Kiwiblog

The Daily Mail reports:

Pensioners’ taxes should increase, their benefits be cut, and a tax on property wealth should be introduced in order to share the pain of austerity with today’s hard-up workers, a think-tank said today. 

The income gap between pensioners and workers has shrunk massively in the last few decades, so taxes should be raised on those in retirement, the Fabian Society said.

Middle-income working households enjoyed an income 93 per cent above that of middle-income retired households when Margaret Thatcher came to power in 1979, but that figure is now 37 per cent.

I don’t think we should raise taxes on the elderly, but I do think NZ Superannuation should be means tested and linked to the rate of inflation rather than the average wage. Otherwise the gap between it another benefits will continue to grow significantly.

‘Old age is no longer a proxy for poverty’, the Fabian Society said. ‘In public policy and deficit reduction measures, ministers should adopt a presumption of equality across age groups.

‘In financial terms alone, older people are no longer distinct, and blanket policies favouring them should be reviewed.’

I agree.

Vernon Small reports:

The architect of KiwiSaver, former finance minister Sir Michael Cullen, is proposing a revamp of the scheme to help cut the long-term costs of superannuation to the Government.

Under his plan KiwiSaver would be made compulsory in 2016 and contributions would rise to 4 per cent for employees and 4 per cent for employers, followed by further increases to 6 per cent or 8 per cent for employers.

But half of a saver’s nest egg would have to be used to buy an annuity.

If that provided an income lower than the current superannuation formula, the state would top it up to the guaranteed retirement income.

“In effect this means that for many people the shift from state funding to private funding would result in half of their retirement KiwiSaver savings being income-tested away,” Sir Michael said.

This approach has some considerable merit. We have not adjusted superannuation policy o take account of KiwiSaver. I recall when KiwiSaver came in, the projections were that someone who earned the average wage would receive in retirement a higher income from KiwiSaver and NZ Super combined that they did when working. This is clearly not sustainable.

Labour’s proposal to lift the age from 65 to 67, while a step in the right direction, is just tinkering. What Cullen proposes would make a huge difference to the long-term financial sustainability of retirement savings.

Kirk Hope of the Bankers Association writes in the Herald:

 It’s Money Week. It’s not just about our everyday personal money management. We also need to think about how we’re providing for retirement income as a nation. The debate has recently been dominated by a narrow focus on age of eligibility issues for New Zealand Superannuation.

And the debate needs to be far wider than that.

Ignoring the fact that the best mix for providing retirement income is neither fully public nor fully private leads us to ask the wrong questions, and gets us caught up in issues that may not be as important as we think. The questions we need to ask are whether we should adopt a compulsory approach to private savings, retain the current voluntary arrangements, or move to a mix of the two depending on individual circumstances.

I would go even wider than that. There are basically three sorts of retirement savings. They are:

1. state
2. workplace
3. private

We need to debate all three together. KiwiSaver has been created, and no changes made to NZ Super. This means that some people will actually be earning more in retirement than when they are actually working.

Another critical issue in respect of NZ Super is its universality. Is it necessary? Is it affordable? Most importantly, is it sustainable? The Australian equivalent of NZ Super is both means and asset tested, acting as a safety net for those without sufficient savings income. The Treasury acknowledges in its 2010 paper, Saving in New Zealand – Issues and Options, that if we were to move to compulsory private provision of superannuation then also retaining a universal government funded pension scheme would make us unique.

The provision of a state pension for everyone over a certain age, regardless of their need, assets and other income, was a great innovation in its time. It was a defining aspect of 20th century New Zealand. It had its place in a time when we had a strong economy, a large working population, and a relatively small retired population that did not on average live too long past the age of retirement. Much of that has changed. We now need to develop a sustainable solution for this century, and we’re well on the way with KiwiSaver.

To truly make NZ superannuation sustainable, we need to delink it from the average wage. Other benefits are inflation adjusted only. In recognising superannuation is a bit different, I’d look at having the level be adjusted by say CPI +1%. This means it will increase in real terms, but not be unsustainably linked to the average wage.

John Armstrong writes in the Herald:

So much for the theory that Winston Peters was mellowing into Parliament’s version of everyone’s favourite, if somewhat cranky and irascible, uncle.

It was a more familiar Peters who delivered the leader’s address at New Zealand First’s annual convention last Sunday.

The speech was not so much a dog whistle as a wolf howl for attention. There was certainly no coded language to decipher.

His pinging of Chinese immigrants for allegedly sponging off New Zealanders by picking up state-funded super payments and other entitlements without paying any income tax was unquestionably populist – so much so that he was almost parodying himself.

A lot of people view Peters as a benign joker like figure. I’m not one of them. I think he has a history of scape-goating, and trying to convince people that it is the fault of some other group that they can’t receive more money or jobs or benefits.

