Kerre Woodham: The super situation - what poison are you willing to swallow?

New Zealand, according to the OECD, the Organisation for Economic Cooperation and Development, needs to reform the electricity sector, expand and strengthen capital markets, speed up digitisation of the health sector, and reform the pension. The OECD joined other international agencies in calling for the age of eligibility for super to be raised by indexing it to life expectancy with measures to take account of different ethnicities and work backgrounds. A bit like in Australia, if you're in a tough job that is tough on your body and you physically cannot work any longer, then you can get the pension a bit earlier, it just won't be as much as the full pension. 

If Bill English had been able to form a coalition government when he was leading National, we would have raised the age of super by now to 67. But it doesn't, for those of you who are concerned, go from 65 to 67 overnight. You'll remember when National was looking at raising the age to 67 – it would just increase six months each year and it wouldn't have started until the 1st of July 2037. So it doesn't happen overnight, there's plenty of time for people to get used to it, it's phased in slowly, it's not a huge seismic shock. What is a huge seismic shock is the cost of super to the national economy. 

Simplicity Managing Director Sam Stubbs says super is a huge problem that needs to be addressed urgently. He says without change, by 2060 all of our income tax will only be able to pay for health and national super, there'll be no money left for anything else – unless we suddenly get incredibly wealthy. But if things stay as they are pretty much, our GDP stays the same, the increase in the number of people needing healthcare and national Super will be such that our income tax will only pay for that. There'll be nothing for roads, nothing for schools, nothing for any of the things we like to have. 

“What about the Cullen Fund?” I hear you ask, and that's a good question. The fund was never a fully funded Super scheme; it was just designed to smooth out some of the population shocks so that it wouldn't completely cripple the economy as a big cohort of the population reached superannuation age. It's expected to contribute roughly 3.3-3.5% of the total super cost by 2040. It may well get up to covering 10% of the costs by 2080, but certainly not 100% 

Finance Minister Nicola Willis was sort of trying to calm things down. She told Mike Hosking that changes don't need to be as dramatic as the OECD suggests, but do need to happen. 

“In the 1960s there were around seven New Zealanders of working age for every person aged 65 or older. Today there are four and by 2065 there will only be two. So that burden on our taxpayers is increasing significantly. Already between last year and the end of the fiscal period, the cost of New Zealand superannuation will increase by about $6 billion a year. It's rising as a proportion of what we tax you for, so it's currently just over 16%, it's going to rise to over 20%. And every dollar we're spending on superannuation is a dollar not available for education, for health, for infrastructure. So gradually over time some changes will need to be made. They don't need to be as dramatic as the OECD suggests, but some adjustments will be needed.” 

Well, it will need to be as dramatic unless political parties bite the bullet. And in this case, there would need to be, and Chris Hipkins said himself, that he was open to having cross party discussions about what to do around the super. Because without change, without sensible, orderly change, it will need to be dramatic. Independent economist Cameron Bagrie told Heather du Plessis Allan last night he's a fan of means testing the super. 

“We're on an unsustainable fiscal path. You know, the Government needs to bite the bullet in regards to making some pretty big, hard, bold decisions. We've been talking about this sort of stuff for 30 years. I can remember modelling this sort of stuff in the 1990s when I was at New Zealand Treasury 30 years ago. And all that's happened is that we've kicked the can down the road. You know, a little bit of stuff has been brought in, New Zealand Super Fund, the KiwiSaver contributions, but when push comes to shove here, we need to address the entitlement side of New Zealand Superannuation and that comes through, you know, potentially lifting the age or means testing has to come into the equation.” 

So what would you be a fan of? And this is accepting that we cannot continue with the status quo – it’s unsustainable and everybody has said that. You might not believe the media, you might not believe politicians, but independent organisations have said this, Treasury has said this, economists, as Cameron Bagrie was saying, from as f

Episode Transcript

Speaker 1 (00:06):
You're listening to the Kerrywood and Mornings podcast from News
Talks HEDB.

Speaker 2 (00:12):
New Zealand. According to the OECD, the Organization for Economic
Cooperation and Development needs to reform electricity sector, expand in
strength and capital markets, speed up digitization of the health sector,
and reform the pension. The OECD joined other international agencies

(00:32):
and calling for the age of eligibility for SUPER to
be raised by indexing it to life expectancy, with measures
to take account of different ethnicities and work backgrounds. A
bit like in Australia. If you're in a tough job
that is tough on your body and you physically cannot
work any longer, then you can get the pension a
bit earlier. It just won't be as much as the

(00:53):
full pension. If Bill English has been able to form
a coalition government when he was leading National, we would
have the age of SUPER by now to sixty seven.
But it doesn't. For those of you who are concerned,
it doesn't go from sixty five to sixty seven overnight.

(01:13):
You'll remember when National maybe you don't. You'll remember when
National was looking at raising the age of sixty seven
to sixty seven. It would just increase six months each year,
and it wouldn't have started until the first of July
nineteen thirty seven, twenty thirty seven, So it doesn't happen overnight.

