More on super costs
June 2nd, 2009 at 6:17 pm by David FarrarAt midday I blogged about the hysterical nonsense claims that a suspension of contributions to the Super Fund would endanger future superannuation. In fact at worse it means that future taxpayers will pay 92% of future superannuation, instead of 89% – a mere 3% difference.
Now to show how trivial this difference is, look at this answer in the House today:
Peseta Sam Lotu-Iiga: If the Government were to make no contributions to the fund for another 11 years, how would the future cost of pensions compare with that expected when the fund was established?
Hon BILL ENGLISH: Whether there are contributions to the fund, and for how many years they are made, has no effect on the future cost of pensions compared with what was expected. When the fund was established back in 2000, the Government did projections that showed that by 2021 the total cost of New Zealand superannuation plus contributions would be 6.75 percent of GDP. Today’s projections available on Treasury’s website show that the total cost is now 5.43 percent of GDP in 2021. Maintaining New Zealand superannuation has actually become more sustainable because of changes in assumptions relating to demographics and rates of return.
So the cost of future superannuation as a percentage of GDP has dropped in relative terms by 19%. And this suspension of contributions increases the future tax burden by just 3% or so.
Yes one can make a but of a difference around the margins by pre-funding through a Super Fund. But the overall sustainability will be decided by economic growth, and demographics.
Related posts:
- Dom Post editorial on Super
- Some Super Facts
- The NZ Super Fund
- Absolute hypocrisy from Labour over NZ Super Fund
June 2nd, 2009 at 6:28 pm
“Hon BILL ENGLISHSince the fund was set up, it has averaged an annual return of 3.65 percent, which is less than the return one could get over that time from putting the money in the bank.”
And also less than the cost of government borrowing. I’d like to see how labour and its sheep defend the idea of borrowing to fund it now. I personally have a considerable amount of money on term deposit at 7% pa, due to mature in 2013. I think that makes me, as a individual, a more effect saver than the labour government, and yet the government will continue to save on my behalf to fund my pension…. Why can’t I opt again?
Vote:June 2nd, 2009 at 7:12 pm
The Super is super. It’s going to take you dooooooooooown!
Vote:June 2nd, 2009 at 8:20 pm
5 percent of GDP isn’t a big deal. It certainly isn’t going to break the bank, as long as governments control other spending. In the last 100 years we’ve gone from a position where there were about 15 working people supporting every retired person to a ratio of 3:1 or so. Moving to a ratio of 2:1 won’t be a problem anyway at 5% of GDP. And certainly not with any sort of reasonable economic growth.
If we managed a modest 4% growth, the size of the economy will double in by 2026. We’d wonder what the fuss over superannuation was all about. Some giant Ponzi borrowed-money-for-nothing scheme isn’t going to matter either way.
Vote:June 2nd, 2009 at 9:38 pm
“And also less than the cost of government borrowing. I’d like to see how labour and its sheep defend the idea of borrowing to fund it now.”
That 3.65% includes one of the most massive decreases in stock market values. Since that’s unlikely to happen, and arguably this means that stocks are now cheap, making that case is a lot easier than you’d think.
BTW: I don’t promote this myself necessarily as just because the market is low doesn’t mean it’s going to go up. It might stay at this level for a long time. All I’m saying is that Labour could quite happily make that case.
But I noticed that they were talking about all these 30 and 40 year olds who’ll be in trouble… um and what about their 25+ years of kiwisaver contributions?
Vote:June 2nd, 2009 at 10:01 pm
Economic growth isn’t going to help because NZ super is index linked to wages. When the economy grows, the cost of super grows too.
Vote:June 2nd, 2009 at 10:23 pm
That ‘mere 3% difference’, how many hip operations would it finance or how many courses of herceptin?
Funny how a couple of hundred million here or there was really important when that other lot were in power but now that National are busy flushing away our super its just a ‘mere 3% difference’.
[DPF: The 3% has not been flushed away you idiot. The 3% is a projection for 2050. And the savings on debt may be greater than that 3%]
Vote:June 2nd, 2009 at 10:30 pm
DPF, take a look at the latest article at “the standard”. They have pulled a quote from your latest article right out of context and are trying to say that you agree that borrowing to invest is a good idea.
[DPF: That reflects more on them than me.]
Vote:June 2nd, 2009 at 11:21 pm
Farrar said
“So the cost of future superannuation as a percentage of GDP has dropped in relative terms by 19%. And this suspension of contributions increases the future tax burden by just 3% or so.
Yes one can make a but of a difference around the margins by pre-funding through a Super Fund. But the overall sustainability will be decided by economic growth, and demographics.”
Oh come on, you mean some treasury wonks tweaked some model variables around economic growth and demographics i.e. they boosted GDP growth and increased the retirement age to make the total cost of super = 5.45%
Granted, the assumptions around the super fund contributions were probably too optimistic and a 3% delta is actually just noise.
Vote:June 3rd, 2009 at 12:08 am
Would that be caused by the higher birth rates of the last few years I wonder?
Maybe we should thank all those DPB mums after all
Vote:June 3rd, 2009 at 12:31 am
More likely to adjusting treasuries negative growth projections upwards a few pips post 2011
Vote:June 3rd, 2009 at 7:15 am
I agree with the post, but I think quoting treasury long term forecasts using 3 significant figures is quite humorous
Vote:June 3rd, 2009 at 8:13 am
a mere 3% difference. Thats still a ton of money that the taxpayers have to pick up. Taxes have been raised!
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