By Tamsyn Parker, nzherald

New Zealand

December 18, 2007

Diana Crossan says that her pension recommendations 'fit with likely trends.

Diana Crossan says that her pension recommendations 'fit with likely trends.' 

The Government will not raise the pension age, Finance Minister Michael Cullen said today in response to suggestions from the Retirement Commissioner.

In a wide-ranging review of retirement income policy, commissioner Diana Crossan yesterday suggested changes to help pay for New Zealand Superannuation and the new KiwiSaver.

She said the retirement age may need to be lifted to 66 or 67 and attractive incentives to join KiwiSaver may need to be cut to adjust for people living longer and the increased cost of supporting them past the age of 65.

Dr Cullen today said any effort to focus attention on the long-term challenges of providing superannuation was welcome, but the Government believed New Zealanders deserved a good standard of living in retirement.

"That is why we reversed National's cuts to superannuation rates, why we have committed ourselves to providing superannuation at 65, why we have invested heavily in the Superannuation Fund to make that commitment sustainable and why we have introduced the hugely successful KiwiSaver scheme," he said.

"We will respond fully to the commissioner's report early in 2008, but we are opposed to raising the age of superannuation entitlement, cutting superannuation rates or cutting KiwiSaver entitlements."

The Retirement Commissioner's report, tabled in Parliament yesterday, lists several ways of helping to meet the increasing costs including raising taxes, increasing the residency qualification period and reducing the amount paid to superannuitants.

But it says raising the retirement age is the option likely to have the least negative effect on the public.

Ms Crossan said other developed nations were looking at pension costs, and New Zealand should do the same.

"People are living longer and there are more of them," she said. "So the question has to be, how do we finance that?"

Britain, Denmark and Germany have all passed laws in the past two years lifting the minimum pension age.

The changes are being phased in over periods between 20 and 40 years.
In other countries, including Ireland and Norway, the pension age is already at 66 or 67.

Ms Crossan said any changes made in New Zealand would also need to be phased in over a long time, giving people in their 40s a chance to prepare.
The report detailed drawbacks in other cost-cutting options.

"Both income targeting and increasing the required residence period would fundamentally, and negatively, change the universal nature of NZ Superannuation," it said.

"Reducing the benefit level would require some justification as to what the right level of benefit should be, and would affect current superannuitants.

"Putting up the age of eligibility by one or two years would not affect current superannuitants.

"It fits with likely trends in life expectancy and with the increasing number of people working at older ages. Other countries are planning to put up the age of public pension entitlement, or already have ages higher than 65."
The report also looks at the costs of KiwiSaver and questions whether its incentives are affordable.

It says the cost of KiwiSaver will increase to more than $2 billion a year by 2016-17. Of this, nearly $1.7 billion would be the top-up of $20 a week and the employer tax credit of $20 a week, which starts in April.

The report warns that KiwiSaver may lead to gaps in retirement income between those who have saved and those who have not - a gap compounded by the incentives.

And it suggests low earners may be less likely to join KiwiSaver than high earners, and will therefore miss out disproportionately on the incentives.
"If proportionately more high-earning than low-earning employees join KiwiSaver, the gap in total remuneration and ultimate retirement benefits would widen."

But the report acknowledges the political difficulties in dropping the incentives.
"If the KiwiSaver incentives are cut, not only will it be unpopular, but it may reduce the public's confidence in being able to rely on Government savings policy. But cutting other costs to fund KiwiSaver incentives, either in retirement income policy or outside it, is also likely to be unpopular."

Social Development Minister Ruth Dyson said the commission's recommendations would be analysed early next year, and then "we will be able to provide a more comprehensive response".

"In New Zealand and most other OECD countries, the numbers of older people are increasing as a percentage of the population, and people are living longer," she said.

"It is particularly important that we have policies and programmes that ensure older people enjoy a good quality of life."

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