Rising New Zealand Superannuation costs put pension age and means testing back in focus. Photo / 123rf
In 2017, I wrote an (admittedly quite provocative) open letter to Baby Boomers, following an election policy by National to raise the age of entitlement to the old-age pension to 67.
It wasn’t enough, I posited, and the intergenerational inequities would eventually result in an exodus of young people, leaving
retirees to watch their grandkids grow up online.
Tom Scott inked a cartoon suggesting pensioners would happily give me a ride to the airport (which I’d actually love a copy of to put on my wall).
My beef wasn’t really with Boomers at all, of course, but with the lily-livered politicians who continued to treat New Zealand Superannuation like a sacred cow.
As it turned out, that policy went nowhere, because Winston Peters anointed Dame Jacinda Ardern Prime Minister later that year, and as the patron saint of older people, a coalition with him in it was obviously never going to touch NZ Super.
Instead, almost 10 years later, we’re debating superannuation again. But now it costs almost a billion dollars a fortnight, close to $25 billion this year, and growing at about $1.5b each year.
Is that affordable? Well sure, but only at the expense of almost everything else.
National’s recent KiwiSaver proposals have reignited debate about whether it will again campaign on raising the pension age. Nicola Willis hasn’t confirmed the policy but says “we are going to have to do something”. History suggests they’d pick raising the age over means-testing. Act has previously had a similar preference.
Labour’s Chris Hipkins, meanwhile, has ruled out superannuation changes – period – raising the age of entitlement or means-testing. That makes him ideologically aligned with – you guessed it – Peters.
The longer it takes for everyone to acknowledge that it must change, the harsher it will need to be when it – inevitably – changes.
So, how should it change?
The Retirement Commission has previously said: “Income-testing is a fairer way to reduce expenditure on NZ Super compared to raising the age of eligibility.”
Maintaining universal entitlement but raising the age means those whose bodies have worn out by 65 pay the price. Māori and Pasifika people, who have shorter life expectancies, will be disproportionately affected. Consigning a physically struggling 65-year-old to a benefit – which is considerably less than the pension – to give wealthy New Zealanders money they don’t need is Robin Hood in reverse.
“People really hate hearing this,” economist Shamubeel Eaqub told me recently on The Prosperity Project podcast, “that New Zealand Super is welfare. It is welfare.”
I had to laugh when David Seymour sort of accidentally agreed with that at the recent Act Party conference. He railed against the Government paying “nearly $25 billion for people to stay home ... if we want people to work, we need to stop paying them not to work”.
He almost certainly didn’t mean we should be sending 85-year-olds with artificial hips and knees back to work, but the only government payment that’s nearly $25b is superannuation. (Plus, sending pensioners back to work wouldn’t actually change that figure – because it’s not means tested).
But wouldn’t means-testing be hard? Rubbish, Eaqub says – we means-test every other benefit.
If I were out of work, I would be eligible for the Jobseeker benefit only if my partner earned less than about $1000 a week (gross), because it’s means-tested.
Once a family of four earn more than $96,000 they’re not eligible for a community services card, because it’s means-tested.
Working for Families? Means-tested. Disability allowance? Means-tested. Accommodation supplement? Means-tested. Best Start payment? Means-tested.
That leaves NZ Super in a category of one.
Not only is means testing fairer, but it appears to have the potential to save more.
Using some rough numbers, raising the age could save about $3b once fully phased in. But that’s a gross figure – it ignores what the Government currently gets back in tax, and the fact that some 65- and 66-year-olds may instead have to be on another type of benefit.
Whereas if we assume that, once fully phased in, means testing might result in 40% of people eventually not being eligible for any level of pension – which is roughly what it is in Australia – then we’d save $10b (based on this year’s $25b bill).
Of course, Australia’s system is imperfect and designing a fair means-testing regime would be fiendishly difficult. But I can’t help but think of what $10b would do for a country that has a $200b infrastructure deficit, and people dying in hospital waiting rooms.
The attitude to change from retirees has often been that they’ve worked hard all their lives and they deserve it. Absolutely, and they’ll continue to get it – they have earned that certainty.
But – respectfully – their gigantic voting bloc shouldn’t get the right of veto. Not only will they be unaffected because any meaningful changes would be phased in over decades, but they are also not the ones primarily footing the bill. We have a pay-as-you-go system that is becoming structurally unaffordable. The ratio of retirees to those of working age in the 1960s was about 1:7; it is currently about 1:4, and it’s on track to get to 1:2 by 2065.
I suspect we’re reaching a tipping point. The public knows this is unsustainable. They can see how tight the Government’s Budget is, how large the debt pile is, how few options are available for funding healthcare and infrastructure and education. They can see it doesn’t make sense to give a benefit to someone who does not need it, at the expense of a public who cannot afford it.
But they also fear what changes might mean for them – and fair enough.
That’s why some rational debate would be so welcome. Because changes would not and could not be brought in overnight. People need 30 years to prepare for retirement, Eaqub suggests.
We cannot build an economically prosperous society when we’re on track to have only two working people for every retiree on a full pension. We cannot expect today’s young people to stick around if we don’t show them how we’re going to fix that.
Maybe the answer isn’t means-testing – but please, politicians, have the political courage to show us what is.
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