Hard News by Russell Brown

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Hard News: Superannuation: Back to the Future

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  • Mike Graham,

    Good summary.

    It's unfortunate that the current debate seems to be simply about the retirement age, rather than a broader discussion also encompassing the Cullen Fund, Kiwisaver and how we as a country look after the low waged and/or non-home owning citizens.

    Auckland • Since Nov 2006 • 206 posts Report Reply

  • Rich of Observationz,

    I said some of this elsewhere, but it bears repeating.

    In real world economics, the working part of the population has to produce the goods and services used by the working, retired (and school age) part. Whether we purport to pay for pensions through tax, saving schemes or property inflation, this doesn't change.

    But the positive thing is that we are continually developing advanced technologies that allow us to produce more goods and services with less labour input. So why is an ageing population even a problem? Much of the answer is that we have invented unproductive jobs to compensate for the "loss" of productive ones. Selling "electricity" door to door, for instance. If we stopped doing that type of work, more of the workforce would be producing useful goods and services and we would have no problem with an increasing retired sector.

    There's some of this in Graeber. I'd also note that migration can play a part in lowering the average age of the population and increasing the number of workers - as does better education to enable the working population to add more value.

    Back in Wellington • Since Nov 2006 • 5550 posts Report Reply

  • Lucy Telfar Barnard,

    Another thing that I think is not often mentioned in this debate:
    Although people recognise that life-expectancy is increasing, it's usually in the context of "superannuation will cost us more money", rather than looking at what we think superannuation is for.
    In 1938, when the pension age was 60, those 60-year olds could expect to live about another 17 years after they qualified.
    In 2001, when the pension age reached 65, the additional life expectancy of a 65-year old was 17 (male) or 20 (female) years.
    Life expectancy has increased further since then. A 65-year old in 2013 could expect to live another 19 (male) to 21 (female) years, and four years later I would expect that to be higher again.
    If we think that "about 17 years" seems a fair expectation for the length of retirement, then we should be raising the age now, not dithering about it for another 20 years.

    Perhaps if we increased the age now, we could also look at raising benefit rates for those under 65 years. For many 64-year olds, turning 65 means suddenly they can afford to live with something approaching dignity. I really don't see how a 65-year old in good health has greater need for a livable income than a 64-year old on a sickness benefit.

    MInd you, I'd personally prefer to see some sort of actuarial approach. If life insurance companies can make an educated guess at how much longer someone is going to live, why can't the state? For me, with my parents still alive and my grandparents mostly having lived a long time, I probably wouldn't get to draw on the state until I was 73, while my husband would probably become eligible at 61 - but how is that unreasonable?

    Wellington • Since Nov 2006 • 580 posts Report Reply

  • Rich of Observationz, in reply to Lucy Telfar Barnard,

    The idea of the actuarial approach seems to be that by putting money aside now we'll save having to pay more tax in the future when we have a larger retired population. But when that future point arrives, won't we then have to be saving money for an even larger retired population - we don't know all that well what's going to happen to life expectancies 50 or 100 years in the future.

    Paying for superannuation out of current tax has the advantage of avoiding this uncertainty (as well as investment risk and the issues I discussed briefly above).

    Back in Wellington • Since Nov 2006 • 5550 posts Report Reply

  • John Farrell,

    New Zealand Superannuation - We are paid $591.94 a week, for the 2 of us. It is almost possible to live on that, if you have no debts, and don't expect overseas trips.

    We have no debts because, 9 years ago, we sold up in Auckland and moved to Dunedin; we were able to buy a house outright, and had a little left over.

    The little luxuries (lunches out, coffees, the occasional local holiday) are paid out of the interest on the left over, and on my withdrawn Kiwisaver.

    Dunedin • Since Nov 2006 • 486 posts Report Reply

  • Andre,

    I think that all benefits should be means-tested and the pension is a benefit. Why should we pay hundreds of thousands of well-off oldies a benefit they don't need? Shouldn't we pay more to elderly with no resources? Over 140,000 over-65's are very wealthy. We pay that group about the same in pensions than we do all other beneficiaries combined. All other beneficiaries are, of course, treated in a rather draconian fashion, with entitlements hidden from them and photo ID required to even enter MSD offices.
    The media are ignoring means-testing with a vengeance. I saw a poll on Stuff (I think) the other day asking if the status quo should reign or the age be lifted to 65, 67 or 70 years of age. No mention of means testing in the poll or the lengthy article attached. It is the elephant in the room, with all parties having seen what happened last time adopted it as a policy.Apparently it is too expensive to administrate means testing of old people but not young people on benefits. Why?

    New Zealand • Since May 2009 • 350 posts Report Reply

  • John Farrell, in reply to Andre,

    The expense is political, rather than economic.

    Dunedin • Since Nov 2006 • 486 posts Report Reply

  • Russell Brown, in reply to Rich of Observationz,

    The idea of the actuarial approach seems to be that by putting money aside now we’ll save having to pay more tax in the future when we have a larger retired population. But when that future point arrives, won’t we then have to be saving money for an even larger retired population – we don’t know all that well what’s going to happen to life expectancies 50 or 100 years in the future.