He instead rationalised his accusation of freeloading by arguing that New Zealanders needed to know all the facts about superannuation rather than being manipulated by the savings and insurance industry into believing there was a “crisis” which required an end to universality in the payment of the state-funded pension.

Peters knows that superannuation is not sustainable. He argued so in 1997, when he proposed compulsory superannuation, saying that people “do not believe that the current arrangements will be there to deliver the same level of assistance in retirement that their parents currently enjoy”. Even worse Peters proposes superannuation be made even more expensive, with an increase in the floor.

It actually did not add up at all. Peters is the one choosing not to put all the facts on the table, especially major Government policy changes affecting those applying for residency under Immigration New Zealand’s family and parent categories.

While Peters rails against Chinese immigrants supposedly gobbling up the super – but then refuses to say what he would do about it – the National-led Government has quietly stolen a march on him. …

What is clear is that imminent changes to immigration rules are going to screen out those unlikely to pay tax.

The parent stream is currently closed pending the introduction of a new two-tier category.

Those applicants earning more than $27,203 a year as singles or nearly $40,000 if they are a couple will be able to go into tier one. They will also have to bring with them at least $500,000 in “settlement funds”.

Their sponsoring adult son or daughter will have to have an annual income of at least $65,000 and have been a New Zealand resident for at least three years.

Those who cannot meet these requirements will go into tier two where the only financial obligation is a lower benchmark of nearly $34,000 in income required of the sponsoring adult child .

Tier one applicants, not surprisingly, will get priority. As do a separate category of parents who can gain entry if they invest a minimum $1 million in New Zealand for at least four years.

With a two-year wait already for applications to be processed and a capped annual limit of 4000 on the number of parents approved for residency, those in tier two could be waiting years to get to the front of the queue.

So in fact the Government has already acted to mitigate the issue that Peters talked about.

Peters also used his convention speech that day to climb into the council for calling for the age of eligibility for super to be lifted to 67.

Claiming the council would be pushing for the privatisation of super, he also rounded on its chair, his old bete noire Jenny Shipley, who openly campaigned against Peters’ proposed compulsory savings scheme while National was in coalition with New Zealand First in the late 1990s.

This is such a bending of truth, it is hilarious. Peters proposal in 1997 was to effectively privatise superannuation, and Shipley was a prominent campaigner against it.

Stuff reports:

 Politicians are divided over a suggestion by the Financial Services Council for an increase in KiwiSaver contributions to 10 per cent of incomes to help pay for Superannuation.

The council, which represents investment and life insurance companies, says raising KiwiSaver contributions by 1 per cent a year will enable people to still retire at 65, despite the growing costs of the scheme because of the ageing population.

There may be merit in an increase in KiwiSave contributions, but it is important to note the not inconsiderable self-interest the FSC has in the proposal. It would see KiwiSaver funds and revenue for their members triple.

Chief executive Peter Neilson said New Zealanders surveyed by the council said they could not live on the current Super payment of $349 a week.

Expanding KiwiSaver would enable them to use that saving to pay for their retirement at 65 until the future eligibility age, of perhaps 67, kicked in.

It would also enable people to double the amount they received in Super.

The trade off is not that simple. First of all, we do need to look at retirements savings as a whole. You should not treat superannuation and KiwiSaver separately. What no politicians have done is look at whether the current floor for super should be lower in future – in recognition of the level of private savings in KiwiSaver.

For someone on the average wage, they would under this proposal have a higher net income in retirement than they would have had while working. Now that is actually nuts, as when you are working you have the greater expenses, and are raising a family etc.

This is why we need a first principles review – what is the minimum and what is the desirable level of retirement savings, and how much should come from public super, from workplace super and from private super.

NZ First leader Winston Peters said the council’s call was “hopeless”.

“We offered people a straight tax-break so they could painlessly save.”

The crisis in Super was “manufactured” by certain elements in the finance sector, he said.

The council’s idea was the first step in privatising Super, Mr Peters said, but would not elaborate how.

Now this is ironic, as Winston championed the 1997 referendum which would have essentially privatised superannuation entirely.

It was fair that over 65-year-olds who were still working received the pension.

“For decades we all believed in a universal scheme whereby if you worked hard and you saved, you should not be punished.”

Why should Winston get public superannuation while an MP? That’s outrageous. And when he leaves again, he’ll get his gold plated parliamentary pension plus his public super.

Public superannuation should be used to assist those who do not have adequate savings of their own. It should not be used to give Winston an extra $15,000 a year income.

This is one of the problems of MMP. Smaller parties don’t have to worry about whether their policies are in the national interest. They know they will never be PM. So they are incentivised to push policies that will benefit a small section of New Zealanders (to get them over 5%), even if it fucks the country over.

On Q+A, Winston said:

GREG Lets talk about the contribution. 66% to 68%. Is that a bottom line for you?

WINSTON Oh, look, it is a bottom line, and thats why we had the law changed to 66, because you can recall National took it down to 60%. 

