Superannuation Options

I was reading through a submission by Michael Little wood in the 2001 Super Fund legislation, and what struck me was that New Zealand has never really had a proper public debate on how we want our “tier 1” public superannuation structured.

Some of the issues one can debate are:

• Eligibility Age (was also 65 in 1898 when life expectancy was 60)
• Residency Eligibility (how long someone should have lived here)
• Level (do you tie to CPI, median wage, average wage, GDP, )
• Different levels by age – should it be at one level at say age 65 and a higher level at say age 68 or 70
• Regional Variability – should the level vary based on where you live, to reflect living costs – as the Accommodation Supplement does
• Income Testing
• Asset Testing
• Pay as You Go or Fully Funded
• Level for singles as opposed to couples
• Hospital Rates
• Payments to overseas based people

But I don’t want to debate any of those options today. We’ll deal with them one at a time over the next few months. Just because the politicians are saying there will be no change, doesn’t mean we can’t have a debate.

The question for today, is what is the date at which any future changes should start to apply, or conversely for how long should we guarantee the current settings?

I believe it is very important not to make changes quickly. It is unfair on those who have already retired or are near retirement, who have made plans based on what the Government has said. This is also what provoked so much outrage in the 80s and 90s.

So this is not about what the current Government’s policy should be, as it has been made clear that is not going to change anyway. This is about when a future Government might want to make changes.

The cost of public superannuation as a % of GDP is projected to be the following by Treasury:

2010: 4.7%
2015: 4.8%
2020: 5.3%
2025: 5.9%
2030: 6.7%
2035: 7.3%
2040: 7.7%
2045: 7.8%
2050: 8.0%

I tend to think 2025 looks about right. If one started to change the age from 2025, that would mean those aged over 50 would still retire at 65, but under 50s would know it is likely to be older.

It is basically about balancing up minimising the impact of changes on those already retired or close to retirement, and the fiscal impact of any delays.

Up until what date do readers think the current scheme should be guaranteed to remain as it is? My pick is around 2025, but what do you think?