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Squabbling about the retirement age is bailing out the dinghy as a tornado approaches. Bruce Munro looks at the perfect storm brewing on the horizon and asks whether we even know in which direction to row.

Paula Hardie is lying stretched out in the sunshine on the Otago Museum Reserve grass, reading something on her phone.

Dotted across the lawn, in singles and small groups, are dozens of fellow university students, all enjoying the afternoon autumn sun. Compared to many of those around her, Miss Hardie is a ''mature student''. She is back at university after ''a bit of a break'' to finish off a bachelor of commerce degree majoring in accounting. As well as studying part-time, she is working full-time in the accounts department of a large cleaning company.

She has a $30,000 student loan. But at 26 years of age, Miss Hardie reckons she has more than enough years to build a life and a future with her partner. They want to work hard, work smart and retire young.

The sun may be shining, but retirement commissioner Diane Maxwell says a ''perfect storm'' is brewing.

During the past fortnight, there has been a lot of talk about New Zealand Superannuation. The Government has signalled the age at which people start receiving the universal old age pension will go from 65 to 67, rising incrementally between 2037 and 2040. It has caused quite a hubbub. Most of the pronouncements by politicians and commentators have been on whether it is affordable as it is, or, if it needs to be changed, when.

Ms Maxwell, however, says affordability is not the real issue. She strongly believes most of the public debate has been too narrow.

''I was hoping people would think more broadly. But it appears that is very difficult,'' Ms Maxwell says with a wry laugh.

''Affordability is seriously the wrong word. It's about the choices we make ... and what ultimately we believe we should invest in.

''The point we try to make with people is that it is an ecosystem ... it is all interconnected.''

From where Ms Maxwell sits, trying to help New Zealanders prepare for the future, the choices will be increasingly difficult and the implications far-reaching.

Today, Super, which is paid for by taxes, costs $30 million every day. In 20 years time it will cost $98 million a day, more than $35 billion a year. By 2060, it will be a whopping 8% of GDP. The Government has been squirrelling money away against that day, investing in its sovereign wealth fund, the Super Fund. But National hit the pause button on contributing to the Super Fund when the Global Financial Crisis hit and has not yet hit ''play'' again. But even when a future government does start using the Super Fund, it will only pay for up to 7% of the annual cost of Super. The rest will continue to be paid for by taxes.

Super will cost so much because New Zealand's population is ageing. We are also living longer, and so getting  Super for longer, too. A century ago, life expectancy was  60; now it is 89 for women and 86 for men. Those born last year can expect to live to 93, for women, and 91, for men.

But a longer life does not But a longer life does not necessarily mean a healthier life. The Government's health spend has already started climbing and will continue that upward trajectory.

All this has to be paid for, somehow. But an ageing population means fewer workers paying tax.

''There's going to be some difficult choices,'' Ms Maxwell says.

''If you look at last year's government expenses, Super was up by $700 million in one year, and health was up by $600 million.

''So, the problem is you have a double whammy, because you are going to have fewer young people working while you have far greater health costs and far greater Super costs. And then you have other costs that increase because you have an older population. I describe it as a perfect storm.''

Ms Maxwell's job is helping people see that storm on the horizon, so they can work out what it means for them individually and for the country.

New Zealanders need a better understanding of money, both their own and the Government's, she says. Then they can understand the sorts of debates that need to be had.

''It's about getting people to pull their heads out of today for long enough to think about the long term.

''One of the most effective ways to get people to save is to show them a picture of themselves that has been aged: it is the thing that makes people connect with their future self and do something about it.''

 

Miss Hardie is doing that, using one of several free ''photo ageing'' apps available online. Her lips purse and she looks a little tense while she waits for the image of her aged self to appear on the phone screen.

When it does, she momentarily looks shocked. Staring back at her is a much older woman with grey hair, crows feet around her eyes and weathered skin.

''I look a bit like my mum,'' she says with a grin before taking another longer look.

Miss Hardie is asked what lifestyle she wants for that older version of herself.

''I want her to be quite comfortable,'' she says.

''No debt. I'm not too sure about family.

''Not a lavish lifestyle, but enough money to travel and do what she wants to.''

That means Miss Hardie senior needs a good chunk of money in addition to her NZ Super. The pension pays $385 a week to those aged 65 and over. But officials admit that does not cover the basics. The government-funded Commission for Financial Capability estimates a frugal senior living on their own needs between $419 and $490 a week to get by, depending on where they live. If they want more than the basics they will need $754 to $782 a week. It is the same picture for couples. They get Super of $592 a week. But couples need up to $678 a week for a no-frills lifestyle and up to $1092 a week if they want the somewhat-accessorised version of retirement.

