Well, nothing, really. National wants to keep the pension age at 65, and argues that projections done by government officials show Super is affordable till 2020 – and says the issue can be tackled then.

Prime Minister John Key and Finance Minister Bill English say their priorities are growing the economy and reducing the costs of long-term welfare dependency, which will address any shortfall. In the Budget they also postponed auto-enrolment in KiwiSaver.

In 2008 Mr Key promised not to tinker with the age of eligibility and has since repeated that pledge. However, National has agreed to look at UnitedFuture's flexi-superannuation proposal – where people could choose whether to take superannuation at a reduced rate when they're 60, or at a higher rate later on.

Isn't this all just politicking?

Yes and no. Labour leader David Shearer says ignoring the issue until 2020 isn't fair, and people need time to organise their finances. But Labour campaigned on raising the pension age to 67 by 2033, and for compulsory KiwiSaver – and lost the election. Mr Shearer has promised not to attack Mr Key if he agrees to a national debate. The Green Party – which wants to keep the age at 65 – says cross-party talks are the only way to solve the problem. The Maori Party says we should look at lowering the age to 60 for groups not expected to live into old age.

Even Winston Peters – who wants to keep the age at 65 – is happy to debate the issue. And it's not just the politicians: two years ago retirement commissioner Diana Crossan recommended a gradual increase in the age of eligibility from 65 to 67, beginning in 2020. She says this will reduce costs from 7.3 per cent of GDP to 5.3 per cent in 2035.

The Business Roundtable (now the New Zealand Initiative) has argued in favour of lifting the age. And the 2025 Taskforce – set up by the Government but then dropped – recommended it be raised.

Critics have said Mr Key is isolated on the issue, but he says: "I am not a man alone; I am a man with over a million people who voted for our policy in 2011."

Why is everyone blaming the baby-boomers?

A large number of those born between 1946 and 1964 will be paid their Super for a long time. Treasury says that by 2015 there will be 60 per cent more old-aged pensioners than children. Between 2010 and 2050 the number of superannuitants will explode from 500,000 to 1.3 million. This silver tsunami means fewer working people paying taxes and funding Super – and also funding the huge healthcare costs of an older population.

What can I do?

The FSC is a savings and investment lobby group, so it's in its interests to encourage us to save more. But it commissioned a poll that revealed 45 per cent were "not really planning for their retirement".

Only 10 per cent believed NZ Super was enough to live on. Asked how much they would like to live on, about 60 per cent picked somewhere between $400 and $600 a week for a single person, or between $550 and $1000 for a couple.

ANZ revealed that to receive an extra $100 a week for 20 years, retirees would need to have saved $83,000, rising to $249,000 to receive $300 a week.

The OECD says private pension coverage must be extended. But it also warns of the risk: such pension funds have struggled to make worthwhile returns because of the global financial meltdown.

There is also the option of moving to Australia – the FSC points out that new graduates could double their retirement income by moving across the Tasman.

What about making the pension system fairer?

Super is cherished as a universal benefit: New Zealand is the only OECD country that doesn't have some form of means testing. But some argue it is too generous and should be only for those who need it.

The amount people get paid could also be reduced – currently the rate cannot fall below 65 per cent of the average wage. Some have floated linking the scheme to the CPI – this would maintain the buying power of the pension, but not increase it to keep up with wages. There was a backlash when Jenny Shipley's National Government tried to do this.

- © Fairfax NZ News