So the bottom line for NZ First support is increasing superannuation from 66% of the average wage to 68%. This is fiscal insanity. So that means a Government which includes NZ First will actually blow out the costs of superannuation even quicker than the current projections.

We actually have the most generous public superannuation scheme in the world. But for some greedy people it is not enough. Winston is a fine example himself. He gets a massive salary as an MP, and gets non means tested superannuation – and he is now saying a bottom line will be that his superannuation payments get increased even higher.

The HoS reports:

NZ First will never agree to an increase in the pension age or a reduction in its level of payment, leader Winston Peters says.

And it would rather be in Opposition than be part of a government whose policies it opposed.

But Peters refused to be tied down yesterday on whether the pension age or even asset sales issues would be deal-breakers in any post election coalition talks in 2014, saying NZ First still had “options”.

Ahead of NZ First’s annual conference this weekend Prime Minister John Key challenged Peters to remove any doubt that maintaining the pension age at 65 truly was a bottom line for NZ First.

“I dare him to go out there and say he will not under any condition form a government with Labour even if Labour’s policy is to raise the super age from 2020,” Key said on TV3′s The Nation yesterday.

In a preview of the speech Peters will give to the conference today, he said NZ First would “never agree to reduce the pension or lift the qualifying age from 65 to 67″.

However, Peters’ comments fell short of giving the cast-iron promise Key challenged him to make over Labour’s policy.

This is why I think the only way forward is to entrench the current scheme, and set up a Royal Commission into retirement savings to design a post 2025 scheme.

The Herald reports:

Maintaining the age of eligibility for superannuation at 65 would be a bottom line for New Zealand First in any coalition negotiations after the 2014 election, says leader Winston Peters.

His stance could be an obstacle to coalition talks with Labour if NZ First is the kingmaker after 2014 – Labour has made raising the pension age to 67 a centrepiece of its policies and has sought to embarrass Prime Minister John Key on the issue.

Mr Key has been under pressure for refusing to contemplate raising the age of eligibility for super from 65 to 67.

NZ First meets for its annual conference in Palmerston North this weekend – its first since the resurgent party made it back into Parliament last year with eight MPs. It is looking for more next election and could be a strong contender for coalition talks in 2014.

Asked whether NZ First’s position that the super age should remain at 65 was likely to be an issue in such talks, Mr Peters said: “Of course it’s a bottom line.”

It is highly unlikely that Labour could form a Government without Winston, so their policy to increase the age (actually a policy to means test 65 and 66 year olds) looks dead on arrival.

Andrea Vance at Stuff reports:

Labour and the Greens have promised not to attack Prime Minister John Key if he agrees to cross-party talks on the pension age.

Mr Key admitted yesterday that National was isolated over the issue but is standing firm, saying lifting the age is “a very simplistic way of looking at a very complex issue”.

The debate has raged over the last few days with a series of reports questioning the affordability of the current scheme.

It is bullshit that Labour and the Greens would not attack Key if broke his word on superannuation. Every second TV ad at the election would show him having said he would resign if he changed the age or level of super.

It is quite correct that future superannuation costs are not affordable without large increases in taxation. But this is not some new revelation. This has been known for over 20 years. Up until 2008 Labour and Greens never showed any interest in reducing the future cost of superannuation. Labour in fact attacked the age going from 60 to 65 and savaged Don Brash when he suggested further changes were necessary.

While Labour and Greens support for increasing the age is welcome, lets make no mistake that the primary motivation is anything except to destroy John Key’s political credibility. Does anyone honestly think that if Key had not made the pledge he made in 2008, that Labour would be pushing for cutting spending on superannuation – when every other policy they have is to increase public spending?

I have previously written in the Herald that I believe the 2008 pledge was wrong, and I regret it was made. However Key must never break his word on this issue – his pledge was too specific, where he said he would resign both as PM and as an MP.

But there does need to be a way forward. However this is a path that should not be rushed. Any changes are likely to be post 2025 or even later. Whether decisions are made in 2015 or 2017 is not going to be greatly material.

The first step that the Government should take is to entrench the current scheme for everyone born before say 1960. Pass legislation saying that nothing short of a super-majority in Parliament can change that scheme. This provides absolute certainty for current retirees and those near retirement. All parties in Parliament would hopefully vote for such legislation.

Then the Government should establish some sort of expert group on retirement savings for post 2025. We need a debate on more than just the age of entitlement. Merely changing the age does not make superannuation sustainable. It helps – but by itself is not enough. Also people may be unaware that Labour’s policy is not to simply increase the age, but to apply a means test to it for those aged 65 and 66 – this could result in minor savings only.

Merely moving the age to 67, will by 2030 make a difference of 0.7% of GDP. With Labour’s mean testing proposal, it is even less than that.  The debate must be about more than just the age.

