22 November 2018
82.2 years is the average life expectancy for a New Zealander according to 2018 World Health Organisation data. Broken down by sex, a New Zealand male born today can expect to live for 80.5 years and a NZ female to an age of 84. Our life expectancy continues to grow. Compare this to 1898, when the pension first started in New Zealand. Then, the average life expectancy for men was 54. Retirement for most lasts much longer than ever before. On the whole we are fitter for longer and many want to continue working beyond the age of 65.
So why is the pension age still the same as it was when first introduced in 1898? The answer is politics. Political parties believe the public won’t support an election policy of raising the superannuation age, no matter how sensible the arguments. History sadly shows this to be true. The result has been a lack of progress on fair and equitable pension policy despite the best efforts of the current and former Retirement Commissioners, Treasury and other advisors.
An ongoing debate however is important and congratulations should go to NZ Initiative Research Fellow Jenesa Jarum for keeping the topic alive. In early December her report ‘Embracing a Super Model’ will be released. Ahead of this Jenesa has published an opinion piece about the future of super.
“In 1898, the first publicly funded pension was introduced in New Zealand.
Back then, those aged over 65 comprised only 1.3 per cent of the population, with the average life expectancy for males being 54.
New Zealand’s demographics have changed quite a bit since then. Those aged over 65 now comprise about 15 per cent of the population. NZ Super covers a greater proportion of the population, and eligibility has widened too”
Jenesa Jarum says the NZ Initiative concludes that the age of eligibility for superannuation should be linked, not to life expectancy but to health expectancy – years lived in good health.
“Linking the pension age to health expectancy gives a more accurate impression of the years people are capable of work, and should see the NZ Super age of eligibility rise from 65.”
Another advocate is Fairfax journalist Rob Stock who has written consistently on the topic and explains “Your health expectation is the age to which you can expect to be reasonably healthy, and free of disability”.
“Rising health expectancy is a human success story. Between 1990 and 2013 male health expectancy went up from 63.3 years to 68.2 years. That’s the better part of five bonus healthy years. Women saw their health expectancy rise from 67.2 years to 70.5. The question the country, and individuals face, is how do we make the economics of all this extra healthy life work?”
A pertinent question. In 2011 there was a very public conversation about the affordability of continuing to pay superannuation to kiwis when they turned 65. A frustrated Diana Crossan, then Retirement Commissioner, was advising government to gradually raise the age (to 67) by two months a year up to 2033. Her successor, Diane Maxwell, has continued to give government similar advice.
Treasury advised in 2011 that the current Superannuation scheme cost around 4% of GDP and was forecasting it to rise to 7.3% by 2035. Officials predicted then that by the mid-2020’s we would either have to increase GST to 19 percent or raise income tax by an average of $30 a week just to continue paying for existing entitlements.
However the political pension yo-yo had begun. John Key had put a stake in the ground saying that the age would not be raised on his watch. His Deputy, Bill English clearly had a different view, but was forced to defend the Key stance. I remember asking English in parliament at the time if he thought the Retirement Commissioner, former and current Treasury Heads and several well respected economists were all wrong in calling for the superannuation age to be raised. His response was that these people “should run for office” if they wanted to have a say. Subsequently. in March 2017 when Prime Minister himself, he announced the age for state superannuation would rise to 67 in gradual steps starting in 20 years time.
Meanwhile, while John Key was saying no, the Labour party decided the age should rise. That changed in 2014 under Andrew Little’s leadership when he declared the party should not go into the 2017 election with raising the superannuation age and introducing a capital gains tax on its slate – a complete u-turn from him. Little told journalists Labour’s policies to raise the age for New Zealand Superannuation from 65 to 67 over time and introduce a capital gains tax were reasons people didn’t vote for the party at the last election and the one before that.
Political expediency has won the debate so far. The current Labour/NZ First government says it can afford the superannuation bill. Even if this is true (and I have serious doubts) Jenesa Jarum rightly points out it’s not just about the money: “raising the age of eligibility should not just be an issue of future affordability. The pension age should be raised regardless, based on a case for efficiency and equity”.
Sadly, knowing what the right thing to do and doing it seem to be two different things in the superannuation dilemma.