John MacDonald: Are we ready to accept the truth about NZ Super?

After yesterday’s half-year fiscal update from the Government, the canary in the mine is gasping for air and the elephant in the room is walking all over everything.

And economist Cameron Bagrie is saying that we can’t ignore either of them - particularly in relation to the long-term outlook and what it means for superannuation and retirement planning.

He says, with Government debt forecast to blow-out long-term, we need to accept the fact that the universal pension scheme is unsustainable. 

Government debt is forecast to increase to 180 percent of GDP in 30 to 40 years because of the ageing population and Cameron Bagrie says if we think tinkering around the edges with KiwiSaver is the solution, then we’re dreaming.

And I couldn’t agree more.

He says a conversation about the sustainability of superannuation can’t be avoided forever. I  would disagree with him slightly on that one. I think that conversation about the sustainability of our NZ Super scheme needs to happen now.

My view on NZ Super is that it’s crazy people who work beyond 65 get the pension. Even though it’s taxed at a higher rate - I get that. But I still think it’s wrong.

I've also been a fan of some form of means testing.

But, if I’m honest, do I really think the scale of the problem we’ve got - especially long-term - would be sorted out by not paying the pension to people who continue to work beyond 65 and means testing people before they get the pension?

Probably not.

So, if we’re really going to think long-term, I reckon we need to make the call that people of a certain age are told that the NZ Super pension won’t be available to them by the time they reach retirement age.

This would have to be long-term. So, for arguments sake, let’s say we told people who are 35 and younger that they will have to provide for themselves completely when they retire.

That would give them at least 30 years to get themselves sorted. In fact, I would say that people in this age group probably assume now anyway that they won’t be getting a government pension by the time they reach retirement age.

So what I’m talking about is a very gradual phase-out of the government pension.

I’m in no doubt that something like this is needed. Because we are dreaming if we think we can keep doing what we’re doing.

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Episode Transcript

Speaker 1 (00:06):
You're listening to the Canterbury Mornings podcast with John McDonald
from News Talk ZB.

Speaker 2 (00:12):
After yesterday's half year fiscal update from the government, the
canary in the mine is screaming its head off and
the elephant in the room is walking all over everything,
and at least two economists are saying today that we
can't ignore either of them, the canary or the elephant,

(00:33):
particularly in relation to the long term outlook and what
that means for superannuation and retirement planning. Let's start with
Cameron Bagriy. He's saying today that with government debt forecast
to blow out long term, we just need to accept
the fact that the universal pension scheme is unsustainable. So

(00:55):
government debt forecast increase to one hundred and eighty percent
of GDP in thirty or forty years, about four times
what it is now. Why is that because of the
age population? And Cameron Baggery says if we think tinkering
around the edges with kiwisaver is the solution, will we're
dreaming And I couldn't agree more. He says a conversation

(01:21):
about the sustainability of New Zealand super can't be avoided
forever now I would disagree with him slightly on that one.
I say that the conversation about the sustainability of our
New Zealand Super scheme needs to happen right now. Don't
wait around for it has to happen right now. We've
got to be open and honest and upfront. Another economist

(01:44):
on the same wavelength as Brad Olsen from Infometrics, Now,
I'm going to let him run through some of the
numbers which I think prove how much we are dreaming.
If we think we can just keep on keeping on
with New Zealand Super the way we are now have it.

Speaker 3 (02:00):
Listen to this, At one point, it's going to be
thirty billion dollars that New Zealand spends on Super out
towards the end of the decade. At that point, it's
more than the entire education budget at once. So like
that one item, that one incredibly large amount of money,
is such a fundamental one that unless you make a
change to that, I really don't think that you sort
of make any headway into the fiscal conditions at all.

(02:21):
Every other thing is rats and mice.

Speaker 2 (02:23):
You hear that. You hear that every other thing is
rats and mice compared to superannuation New Zealand Super. The
number one thing we have to address long term is
New Zealand Super and this pipe dream that we can
afford to pay it to anyone and everyone just because
they're rich a certain age. Now you may be familiar

(02:44):
with my views on New Zealand Super. Basically, I have
said previously that I think it's crazy that people who
work beyond sixty five get the pension. Even though I
know it's taxed at a higher rate. I get that,
I still think it's wrong, and I've also been a
fan of some form of means testing. But if I
am totally honest, do I really think the scale of

(03:08):
the problem we've got, especially long term, Do I really
think that would be sorted out by not paying New
Zealand ser bit of people who continue to work beyond
sixty five? And do I really think it would be
sorted by means testing people before they get the pension.
If I'm totally honest, probably not. That's the scale of

(03:28):
the problem, which, if we're really going to think long term,
I reckon we need to make the call that people
of a certain age right now are told that the
New Zealand Super Pension won't be available to them by
the time they are rich retirement age. This is what
I think is needed, no tinkering. I don't even think

(03:49):
the ideas I've suggested before cut the mustard. Now. What
I'm talking about here would have to be long term.
So for argument's sake, or for the sake of today's discussion,
let's say we told people who are thirty five and
younger right now that they will have to provide for
themselves completely when they retire. Now, that would give them

(04:13):
at least thirty years to get themselves sorted, wouldn't it
at least thirty years. In fact, I would say that
people in this age group now, so thirty five and younger,
I would say that they probably assume anyway that they
won't be getting a government pension by the time they
reach retirement age. So what I'm talking about here is

(04:34):
a very gradual phase out of the government pension completely.
I'm in no doubt that something like this is needed,
because we are dreaming if we think we can keep
on doing what we're doing.

Speaker 1 (04:47):
For more from Caterbory Mornings with John McDonald, listen live
to news talks. It'd be christ Church from nine am weekdays,
or follow the podcast on iHeartRadio