    I'm no expert (calling all experts!) but I think the particular problem here is the size of the baby-boomer cohort, which has basically reshaped society around itself by sheer force of numbers. Which is independent of arguments about the privilege that cohort has enjoyed.

    Auckland • Since Nov 2006 • 22749 posts Report Reply

  • Kevin McCready,

    What has stunned me in the last few days is the number of people who drink the Scarcity Myth koolaid. We're a wealthy society merely in need of a decent tax system.

    Auckland • Since Jun 2013 • 119 posts Report Reply

  • Zach Bagnall, in reply to Russell Brown,

    Independent but fairly relevant given the sums of money at play, if they are also the cohort with the most wealth (in aggregate). Point taken though.

    Colorado • Since Nov 2006 • 120 posts Report Reply

  • Peter Davis,

    There are two design flaws with National Super. First, it is not contribution-based, which means that it is not related to the size of the incoming cohorts, and it is in constant competition with other applications for tax revenues. The schemes elsewhere in the world I am aware of that are most financially sustainable and do not require constant political tweaks are contribution-based. Sweden switched from a benefit-based scheme to a contribution-based one using something like the Cullen scheme to do it. Secondly, it is not grounded in actuarial principles. Hence, the arbitrary age of entitlement. Some other schemes internationally are not based on such a universal age setting. Instead, they work out how many years you are likely to live and your contributions and years of entitlement are based on that. Both these design features can also be proofed for social equity. So, some people find it hard to get the contributions up to their required minimum (say, the current National Super level). These could be migrants, low-income and unemployed, or home-makers. Their contributions would be topped up from taxes. Similarly, the actuarial base would help people who have tough jobs or poor life expectancies. They can retire "early" and enjoy a reasonable number of years in retirement (say, 20-25).

    Since Mar 2016 • 7 posts Report Reply

  • Richard Wain, in reply to Andre,

    Why should we pay hundreds of thousands of well-off oldies a benefit they don’t need? Shouldn’t we pay more to elderly with no resources? Over 140,000 over-65’s are very wealthy

    Amen. I've been hassling my father for years about the moral bankruptcy of accepting the pension as he worked until his early-mid seventies, while earning a six figure salary as a senior lawyer... he joked about it being nice "pocket money"...

    Long past time to means test the pension. Fuck-all chance though of any party grabbing that particular thorny issue while all the Baby Boomers are alive and voting.

    Since Nov 2006 • 155 posts Report Reply

  • Tom Semmens, in reply to Andre,

    The media are ignoring means-testing with a vengeance. I saw a poll on Stuff (I think) the other day asking if the status quo should reign or the age be lifted to 65, 67 or 70 years of age. No mention of means testing in the poll or the lengthy article attached. It is the elephant in the room, with all parties having seen what happened last time adopted it as a policy.Apparently it is too expensive to administrate means testing of old people but not young people on benefits. Why?

    means testing is unfair – everyone pays PAYE, why should you miss out on super? What is the point of contributing to the welfare state if you never get anything back for it?

    Means-tested benefits are unpopular, expensive to administer, carry a substantial stigma, create poverty and unemployment traps, and are unreliable as people’s circumstances change.

    Universal benefits (and I include all benefits here) are (politically) popular, cheap to administer, without stigma, do not create poverty or unemployment traps, are reliable forms of income, and are (or should be) taken back from those who don’t need them through a properly progressive tax system.

    Means testing is superficially attractive, but in the end is self defeating.

    Also, super is hardly unaffordable. Public health costs for aging baby boomers are going to plateau out at around 10.5-11%, Superannuation at around 7-8% of GDP. Yet no one is running around saying the free public health system should be means tested because it is “unaffordable”.

    Affordability of super is a political decision about what we chose to fund and how much tax we wish to raise to fund it, not a economic question of whether or not we can afford it.

    Sevilla, Espana • Since Nov 2006 • 2212 posts Report Reply

  • Katharine Moody,

    Thanks Russell, I had no idea about the history of changes – what a political football.

    It’s a very complex subject if we start the discussion around forecasting and numbers and predicting whether we can/can’t afford this or that or whatever in the future. An elephant-cousin in the room is the burgeoning health cost associated with the extra longevity we are experiencing presently. Much of the additional life expectancy arises I suspect from medical interventions later in life that are now common and available to everyone in New Zealand, in particular the heart/circulatory interventions.

    Our GP told myhusband and I when we were contemplating whether or not my husband would take up the offer of open heart surgery to repair a bad value (oddly enough the specialists just assumed he’d want the referral for surgery) – that the reason he is treating so many more elderly cancer patients these days is because they didn’t die of a heart complication earlier in life.

    Both my husband’s parents died of heart disease before such time as either stents or open heart surgery or cholesterol-reducing drugs were available.

    In a perfect world, I’d prefer that as a society we instead started the discussion around or values/morals – and got some kind of reasonable consensus on all these matters – not only what is morally right for our elderly but for all NZers unable to live with dignity and comfort based on their own earning potential.