(01:36):
There's plenty of time for people to get used to it.
It's phased in slowly. It's not a huge seismic shock.
What is a huge seismic shock is the cost of
SUPER to the national economy. Simplicity Managing Director Sam Stubbs

(01:57):
says SUPER is a huge problem that needs to be
addressed urgently. He says, without change, by twenty sixty all
of our income to will only be able to pay
for health and National Super. There will be no money
left or anything else unless we suddenly get incredibly wealthy.
But if things stay as they are pretty much our

(02:18):
GDP stays the same, the increase and the number of
people needing healthcare and National Super will be such that
our income tax will only pay for that. There'll be
nothing for roads, nothing for schools, nothing for any of
the things we like to have. What about the Culoren Fund,

(02:42):
I hear you ask, and that's a good question. The
fund was never a fully funded super scheme. It was
just designed to smooth out some of the population shocks
so that it wouldn't completely cripple the economy. As a
big cohort of the population reach superannuation age, it's expected

(03:05):
to contributed roughly three point three three and a half
percent of the total super cost by twenty forty. It
may well get up to covering ten percent of the
costs by twenty eighty, but certainly not one hundred percent.
Finance Minister Nikola Willis was sort of trying to calm

(03:27):
things down. She told the My Costing Breakfast that changes
don't need to be as dramatic as the OECD suggests,
but it does need to happen.

Speaker 3 (03:35):
In the nineteen sixties, there were around seven New Zealanders
of working age for every person aged sixty five or older.
Today there are four, and by twenty sixty five there
will only be two. So that burden on our taxpayers
is increasing significantly. Already, between last year and the end

(03:55):
of the fiscal period, the cost of New Zealand superannuation
will increase by about six billion dollars a year. It's
rising as a proportion of what we tax you for,
so it's currently just over sixteen percent. It's going to
rise to over twenty percent. And every dollar we're spending
on superannuation is a dollar not available for illustrication, for health,
for infrastructure. So gradually, over change, over time, some changes

(04:19):
will need to be made. They don't need to be
as dramatic as the OECD suggests, but some adjustments will
be needed.

Speaker 2 (04:24):
Well, it will need to be as dramatic unless political
parties bite the bullet, and in this case there would
need to be And Chris Encripkens set himself you know
that he was open to having cross party discussions about
what to do around the Super because without change, without sensible,

(04:48):
orderly change, it will need to be dramatic. Independent economist
Cameron Bagri told Heather do blasy Allen last night he's
a fan of men's testing the Super.

Speaker 4 (04:57):
We're on an unsustainable physical path near the government needs
to buite the bullet and the Guard making some pretty big,
big herd bold decisions. We've been talking about the sort
of so thirty years. I can remember modeling this sort
of stuff in the nineteen nineties when I was at
New Zealand Treasury thirty years ago, and all that's happened
is that we've kicked the can down the road a
little bit of stuff has been brought in the Zeelands
super Fund your key, we say with contributions. But when

(05:20):
push comes to share to shop here that we need
to address the entitlement side of the Zealand Superannuation and
that comes through here. But then she lifted the age
or means testing has to come unto the equation.

Speaker 2 (05:31):
So what would you be a fan of? And this
is accepting that we cannot continue with the status quo.
It is unsustainable and everybody has said that. You might
not believe the media, you might not believe politicians, but
independent organizations have said this. Treasury has said this. Economists,

(05:57):
as Cameron Bagrie was saying from as far back as
the nineteen eighties nineteen nineties, were saying there needs to
be provision made. It can't go on the way it's going.
The advantage for young people or younger people, I guess
is that they have key, we save it, which enables

(06:20):
them to contribute a considerable amount towards a comfortable retirement.
The longer in it, the better it is. You know,
so many decisions we should have made many many years ago.

(06:40):
You look back and we'd be in a far better position,
far more able to wear the economic shocks than we
are now. Had we made those hard calls twenty thirty,
forty fifty years ago. We need to make a hard
call now, not kick the can down the road as
we have been doing, government after government, voting cohort after

(07:04):
voting cohort. So particular poison are you willing to swallow?
Raising it? Bringing back what Bill English proposed, raising the
age of entitlement to sixty seven and starting from the
first of July twenty thirty seven, raising the age at

(07:27):
which you can get it by six months, so you'll
be sixty five years and six months. Sixty five years
and six months is not that burdensome, is it. There
are other ways of doing it gently without a brutal
overnight decision. Is means testing the way to go. I

(07:49):
would always want to see an allowance for somebody who's
had a really tough job to be able to withdraw
it or apply for it earlier, but just get a
little bit less. So I'd love to We need to
have a sensible discussion. We can't just bury our heads
in the sand of successive voters have done over generations,

(08:10):
and governments are going to have to be bold enough
to make the call. Should it be a cross party decision? Yeah,
I think it should be. There should be a collective
agreement from all parties that this is what needs to
happen for future generations.

Speaker 1 (08:26):
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