Treasury predicts the cost of Aotearoa’s universal superannuation scheme will hit $49 billion by 2041, and is projected to grow 1.5 times faster than the economy in the next 40 years.
Infometrics principal economist Brad Olsen, who is in his 20s, told Q+A’s Our Future/Tō tātou anamata special the system is already expensive and costs are only going to rise, and increase the burden on younger taxpayers.
“Nearly $19 in every $100 that is paid in tax to the government goes straight to Super. It’s a huge amount ... over time New Zealand Super is going to be a very expensive proposition. It’s going to cost a lot of money. Importantly its going to cost young people as we go forward.”
He says Aotearoa doesn’t have the population to pay new retirees at the same age and level as the current system.
“In 1996 there were 5.7 people aged 16-64 supporting every retiree. At the moment its 4.1 people ... in the 2060s we’re talking 2.2 so you’re going to have a lot of older retirees who are getting Super for longer and fewer young people, fewer working people able to support that.
“That doesn’t sound fiscally responsible or fiscally sustainable,” Olsen says.
He is one of those arguing to raise the age of ellibility, something that is happening in many countries with large populations of Baby Boomers heading into retirement.
But Jane Wrightson, the Retirement Commissioner, says affordability is the wrong question to focus on.
“What kind of society do we want and what kind of system do we want for our older New Zealanders. The age itself is only one lever and ... if the system is too expensive, and that’s a big if, because these are projections not forecasts, then what do we want to happen?
"And the important thing I think is creating a system that involves dignity and mana for our older New Zealanders.”
Wrightson says New Zealand’s Super system is “quite weak” and changes shouldn’t be made without more data and considerably more analysis of the wider trends.
David Marshall from Grey Power thinks the system as it stands is sustainable.
“New Zealand Super is one of the most efficient and cost effective worldwide, its quite envied, and if we look at the current cost its perhaps about 5 per cent of GDP and the average in the OECD is 8.5 per cent, and I think even with the projections for 30 years we’re looking at 7.5 per cent so we’re still below the average for the OECD.”
Jenesa Jeram, a public policy researcher based in Wellington, agrees that New Zealand’s system compares favourably with overseas, however she has concerns about how the surge in retiree numbers over the next 20 to 40 years will be paid for.
“New Zealand Super is a great system in a lot of ways. It’s universal, its administratively simple, and it’s still a bit more affordable than a lot of OECD countries, and still will be in the future,” says Jeram.
“One of the things I am worried about is government debt, however. We know that as the population ages we’re going to have fewer working people and a lot more people drawing on New Zealand Super.
"If we don’t change taxes or government spending the government’s going to need to borrow a lot more money to afford New Zealand Super.”
Islay Aitchison is another young Wellingtonian who wants changes to the superannuation system.
“By keeping New Zealand Superannuation eligibility at 65 and by indexing the amounts to New Zealand wages we’re imposing a burden on a group of New Zealanders that are already going to face costs in their lifetimes in areas like health, housing and the environment.
"And, unfortunately, as the New Zealand population ages superannuation costs are only going to go up. And at the moment young people are going to have to pay for that through increased taxation, servicing increased debt or loss of public services.
“I recently asked a friend if she was expecting to receive a pension at 65 and she just laughed. It’s pretty clear we’re paying for a benefit that we’re not going to receive in anywhere near as generous terms.
"But, unfortunately, it’s not clear what the long term plan for superannuation actually is and that’s a problem In itself because we don’t know what we’re going to have to save," Aitchinson says.
Wrightson argued that changes that have been publicly floated – such as raising the age of eligibility, means testing the benefit, or increasing taxation to pay for it – “None of these are politically popular and that is the quandary that every government has.”
She’d like to see a cross-party coalition discuss and decide on any alterations to the system. She says the stability of the system, the need for certainty so people can plan for their retirement, is crucial.
Aitchison is one who wants greater clarity about what is going to happen.
“At the moment its really unclear what the long term plan for superannuation is. And that’s a problem for a few reasons.
“People that are looking at having it cut in the next couple of decades need to start changing their saving behaviour now. And more long term, young people need to plan their whole lives considering what their retirement is going to look like and where the money is going to come from.”
You can watch Q+A’s Our Future/Tō tātou anamata special on superannuation from Sunday at 9am on TVNZ 1 and 1NEWS.co.nz.