We need a first principles review of retirement savings – not just public superannuation, but also workplace superannuation such as KiwiSaver and also private savings. Merely changing the retirement age is a knee jerk response which is more about trying to nobble John Key than making superannuation sustainable. We absolutely have to also consider the level at which it is set, the indexing, income or asset testing, fixed sum vs annuity etc. We need to define the minimum income people need in retirement and look at how much should come from public superannuation, from KiwiSaver and/or from private savings.

The current focus for the Government is the short-term fiscal outlook – getting back to surplus. Changes to superannuation after 2025 will not impact that, so I agree there is no need to be trying to resolve the issue today or this year. However as we get close to the hoped for surplus in 2014, this is when the focus should go on the longer term fiscal sustainability.

My wish is that in 2014, National does three things:

1. Introduce legislation, with cross-party support, to legislatively guarantee the current superannuation scheme for those born before 1960. This doesn’t mean any changes for those born after 1960 – just that those arrangements will not be entrenched like for those born pre 1960. This means that Grey Power can not run a scare campaign that their members could ever be impacted by a future change. Also it would stop the current scheme being made even more unsustainable.
2. Set up (preferably with cross-party support) a royal commission on retirement savings. This would be tasked with designing a sustainable savings regime for those born after 1960.
3. Announce that the essentials of the regime proposed by the Royal Commission would go to a referendum in 2017. The public would get to decide whether to stay with the status quo or adopt the new model for those who retire after 2025. No cherry picking of some aspects – it has to be a binary choice.

From a public policy point of view this would be a desirable outcome. Those currently retired and near retirement would have absolute certainty over their retirement income arrangements. A binding referendum on the post 2025 arrangements would also provide certainty and a political consensus for those of us born after 1960.

From a political point of view, I believe this would be achievable without the Prime Minister having been seen to go back on his pledge. Any change will be made by the people, not by the Government. But also by having the referendum in 2017, it is likely Key will have retired by then (hopefully winning a third term, serving the majority of a third term but not necessarily trying to win a fourth term).

National doeesn’t need to take any action today, or even in 2013. But in 2014, I think it will be desirable for it to adopt an approach along the lines outlined above – both because it would be the right thing for the country, but also good for National.

It is important that we do not allow the debate on superannuation to be just about lifting the retirement age to 67. That would provide a false sense of security, and just be kicking the problem to touch for a few more years.

Grey Power have campaigned for years against means testing of superannuation. They steadfastly refuse to accept the logic that millionaires who do not need NZ Super, should not get it. They don’t have a problem with the fact someone could still be working at age 65 earning $500,000 a year and still get NZ superannuation.

Now it is a legitimate view to be against means testing of superannuation. I think it is the wrong view, but it is a legitimate one. Their official policy is:

That superannuation be accepted as an entitlement and non-means tested.

They also say:

Grey Power is fundamentally opposed to any type of targeting of those in receipt of New Zealand Superannuation.

But compare Grey Power’s policy on NZ superannuation which they get to their submission to Parliament on the annuity paid to former Prime Minister’s:

The sentence “[the] annuity is payable at the rate fixed by the Remuneration Authority and must be paid until the person dies” should read but cannot be claimed if the former Prime Minister is employed. It shall only be applicable when that person retires permanently.

So they are against means testing of their pensions, but for means testing of former PMs when it comes to their annuity.

Now one can have a legitimate view that the former PM’s annuity shouldn’t apply while they are still working. But it gross hypocrisy for Grey Power to argue that NZ Super should be paid to those still working, but not the former PM’s annuity.

I also love the rationale by Grey Power, which is that the Government should reduce their expenditure wherever possible. Yet they have a list of policy demands that would cost the country billions.

My Herald column is on National’s Super problem:

One of the reasons National got re-elected is they were seen as more fiscally credible than the alternatives. As European governments crumble under the burden of excessive government spending, deficits and debt, voters at home place great stock on fiscal sanity.

However the stance on superannuation is the chink in National’s armour. Labour will try and use this issue to portray National as going for the easy spending targets but unwilling to target the largest item of spending.

Labour’s pledge to increase the age of entitlement from 65 to 67 is a tactical policy to try and position National as fiscally irresponsible, and National is locked into a five year old policy pledge that leaves it incapable of responding. …

The lesson for both the current Prime Minister, and any future Prime Ministers, is to never ever make any pledge beyond the next term of Parliament. Doing so is both short-sighted and anti-democratic. Elections should be about choices. Policies should change as circumstances change. Our three year electoral cycle allows policies to gain mandates in a fairly timely manner.

The Prime Minister’s pledge to never allow any changes to superannuation during his tenure will continue to grow as a problem for National. They are fortunate that at the last election the fiscal credibility of their opponents was weak, and a debate stumble by Phil Goff fatally crippled them. In 2014 David Shearer may have succeeded in portraying Labour as fiscally credible, and then the superannuation pledge could become a critical issue. It would be ironic is a pledge which helped National win the 2008 election became the reason they lost the 2014 election.

