Tax rates will have to rise by almost a third if the retirement age is to stay at 65, a new report has warned.
About half of those born last year will live to 100, the Financial Services Council predicts. And if the eligible age for the NZ Super pension stays where it is, the costs will blow out to 12 per cent of the national income by 2080.
Pressure is building on the Government to address the looming pension crisis. But Prime Minister John Key pledged to resign rather than go back on a commitment not to tinker with the current age of eligibility.
Financial Services Council chief executive Peter Neilson yesterday warned the country faced more people in retirement and a smaller proportion of the population working. Within seven years pensions in Australia would rise to more than 2.5 times what the NZ Super pays out – prompting more young people to cross the ditch and exacerbating the problem, he said. The burden of maintaining NZ Super access at 65 might become "unacceptable" to future taxpayers – and savings might be more efficient for funding retirement income.
"Longevity is increasing and therefore we've got a problem of paying for the current regime," Mr Neilson said.
"Those retiring in the 2050s are already in work and they'll still be drawing the pension at 2080. If you want them to make decisions about what to do over the rest of their lives, we have got to start talking about this now."
Research conducted by the savings and investment lobby group has found Kiwis are living two years longer each decade – and by mid-century could be alive 30 to 40 years after retirement. A large number of "baby boomers" (born 1946-1971) will also reach pension age over the next 20 years.
A public debate was needed on whether the current NZ Super and KiwiSaver schemes were sufficient, he said. The council's study showed 10 per cent believed NZ Super would allow them to live comfortably in old age.
A third admitted they were not saving enough for retirement – and 80 per cent worried their nest egg would run out before they died. "It looks as though savings ... will provide better pensions for less cost than doing it purely by taxation," Mr Neilson said.
The Treasury estimates the cost of NZ Super will rise to about 8 per cent of GDP by 2050.
Mr Key made his pledge before the global economy went into crisis. But despite estimates the cost of superannuation will rise to more than $12 billion within four years, National has continued to rule out lifting the age.
Mr Key said recently he was confident it was affordable at least through to 2020 without shifting the age of entitlement.
The council will release its report next week.
- Fairfax Media