Hive News Tuesday: Retirement Commissioner reopens debate on NZ Super sustainability

Getting cash from an atm. Copyright Lynn Grieveson / Hive News

It's back.

The debate over whether New Zealand Superannuation is sustainable in the long run has been simmering under the lid of John Key's threat to resign if it was ever changed, but Retirement Commissioner Diane Maxwell sought over the weekend to bring it back out into the open in an interview with Lisa Owen on The Nation.

Speaking ahead of the Commissioner's statutorily-required once-in-every-three years review of retirement income policies, Maxwell said the Commission for Financial Capability would be releasing seven videos with the report in attempt to foster the debate with the broader public.

She said New Zealand Superannuation was not sustainable in the long term without some changes. She proposed raising the age of eligibility for the still-universal New Zealand Superannuation by three months a year over a 10 year period until it reached 67.

"We’re looking at three scenarios. One of them would impact people who are 55 today. You’d raise it three months a year over a period of 10 years, so it’s a slower change than the last time it went up," Maxwell said.

This proposal for an extension of the age of eligibility would be simpler than the one proposed in Maxwell's 2013 review, which was for link to life expectancy so that New Zealand Superannuation would be paid for at least 32% of the proportion of the average age lifespan over 20. See page 37-40 of the 2013 report for the proposal, which the Government did not progress or accept.

Elsewhere, Maxwell also stepped into the increasingly topical area of how soon new residents can receive New Zealand Superannuation.

The Government cited the health and pension costs involved of abandoned parents of new migrants in its decision to suspend applications by parents for permanent residency earlier this month. Permanent residents are eligible for full New Zealand Superannuation after 10 years of residency.

Maxwell pointed out New Zealand's 10 years made it an outlier compared with the OECD average of 26 years.

"We would look at extending that out, and we’re costing out if we extended it to 25 years," she said.

Maxwell said she would like a cross-Government agreement on changes needed to make New Zealand Superannuation sustainable.

"It comes down to what the voter thinks. I’m hoping to change the voter’s mind," she said when asked about Key's refusal to consider change.

"If I can change the voter’s mind, I can change his mind, because that’s the point."

Maxwell also called for the resumption of contributions to the New Zealand Superannuation Fund and an end to taxation of the fund. She also suggested the NZ$1,000 KiwiSaver kickstart be reinstated for first-time employees.
Government un-moved

Paul Goldsmith immediately reiterated the Government's non-change position in an interview with Lisa Owen shortly after Maxwell's comments.

"I don't agree with her assessment that the current regime is unsustainable. I don't think the facts back that up. If you look at what the Treasury says, we basically spend about 5% of GDP at the moment looking after our older citizens, and that's absolutely right," Goldsmith said.

"They should have a decent standard of living and comfort when they're old. The projections are that by 2045, so 30 years from now, that will have increased to 7% of GDP. Now, the world's not going to come to an end. We can afford that and it's important that we do," he said.

However, to accommodate that increase from 5% to 7%, he said the Government would have to continue to have to suppress Government spending in other areas, as it had done over recent years.

"Let's just remember that in the last six years, this government has taken total government spending from nearly 35% of GDP down to just under 30% now. So we've managed to drop government spending by 5% of GDP in six years without closing things down. We've actually continued to invest heavily in social programmes," he said.

But immediately after Goldsmith's interview The Nation broadcast a piece looking at problems in the mental health system that some ascribed to under-funding, and calls by many for a review of public spending in the sector.

Essentially, New Zealand Superannuation is only sustainable if public spending in health, education, social development and justice continues to lag population and GDP growth. That is possible for a few years before the effects start to 'squirt out the sides' in problems with delivery and the quality of service.

The various controversies over the last year around funding for Education, Police, Justice and Housing illustrate that issue. See more here on the outlook for New Zealand Superannuation costs and funding via the NZ Super Fund here.
Twitpic of the day:

Atul Gawande: My favorite Ohio campaign sighting during my trip home.

Have a great day. Parliament is not sitting this week and John Key is away in India, so the news flow from central Government and Wellington this week will be light. Look out below for my Weekend Column on Auckland infrastructure funding.

cheers

Bernard