This is probably the last post for today as I’m in meetings the rest of the day. Enjoy the weekend!

Stuff reports:

Labour leader David Shearer has revived calls to raise the pension age and is calling on National to support the policy.

In a speech due to be delivered today, Shearer said the existing pension age of 65 was unsustainable and the Government should be “straight up” with people about that fact.

“Labour will be straight – the status quo is unsustainable. we need a genuine cross-party solution that ensures a fair outcome for everyone, especially those who need to retire earlier and as we move to a gradual rise in retirement age.”

Labour campaigned on raising the retirement age at the last election but National says it is affordable in its current form and won’t follow suit.

It has accused Labour of needing to raise the retirement age to pay for unaffordable promises.

Prime Minister John Key has pledged to resign rather than tinker with the age of eligibility for the pension or the current level of entitlements.

Being a cynical person I suspect Labour’s stance on this is primarily because they want to force Key to break his promise. But regardless of their motivation, good policy is good policy and Shearer is right that the current scheme is unsustainable.

I also welcome the call for a cross-party solution. This “solution” though should not just look at the retirement age, but also issues such as indexing, income and asset testing and the like. Our current scheme is the most generous in the world as it has no means testing of any sort, and is linked to the median wage. Ideally a cross-party group would take a first principles approach, and say “What sot of public superannuation scheme should be operating in 30 years time that is fair and affordable”.

Now any changes to superannuation would not take effect for 15+ years so as to not disadvantage those near retirement, who have made decisions based on current policies.  That means that changing superannuation policy will have no impact on the short to medium term goal of getting out of deficit and into a cycle of sustainable surpluses. However it can make a significant difference long-term.

The first step should be an agreement between all parliamentary parties that the existing scheme shall remain in place for all those who will retire before 2025, so were born before 1960. Even John Key should be able to agree to that without breaking his pledge. Sure it implies a different regime post 2025, but that is different to actually agreeing on any change.

If one could get all the parties to agree on ring-fencing the pre-2025 retireees, then a multi-party group could be formed on the basis they won’t agree on post-2025 superannuation, but instead devise a model that all parties say is fair – and put it to a public referendum. That way it is the public deciding, not the Government.

In my Herald column of 28 October I wrote:

Introducing the principle of means testing, is another very welcome step. I think it is wrong that we pay millionaires such as Sir Bob Jones, NZ Superannuation.

Sir Bob has e-mailed to comment:

Dear David,

Before using a photo of me to make your point you could have enquired whether I actually receive the Government super, which I have been eligible for over the past seven years.

The answer is I don’t. It is essentially a form of welfare which I absolutely don’t need.

That said I have been shocked at people of considerable wealth whom I know and who do take it.

Just possibly I am not just the only New Zealander who doesn’t have a cellphone but also the only eligible Kiwi who doesn’t take the super.

Best wishes,

 

Bob Jones

My thanks to Sir Bob for putting the record straight. In hindsight I am not surprised he doesn’t take it. I wonder how many others do not take it, whom are entitled to?

In my column at the Herald, I cover Labour’s Savings Policy. Some extracts:

New Zealand has the most generous public superannuation scheme in the world. …

So Labour have opened the doors for a national debate on both the age of eligibility and on means testing NZ Superannuation. They deserve praise for such a bold step. Our current scheme is too generous and unsustainable. …

Labour’s policy overall has a mixture of good and bad. I think it is an improvement over the status quo, and their willingness to advocate the age change gives them greater credibility. It’s a bold start to the campaign to tell New Zealanders that our taxpayer funded superannuation scheme is too generous. It almost reminds me of the Phil Goff of old, and yes that is a compliment.

I find it amusing that even when I praise Phil Goff, some nutters attack me for being too partisan.

In my latest blog at Stuff I foment a small amount of mischief by musing whether Labour’s stealing of ACT’s policies means an ACT/Labour Government is now more or less likely than a National/Green Government

Labour’s detailed policy is not online, but according to this Herald report, this may all be a smokes and mirrors policy. Why do I say that? Well the Herald reports:

Mr Goff said Labour recognised for some New Zealanders, to continue working beyond 65 such as those doing physically demanding work and would introduce a “Transition” payment at the same level as NZ Super which could be accessed between the age of 65 and 67.

Now my reading of this is that people aged 65 and 66 will be able to access the payment, which is at the same level as NZ Super. Sothat means they will be getting Superannuation from age 65, just under a different name.

There is a current benefit for those close to retirement, but it is far below the level of superannuation. A transition payment at the same level as NZ Super, is well NZ Super.

Maybe Labour is proposing that superannuation for 65 and 66 year olds be means tested – you only get it, if you are not working or earning below a certain level. If this is the case, then Don Brash will be endorsing their policy even further – means testing and a higher age. For if you are going to means test 65 and 66 year olds, why not 67 and 68 year olds also?