    I look at the world from a Marxian perspective, and on this matter when he said:

    From each according to his ability, to each according to his needs

    So I guess my moral position would be: if I am fit and able to work in a role that provides a value-add service to the NZ economy, then I’d say I’m happy to keep working until such time as I am no longer adding value. And then, when I am no longer adding value, I might hope to draw a pension to assist in the funding of my end-of-life years (unless I have accumulated enough wealth not to need one). If I am able to provide a value-add service but choose not to work (i.e., to retire for the purpose of enjoyment of not working) then I figure I ought to have to fund that retirement myself.

    Everyone will have a different moral position – or a different way of framing/expressing their moral position – but it seems to be the one thing that the public is prepared to talk about, but we never hear politicians voicing. Instead politicians give us their “policy positions” followed by words like fairness and equity (i.e., generalised moral sounding ‘words’ so as to be somewhat ambiguous).

    Wellington • Since Sep 2014 • 798 posts Report Reply

  • Katharine Moody, in reply to Andre,

    Well said - with you on that for sure.

    Wellington • Since Sep 2014 • 798 posts Report Reply

  • Katharine Moody, in reply to Kevin McCready,

    Yes, I'm in agreement with that as well :-).

    Wellington • Since Sep 2014 • 798 posts Report Reply

  • Rochelle Wilson,

    Also, don't accept so easily that life expectancy will continue increasing because it has increased so far.
    For reasons of poor diets and environmental toxins of all sorts [and bacterial resistance to antibiotics], people are more unwell now than before. Thus Type 11 diabetes in children and teens .. and there will be a limit on renal dialysis or kidneys available for transplants.
    "Our" life expectancy is likely to begin decreasing fairly soon, certainly good Quality of Life [QOL].
    And Climate Change will have its own hazards.
    I don't want to sound so negative .. I just think what I say is real.

    Kapiti • Since Jul 2007 • 17 posts Report Reply

  • Rich of Observationz, in reply to Rochelle Wilson,

    Do you have a reference for those assertions about increased morbidity?

    Back in Wellington • Since Nov 2006 • 5550 posts Report Reply

  • Rochelle Wilson, in reply to Rich of Observationz,

    Forgive me Richard in that I cannot quote sources, but I know from much reading around medical and complementary health and other sources that what I say is correct. If you listen to National Radio even, you will hear at times that the incidence of even auto-immune Type 1 Diabetes has increased by 10-15% in the last 20 years.Similarly with Cancers, other auto-immune diseases. Just listen, look.
    [I retired from GP Practice in 2015 after nearly 50 years work:in hospitals,Anaesthetics, FPA, Student Health Service, ED then GP]

    Kapiti • Since Jul 2007 • 17 posts Report Reply

  • Peter Alsop, in reply to Andre,

    How do you overcome the major incentive problems with means tested super? Work hard, pay lots of tax (compounding fwd), save, spend wisely and get ...... nothing. The current tax bargain (in my view) includes a late-life rebate called super. So we should discuss tax reform and tax reduction too?

    Wellington • Since Aug 2012 • 38 posts Report Reply

  • Richard Wain,

    But isn't this whole idea that you pay tax to get money back yourself just wrong?

    Don't we pay tax so that people less well off than us don't starve and (hopefully) have a roof over their heads?

    And, roads, etc. The communal good. Not to get money back to our own bank account.

    Since Nov 2006 • 155 posts Report Reply

  • Kiwiiano,

    Wasn't 2037 about when it was predicted that a Universal Minimum Income would be necessary with so many jobs being automated, disappearing entirely with no promised alternatives, or only being available to highly trained and capable specialists? Try teaching a freezing worker to cut code.

    And why do so many people assume that an OAP is going to disappear into some hidden overseas bank account or be splurged on gold-plated Italian marble bathtubs? More likely to be frittered away on groceries, power bills and/or doctor's fees, but at least the GST will be back in the coffers promptly and a fair bit of the rest will be taxed one way or the other unless the Crumblies are investing in new iPhones or cruises down the Danube. Money works best if it goes round & round.

    ChCh • Since Nov 2006 • 46 posts Report Reply

  • Richard Wain,

    I mean, if you need the pension, great. It's there for you. But if you really don't... why give it to you?

    Since Nov 2006 • 155 posts Report Reply

  • linger, in reply to Richard Wain,

    One reason would be because most NZers have already been paying taxes, for decades, on the understanding that they would get national super.

    Tokyo • Since Apr 2007 • 1887 posts Report Reply

  • Paul Baker,

    It strikes me that there is little point in looking at the issue of retirement age and the future of superannuation without a much broader discussion about the future of work itself. It is increasingly clear, despite the strident promises of Trump et.al that many jobs in modern economies are disappearing for good (as opposed to being 'stolen' by pesky Mexicans and Chinese) and are unlikely to be replaced in anywhere sufficient numbers by new jobs created by technological advances. In light of this, the real concern should be less the relative decline in working age people but the likely dramatic decline in tax-paying employment in general. Radical though it may seem currently, the idea of a universal basic living allowance for all citizens may increasingly be seen at as a fix for a failing capitalist model (which needs consumers with cash) and could make the idea of pensions obsolete.

    Dunedin • Since Jul 2015 • 5 posts Report Reply

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