Pensions Crisis Looms

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Pensions Crisis Looms

By David Fisher, Sunday Star Times

February 29, 2004

New government papers paint a stark vision of the future, including increased taxes, longer working lives and shrinking pensions.

The steps are considered necessary to pay for the future retirement of young New Zealand. The numbers of those aged over 65 will grow from 12 per cent of the population to 27 per cent in the next 50 years, leading to a massive increase in pension and health costs with fewer younger people to pay for it.

Failure to adopt the options would lead to a 10-cents-in-the-dollar increase in all taxes, according to Treasury papers. Even if the changes are made, tax rises are almost inevitable.

The issues are raised in a report presented to retirement commissioner Diana Crossan by the Periodic Report Group 2003, which suggests they must be dealt with before the end of the decade.

The papers show workers under 55 will likely work longer, get their pension later and receive less when it comes through.

Treasury papers show the benefits of increasing the eligibility age for the pension to 68 over six years, starting in 2013, and the benefits to the economy of workers retiring at 70, starting in the next five years.

The full impact of the changes would hit people aged 20 to 40, while the measures would have a lesser effect on those aged 40 to 55. The rest of the working population can expect to enjoy today's retirement age and pension.

Crossan, and Vance Arkinstall, chair of PRG2003, have raised doubts as to whether political parties in a three-year cycle can make the difficult decisions needed.

The PRG2003's report is with Finance Minister Michael Cullen, who is preparing a response. He would not comment until he had completed that.
The decisions require a sitting government to swallow a politically bitter pill without short-term benefits.

The alternative to major change is to do nothing and dump the cost of other people's retirement on workers in the future.

A summary of risks and opportunities was passed to Crossan by Arkinstall in December. It says:

 Large student loans and dropping home ownership will cause problems for younger New Zealanders.
 Middle New Zealand's living standards will fall.
 Cullen's NZ Super Fund will not solve the problem, simply ease it.
 Healthcare costs will almost double to $13 billion, a jump from 6.3 per cent of GDP to 11.1 per cent.

Crossan said it was essential New Zealanders realized they must make changes to the way they saved and support the government in making difficult choices.

The political cycle complicated the issue and she would welcome talks among the various parties.

Arkinstall said the government needed to get a clearer message to New Zealanders about the current pension.

"Quite frankly, politicians are misleading us. . . Are we as individuals quite happy to exist on $12,000 a year?

"If we don't do something and we are forced to increase tax on younger people to support the expanding number of people receiving NZ Superannuation, those young people will say, `blow this, I'm going to Australia' and this country will go backwards at a faster rate," Arkinstall said.

While the political parties do not have comprehensive solutions sketched out 50 years into the future, Act finance spokesman Rodney Hide said a change to the pensions politicians received might produce action.
Hide said the numbers had an "honesty" that would make liars out of politicians who promised the earth.

Putting MPs on the same pensions as other New Zealanders "might focus parliament's mind on the problem".