I  also look forward to the reaction from Andrew Little to this policy. Here is what Andrew said in 2010 about raising the age:

Retirement Commissioner Diana Crossan’s proposal today to raise the retirement age from 65 to 67 is unfair and won’t work, says New Zealand’s largest private sector union, the EPMU.

“In a low wage economy sch as New Zealand shifting more of the burden of superannuation funding onto working people doesn’t make sense,” says EPMU national secretary Andrew Little.

Will the New Plymouth candidate stand by his words?

Also David Cunliffe seems unconvinced:

Labour will keep Super as it is – will National?

Labour is committed to keeping both the current age of eligibility and entitlement level for New Zealand Superannuation, Opposition Finance spokesperson David Cunliffe said today.

“Labour is committed to retaining the age of eligibility at 65 and entitlement at 66% of the average wage,” David Cunliffe said.

That was in 2009.

I’m starting to think No Right Turn is right in his analysis:

its a cynical, calculated ploy to wedge National against their own base while driving voters to Winston, who is Labour’s only hope of government. Winston, of course, will veto any increase as the price of his support, so its an empty threat, purely for show, dishonest as well as evil.

They are desperate to get Winston back in.

UPDATE: Now seen Labour policy here. It confirms they will means test superannuation for 65 and 66 year olds.

3 News have just announced that Labour have done a massive u-turn on the age of eligibility for superannuation. After 15 years of scare-mongering and saying National will put up the age (which led Key to rule it out so definitively), they are saying if elected they will increase the age of eligibility from 65 to 67, starting in 2020 and ending in 2033 with an increase of two months a year.

I personally warmly welcome the policy. The current age is not sustainable in the long term. This policy gives Labour greater credibility on economic issues, even though I suspect their motivation is more trying to force the PM into breaking a promise than a real belief in raising the age. But regardless of motivation, it is a good policy and congratulations to Labour for putting the issue back on the table. We should be debating not just the retirement age but the whole design of our public superannuation scheme. This is the first step towards being able to have that debate.

There will be some opposition – the unions traditionally have been very opposed to an age increase as manual workers are less able to keep working until 67. Also Maori groups are normally opposed as the average life expectancy for a Male Maori is just 70, which means the numbers of years they would receive superannuation is reduced by 40%.

The biggest challenge Labour may have, is their coalition partners. There is no way Labour will form Government alone. The Greens might sign up to such a policy, but one can only assume Winston will fight it with all his might. Is this a case of Labour promising it, knowing they won’t have to implement it? Would they have made this policy pledge if they were at 40%?

The challenge now for National is to respond to the policy. The PM unwisely ruled out any change to the entitlement age not just in his first term of office, but for his duration as PM, so it doesn’t leave them a lot of room to respond. If they maintain that there is no need to raise the age, then Labour will gain in the economic credibility stakes – not necessarily enough to overcome all their other negatives, but any gain will be welcome for Labour.

As a fiscal conservative, I welcome Labour’s policy on the retirement age. I’ll cover the other aspects once they are released.

David Fisher at the HoS reports:

Grey Power is studying a proposal to take the pension away from retired people who earn more than $80,000 a year.

Studying is probably a euphemism for ritually burning.

The proposal, leaked to the Herald on Sunday, was written by Grey Power’s Coromandel representative, Mac Welch, and distributed by the organisation’s president, Roy Reid.

Welch described national superannuation as “unaffordable” and said the Government was “under pressure”.

He wrote of hearing Grey Power members referred to as “old greedies” and it was time to consider means testing.

He said he wanted to start discussion around a $40,000 income trigger for reducing pension payments and completely cutting the payment at $80,000.

Earnings of $80,000 a year work out at $1180 a week. Welch’s proposal would mean someone on that money would no longer be able to collect the $340 a week pension payment as well.

I believe all welfare benefits, including super, should be both income and asset tested.

David Chaston at interest.co.nz writes:

The experts say that without changes – like raising the retirement age – the present system is not sustainable for people who think they are paying into it now.

But the big failure – the really big failure – has been our longterm affection for ‘pay-as-you-go’ systems to fund basic and universal retirement superannuation. Pay-as-you-go approaches only work with positive trending demographics. But we have now converted to negative trending demographics where the proportion of claiming retirees rises and the proportion of working age payers diminishes.

The result will a disaster. People will get hurt.

I’ve said many times – the current super scheme should be locked off and guaranteed for those who reach 65 before say 2025 or even 2030. But a more sustainable scheme that takes account of initiatives such as KiwiSaver should be designed for those retiring after 2025.

Basically, someone who finished high school with the School Certificate qualification in 1962 will be aged 65 in 2011, and eligible for NZ Super.

Statistics NZ has relevant data of earnings and taxes from 1962 and we can use that data to track the earnings in that working life – and from that data determine the taxes paid over that period.

Essentially, our statisically average person will have earned about NZ$1.4 million and paid about NZ$342,000 in tax, taking home a pay packet of a little over NZ$1 million over those 50 years.