Miss Hardie and her partner plan to plug that gap by working hard to build a rental property portfolio.

Working backwards from their future needs is the process financial planner Neville Caird takes people through. The next step is finding a way to save money and then grow those savings, Mr Caird, of the New Zealand Financial Company, says.

''If I've got someone who is really serious about their future, they already will be thinking about wants and needs,'' Mr Caird says.

''What they need to be paying for, they pay for. And that might leave a surplus. And then it's about what they're doing with that surplus.

''Whereas, a lot pay what they have to pay, and then the rest is free spending. And they spend the whole lot. That, to me, is someone who is not really serious about looking at their future.''

It would be comforting to think a bit of elbow grease was a sure guarantee of a comfortable retirement.

It will get individuals a long way, without a doubt.  But, as Ms Maxwell has pointed out, we live in interesting times.

The day is fast approaching when all the options on the table will be distasteful; increase taxes, decrease spending or borrow to cover the shortfall.

''At that point you have to say, OK, do you take that money from education or health or law and order? Or do you raise taxes?'' Ms Maxwell asks. ''It's hard to say you want to spend less on health when health costs are rising rapidly. Where does it come from?''

One helpful change could be to make KiwiSaver a compulsory retirement savings scheme. New Zealand had a compulsory scheme, briefly, in the mid-1970s. But Robert Muldoon rode to power on the promise of a state-funded scheme. It has remained such ever since.

Today about 2.5 million people have a KiwiSaver fund. Half of them put in less than $1000 a year, and half of those put in nothing. Across the Ditch they have a compulsory scheme. In two decades that has become a $2 trillion fund, which supplements Australia's means-tested national pension.

Ms Maxwell says ''compulsion'' has its advocates in New Zealand. But she is not sure it is a good fit.

''I've considered it, I've circled around it. I'd never say never, but I haven't gone there yet. It's part of the New Zealand psyche that we are not that happy to have people tell us what to do with our money.''

It is a potential safe haven we seem unlikely to explore.

In the meantime, the demands on the finite, taxpayer funded government purse continue to mount, raising financial and ethical dilemmas.

Why, for instance, is Super so generous compared to our high rates of child poverty?

It is a question posed by Prof Jonathan Boston, of the School of Government, at Victoria University of Wellington. Prof Boston is, among other things, a child poverty researcher. He has also just published a book, Safeguarding the Future, about the tendency of democratic governments to favour short-term thinking.

''We have made a very deliberate and, I think, justified call that we want our elderly to live in circumstances where they are not suffering significant material deprivation,'' Prof Boston says.

''We have not made that same call in relation to our children. We have, in effect, said we are prepared to tolerate significant levels of deprivation, even severe deprivation, among our children.

''I think that is morally unacceptable.

''We cannot totally divorce the question of how we organise our superannuation arrangements from the question of how we provide for other parts of the community that have significant needs.''

It is another example of the storm brewing and the public discussion still waiting to happen.

Prof Boston says the Government should not have made decisions to change NZ Super without first having had a broader discussion.

''We need to recognise - and this is really important, and it has been lost sight of in the debates of the last few days - that the current [NZ Super] framework was the product of a multi-party agreement in the early 1990s; one of very few multi-party agreements we have had in New Zealand.'' 

That negotiated agreement between the three largest political parties at the time recognised that superannuation is one element of a contract between citizens and the State. Citizens pay taxes and live law-abiding lives; the State takes care of people when they experience injury, sickness and unemployment and when they reach retirement.

Retirement is an important part of the equation because it is a long period of life during which many people have no income other than Super, he says.

''So, we need to make any changes ... very, very carefully, and with widespread agreement.

''That contract, if it is to work well, needs to be durable so people can plan properly and have a sense of security.

"It needs to be done in a careful and negotiated manner ...  Government hasn't done that. I think that is very unfortunate.''

Like child poverty, home affordability is another element of the weather system about to make landfall.

The weekly Super payment is based on the assumption that, by 65, most people own their own home, debt-free. That is increasingly untrue.

During the 1990s, an average house cost two and a-half times the average annual salary. It is now more than five times the average salary. During just three months at the end of last year, home affordability declined a further 2.8%, states Massey University's Home Affordability Report. Central Otago and the Lakes District, along with Auckland, are now the least affordable regions if you want to get off the rent-paying treadmill.

Trying to pay rent when your only income is Super is a daunting, if not impossible, prospect. It is likely to become increasingly common.

''Do we want to be a property-owning democracy or not?'' asks Prof Boston.

