Opinion - Raising the age for superannuation entitlement needs to happen, but the proposed changes are too little, too late, and cynically arranged, writes Shamubeel Eaqub.
The Prime Minister has proposed raising the entitlement age from 65 to 67, in six-month increments from 2037 to 2040.
The willingness to engage in fixing the superannuation scheme is welcome and positive.
But the super changes are so little and so distant, that it is pathetic. It will also mean baby boomers will have all graduated into the super scheme without being affected by it at all.
This is not to deny the savings from the changes. The increased entitlement age will reduce spending on super by around 8 to 9 percent a year.
The savings relative to not changing the age will be around $2.5 billion in 2040, rising to $4.4 billion in 2060, all in today's prices (excluding the effect of inflation).
The timing of the introduction of the superannuation entitlement age seems cynical, or at least politically convenient. The population of 65-year-olds will peak in 2036.
Once the bulge of the boomer generation is already over 65, then the entitlement age will increase.
So, Generation X will experience the transition and all millennials will face the higher age.
This is demographic politics in action.
Changes I wanted to see
There is now admission that the superannuation scheme is not sustainable, and there are some real choices that could be made that would fix that.
A sample of ideas in no particular order are:
- 1. Means-tested rather than universal: Because there are many older people who are wealthy and do not need it. While many will feel entitled to super, in reality we haven't paid enough taxes to fund these entitlements. A related but separate idea is to make payments for children universal, as that is an investment in the future of New Zealand and universality makes much more sense in that setting.
- 2. Entitlement age a fixed portion of life expectancy: Because life expectancy keeps rising. Someone who is 65 now can expect to live for another 19 years (on average), compared to 22.5 years in 2040 and nearly 25 years in 2060.
- 3. Alternative welfare for those who can't work in old age: Because some people, particularly those in physical jobs, cannot work into old age. Welfare payments would need to be comparable to super.
Other changes announced
Migrants will need to be in New Zealand longer to access superannuation - there will be a feeling among many that those who have spent less time in New Zealand should not be entitled to the benefits of those who have lived here all their lives.
It will particularly please anti-migrant New Zealand First supporters - and seems a political decision, rather than one based on evidence.
The situation is complex. Tax money tends to be spent on the young (mainly health, education and welfare) and old (mainly health and superannuation), while those in the prime working age provide the tax revenue.
But a middle-aged skilled migrant has not drawn on the tax payer when they were young. They will contribute taxes but did not draw on the taxpayers and bring in human capital.
Most studies find that migrants are net fiscal contributors, that is, they pay more into the government than they take out.
So, the eligibility criteria needs to carefully weigh evidence to ensure migrants contribute fairly.
The other change, or non-change, is to the age that KiwiSaver can be accessed: it will remain at 65. Super and KiwiSaver will diverge in their age of entitlement.
That is not necessarily a bad thing, as the two are very different, but a lack of coherence in age-related policy may just make things confusing without any additional benefits.
Then again, savers may be relieved to be able to access their money.
The cost of ageing and leadership
Ageing will massively increase our health and superannuation costs, unless we make changes in eligibility by age, wealth or some other mix.
We have to have a conversation about entitlements and which promises can be kept, and which cannot. We have to talk about what is the social pact that New Zealand stands for.
Raising the superannuation age is a tiny step in the right direction.
We are beginning to have some of the much needed conversations for our country and for our future generations.
Now it is time for our political leaders to actually show leadership and lay out an agenda for intergenerational equity and prosperity.
* Shamubeel Eaqub is an economist and partner at Sense Partners, a boutique economic consultancy.