Converting these raw earnings and taxes to 2011 dollars, they earned NZ$2.7 million, paid NZ$620,000 in taxes, and had take-home pay of a bit more than NZ$2 million.

However, for the next 20 years of retirement, they will claim in 2011 dollars NZ Super to the value of NZ$544,000 – or almost 88% of all the taxes they have ever paid.

If they live for 30 years in retirement, they will claim almost a third more than they paid in a lifetime of taxes. They ‘break-even’ after 22+ years.

That is a very valuable calculation. The income tax paid by the average retired person will only cover 22 years of super.

That essentialy means someone else has to pay for their lifetime use of all other public services, including their health care needs as they age.

So how do you pay for that? Do you tax the rich pricks?

Even if that other 10+% were taxed at a much higher rate, it is unlikely to generate the funding required to pay for a long-but-normal life in retirement at current NZ Super rates; there are just far too many people about to become retired and eligble for their ‘fair share’.

Nope.

Our only option is to raise the retirement age.

We have left our run too late to adopt a fully-funded approach for people who will retire in the next twenty years. We are stuck with pay-as-you-go over that period.

I agree we need to increase the age. But not just look at that issue. I think we should have a fundamental debate about what should NZ Superannuation look like for those born after 1960. Should it be inflation adjusted or average income adjusted? Should it be income or asset tested? Should there be options such as a smaller amount if you retire earlier and a larger amount if you retire later?

Due to the political necessity to neutralise this issue in 2008, the PM has vowed no changes to super or the age while he is PM. While that means any changes are unlikely to be agreed upon in the next six years, it doesn’t mean political parties can’t start talking about what superannuation should look like for those born after 1960. We can’t afford to delay the decisions by a decade or more, as that won’t give enough time to implement changes.

United Future released yesterday their superannuation policy which allows for a retirement age of between 60 and 70, with the amount you get increasing the longer you leave off claiming it. They also propose making KiwiSaver compulsory.

Their policy is designed to be cost neutral.  what it would mean is the choices for a single recepient might be:

• Age 60 – $249/week
• Age 65 – $339/week
• Age 70 – $546/week

I think the policy is a good step in the right direction. However as it is cost neutral I think it also might not be sustainable over time.

Katie Bradford-Crozier at NewstalkZB reports:

Politicians have rejected suggestions of raising the retirement age to 67.

Retirement Commissioner Diana Crossan says politicians have their heads in the sand over the affordability of New Zealand Superannuation.

She wants it raised to 67 years by two months a year from 2020 to 2033.

Prime Minister John Key says he has more important things to do than look at raising the retirement age.

He says that’s not going to happen under his watch as he has a lot of things to consider between now and 2020 when it comes to the economy.

Mr Key says he’s given a commitment to Kiwis that he’s not going to raise it.

Labour leader Phil Goff says it’s just not practical.

He says it just makes it harder for people who have worked hard all their lives, who turn 65 and are ready to retire.

The age will rise – it is inevitable. The only issue is how much advance notice we give people.

The increase suggested by the Retirement Commissioner seems reasonable to me. But I would do more than just tinker with the retirement age.

I would lock the current super scheme in place for those over 50. They need certainty so they should not have to worry about future changes.

But for those retiring after 2025 or even 2030, we should have a new sustainable superannuation scheme. The level of payment, the floor and ceiling, issues such as income and asset testing should all be considered. It should be a multi-year conversation or debate, and once concluded then set into place for the post 2030 retired.

Vernon Small reports in Stuff:

MPs’ generous superannuation schemes will not be cut, despite Government plans to slash the subsidies paid to KiwiSaver accounts. …

Since 1992, MPs have been entitled to a subsidy of up to 20 per cent of their salary, receiving $2.50 for every dollar they put in. Those elected before 1992 receive a subsidy equal to 23 per cent of their gross salary.

Asked why taxpayers should subsidise MPs up to 20 per cent when he was winding back KiwiSaver subsidies, Mr English said they were different schemes.

“The MPs’ scheme has been wound down over the last 20 years to something that is pretty similar to what everyone has available to them. In fact, I think a number of MPs are probably members of KiwiSaver.”

There is a vital fact missing from this article. The Remuneration Authority operates on a “total remuneration” basis and the value of that 20% superannuation subsidy is effectively deducted from their salary. If the subsidy increases 5%, then their salary drops around 5%. If the subsidy is decreased, then the salary increases.

Personally I would just pay MPs the full remuneration for their jobs (which would see their pay increase 20%) and leave it up to them to decide whether they put some of it into a savings scheme or not.

The Dom Post editorial:

The $10 billion deficit for the first nine months of this year confirms, if confirmation was needed, that the last government made bad choices. At a time of plenty it chose to buy popularity rather than to save and invest for the future. Worse still, it created an expectation that the bounty would continue to flow in bad times as well as good.