''If so ...  it may mean we need to be investing very heavily in the building of affordable homes, with the Government taking the lead in that on a pretty massive scale.''

Add it to the list of things to think about.

One doozy to go - that we know of - and it is a big one.

The world is on the brink of what is being called the Fourth Industrial Revolution. It will be a complete overhaul of the way we work and live, brought on by artificial intelligence, robotics and the ''the internet of things''.

One result of this sea change will be the automation of many existing jobs. It is widely anticipated that 40% of current jobs will disappear by 2050. Ms Maxwell takes a positive line on this. Yes, jobs will disappear, but others will replace them, she believes. That future job market has been described by Paul Mason, director of Innovate UK, as ''the survival of the most adaptable''.

Mark Spelman, who is a member of the executive committee for the World Economic Forum, has been reported saying there will be winners and losers in this new world.

''I imagine there will be one-day training blitzes where people learn new skills quickly, and then are employed for a month while they're needed.''

Creativity and complex thinking will be key to successfully competing with machines for jobs.

Who will pay for the regular retraining required to stay up-to-date and competitive? Who will provide for those who cannot compete?

Is the notion of paid work even relevant in that world? And, if not, how do we organise the distribution of resources? Is a Universal Basic Income the answer?

Ms Maxwell agrees innovative solutions will be needed, but she worries about how something like a Universal Basic Income would be paid for.

Prof Boston says he honestly does not know the way ahead.

''I haven't thought long and hard about the implications of the Fourth Industrial Revolution and how we should rethink our welfare system in light of that. But it seems to me we should be thinking about it.''

Big changes. Big questions. Big gaps.

Clearly, squabbling about the age of Super entitlement is bailing the dinghy as the tornado approaches.

Perhaps the helmsmen know in which direction we should be rowing.

Prime Minister Bill English made the recent announcement about changes to NZ Super.

Asked whether a more comprehensive stocktake and a wider discussion was needed, Mr English's staff forwarded the questions to Steven Joyce, the Minister of Finance.

Mr Joyce's emailed reply was, in effect, that it would be best to wait until the storm got a little closer.

''We are very aware of the need for public engagement, which is why we've announced our policy now,'' he said.

''In regards to the other matters you raise, for example the effect of technology on work, the Government is acknowledging this by including a review at 2030 on any transitional arrangements that may be required.''

Super facts 

NZ Super pays $385 a week to those aged 65 and over. But that doesn't cover even the basics. The government-funded Commission for Financial Capability estimates a frugal senior living on their own needs between $419 and $490 a week to get by, depending on where they live. If they want more than the basics they will need $754 to $782 a week. It is the same picture for couples. They get Super of $592 a week. But couples need up to $678 a week for a no frills lifestyle and up to $1092 if they want the somewhat-accessorised option.

What it costs: Today, NZ Super costs $30 million each day. In 20 years, as the retiree population swells and the number of working taxpayers diminishes, that cost will be $98 million a day, or about 8% of annual GDP.

The Super Fund: The Super being paid out today does not get paid from the Super Fund but rather from today's taxes. The Super Fund is like Kiwisaver for the Government; it is a sovereign wealth fund that will help pay for NZ Super in the future, probably from about 2032. Then, it will only pay for 5% to 7% of the annual cost of NZ Super. The rest will continue to be paid from taxes. The Government stopped squirrelling money away in the Super Fund in 2009, after the GFC hit, but says it will resume contributions sometime.

Sea change: During the past century, average lifespans in New Zealand have increased 50%. They continue to lengthen. That means many more people on Super and much greater health costs.
Within 30 years, upwards of 40% of the jobs we now have are expected to disappear, largely due to automation.
Housing is increasingly unaffordable. An average house now costs more than five times the average income. More people will be renting into retirement.

Planning tools:
www.sorted.org.nz/tools/retirement-planner
www.sorted.org.nz/tools/kiwisaver-savings-calculator
 

Senior moments

A brief history of New Zealand Superannuation

• 1898: Richard Seddon's Old-Age Pensions Act lays the foundation for the welfare state.

• 1975: Labour Party sets up the compulsory save-as-you-go New Zealand Superannuation scheme.

• 1976/76: Robert Muldoon replaces it with taxpayer funded pay-as-you-go National Superannuation.

• 1993: An accord signed by National, Labour and Alliance establishes New Zealand Superannuation.

• 2002: Pension age raised to 65.

• 2007: KiwiSaver voluntary long-term savings scheme begins.

• 2017: Bill English announces Super entitlement age will be raised to 67 by 2040.