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:
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.