Retirement Age Unsustainable at 65

First published on 5 August 2011

The Retirement Commissioner Diana Crossan says it frequently, former Treasury head John Whitehead and current Treasury secretary Gabriel Makhlouf advised government it is so and well known economists Gareth Morgan and Bernard Hickey and others have also joined the chorus in recent weeks – New Zealand cannot afford to continue paying superannuation to kiwis when they turn 65. All believe the retirement age must gradually rise to 67.

ACT believe this too, but unfortunately no other political party will touch this hot potato in election year, or any time soon it would seem. Yet the fair thing to do is start a transition period now so that those it affects soon won’t be disadvantaged and younger kiwis can start preparing now.

New Zealand’s Superannuation scheme currently costs around 4% of GDP. This is relatively low for a western country but it is forecast to rise to 7.3% by 2035, and money to fund this has to come from somewhere. In 1950 the life expectancy of a pensioner was just 67.2 for men and 71.3 for women, meaning on average pensioners were only expected to live for around five years on superannuation. Today the age of eligibility remains the same, yet life expectancy for men is now 78 and women 82.

In fact it is clear from a wide range of experts that a retirement age of 65 is unsustainable. Treasury predicts that by the mid-2020’s NZ would have to either increase GST to 19 percent or raise income tax by an average of $30 a week just to continue paying for existing entitlements. Faced with such dire numbers the least parliament – both government and opposition – could do is consider advice on the matter. This is an important issue for our nation and economy and one that require cross-party support and decisions that won’t be tampered with by subsequent governments.

At present everyone receives National Super at age 65 whether they continue to work or not.

The Retirement Commissioner is required to examine the government’s retirement income policy every three years. Commissioner Diana Crossan lashed out at the government’s rejection of her review findings that the age of eligibility be gradually increased to 67 by two months a year up to 2033. She pointed out that politicians burying their head in the sand would not solve this looming problem. “It’s crucial that we make changes now, so that today’s 45 year olds and younger Kiwis are able to receive New Zealand Super in the future. Why wait until we have to raise the age suddenly in 10 years time? We can’t keep ignoring this issue” Crossan said, and she is absolutely right.

The 2025 Taskforce in their most recent report also commented on the issue saying that “New Zealand should lift the age of eligibility for New Zealand Superannuation beyond 65, as Australia, the UK and the US and other countries are doing, and also draw a clear link between life expectancy improvements and future increase in the eligibility age”.
I asked Finance Minister Bill English in Parliament yesterday whether former Treasury Secretary John Whitehead, Retirement Commissioner Diana Crossan and commentators Bernard Hickey and Gareth Morgan are all wrong in calling for the retirement age to be raised – as is being done by Labour in Australia. His answer was simply that these people “should run for office” if they wanted to have more say on the retirement age.

The Government pays experts like Mr Whitehead and Ms Crossan to give free and frank advice. It is unacceptable for Mr English to tell them to “run for office” merely because his government does not want to hear the home truths they are quite rightly telling him.
Internationally, New Zealand is totally out of kilter with how other nations are responding to ever increasing life expectancy. Australia will slowly lift the age of eligibility by 6 months every two years from 2017 so it reaches 67 in 2023, meaning everyone has time to prepare for the change.

The UK will slowly lift their age to 68 by 2046 and the US will lift theirs to 67 by 2022.
Prime Minister John Key has repeatedly stated he will resign rather than put the age up. All demographic figures suggest that raising the age is inevitable and the very worst that the Government can do is delay the inevitable and leave the problem for future generations to deal with. ACT believes that it would be far more caring for the Government to give retirees time to plan for their future by raising the age over a long transition period than it is to take the John Key “not on my watch” approach that we are left with at the moment.