Yep. Labour thought that the economy would never go into recession, ignoring that the tradeable sector had in fact been in recession since 2004/5.

It cannot – a point Prime Minister John Key and his ministers have been trying to get across in advance of next week’s Budget. New Zealand has to get back to living within its means. There are a number of obvious targets for a government looking for what Finance Minister Bill English has quaintly termed the “nice-to-haves”. They include the extension of welfare to families with incomes far in excess of the average wage, interest free student loans and the 65-year age of entitlement for superannuation.

I support increasing the age of eligibility for superannuation. It will happen one day also. But any increase would have to be signalled a good decade or so in advance, so don’t think any change to the age will help get the books back into surplus in this decade. Lifting the future age of retirement is important for the long-term sustainability of superannuation, but again that is a different issue to the shorter-term fiscal challenge.

Instead, Mr Key’s Government is taking aim at the KiwiSaver scheme introduced by its predecessor to tackle New Zealand’s chronically low savings rate.

Under the scheme, people who agree to set aside a percentage of their income for their retirement receive a one-off Government grant of $1000 and tax credits worth up to $1040 a year. The scheme has proved remarkably attractive. It now has almost 1.7 million members. However, Mr Key has classified it among the “nice-to-haves” and is signalling that the annual Government contribution will be reduced, probably halved.

He and his finance minister appear to believe the public will not be deterred by the change. If so, they are graduates of the same University of Spin and Hope as their Labour predecessors, who believed that scrapping interest on student loans would not increase the take-up rate. New Zealanders are not stupid. The year before loans were made interest free, 53 per cent of eligible students borrowed from the Government. By 2009 – the last year for which figures are available – that figure had increased to 71 per cent.

KiwiSaver membership involves sacrifices. Contributing the amount required to secure the maximum Government contribution means many members have to make choices between other “nice-to-haves” and even some essentials. However, they calculate that, together with employer contributions, the Government top-up makes the sacrifice worthwhile. Reduce the top-up and many will review their participation.

For most employees, they will still be getting a massive subsidy. Someone on $28,000 will still get around $2.50 into their KiwiSaver account for every $1 they put in. That’s a 150% return on investment compared to 10% most funds deliver. I doubt too many people will dump KiwiSaver becuase their return on investment is 150% instead of 200%.

Those who get most hard done by the Government’s changes are self-employed like me. As I pay both my employer and employee contribution, then I’ll personally be quite a bit worse off by the Government’s proposed changes. But I had been saving plenty anyway, prior to KiwiSaver, so to some degree the KiwiSaver subsidies were just a way to maximise my return. And the Government should be focusing its scarce tax dollars on those who most need it, not people like me.

The Government has a choice. It can encourage the current generation of workers to save more, or it can pander to the “grey” vote by maintaining the pretence that superannuation for all at age 65 is affordable when it is patently not. It cannot do both.

It has made the easy choice, not the right one.

The reality is the age does need to increase, but not until around 2025 by my calculations.

The Herald reports:

The retirement eligibility age should be increased from 65 to 67 by 2033, a review recommended yesterday – but Prime Minister John Key said there would be no change on his watch.

Retirement Commissioner Diana Crossan believes the age should start to increase from 2020 by two months a year until 2033, when it would reach 67.

I agree entirely. One could also do it starting in 2024 and increasing by three months a year.

Mrs Crossan also proposed changing the formula used to calculate the annual increase in superannuation.

It is now set as a percentage of the average annual wage.

But Mrs Crossan said that from 2020, the rate adjustment should be based on the mid-point between the increase in the consumer price index and the average weekly earnings.

She said the changes were essential to preserve New Zealand Superannuation for the next generation.

The Commissioner is very brave, and correct, in recommending this. National Super is unaffordable in the long-term indexed to the average wage.

All other benefits are CPI adjusted only.

The compromise of having the increase be halfway between the CPI increase and the average wage increase is excellent. It means that in real terms national super will still grow pretty much every year, but that it will become more sustainable.

NZ has the most generous public superannuation scheme in the world. Those currently retired and soon to retire should continue to get it. But those retiring after 2025 (my preferred date) should be on a new scheme along the lines outlined by the Commissioner.

The Herald reports:

A colossal turnout for nationwide protests against pension reform yesterday threatened President Nicolas Sarkozy with a long winter of discontent if he pushes ahead with plans to increase the French retirement age from 60 to 62.

Trade unions comfortably exceeded their target of mobilising two million people on the streets as a nationwide strike disrupted transport, schools, government offices and parts of the media.

In Paris, the demonstration was so large – an estimated 270,000 people, or twice the numbers of the last protest in June – that the march had to be split into two halves.

More than 100 marches across the country attracted 2.5 million people, according to union estimates.

They are complaining about 62, when Australia and other countries are moving to 67 or 68.

It is inevitable that in NZ, the age will increase from 65 also.