Super worries

For the past 35 years, political parties have wrestled with the looming problem of paying national superannuation to future generations, especially given the particular problem of the "bulge" in numbers due to the post-war "baby boomers" reaching retirement age.

New Zealand has carried the expectations derived from the welfare state for so long now that it has become inbuilt, and saving for retirement a phenomenon of only very recent times, so reliant have the bulk of the population become on a state-funded pension.

Those expectations were given a quite unjustified, cynical twist in 1975, when Robert Muldoon helped buy the National Party back into power by his scheme of retirement at 60 with a non-means tested pension pegged at a generous 80% of the average ordinary-time weekly wage, less tax, which was in itself a response to Labour's limited compulsory contributory scheme.

In the years of the Clark government, various attempts were made to achieve a universal policy acceptable to all the major parties, but these ultimately failed.

Eventually, what became known as the Cullen pre-funded scheme appeared - no other politician or party had come up with a credible alternative - which established the mechanism to help fund future payments by setting aside a part of Budget surpluses.

Its principal weakness was its potential impact on future Budgets and future superannuation payments in times of economic gloom, for the first decision in any future Budget for the next 25 years will be the call on superannuation funds, not less than $2 billion every time, and such a burden will inevitably have an impact on other spending plans.

It has not taken long for negative circumstances to arise or for a government to have to face the unpalatable.

National's expectation that the Crown faces deficits of up to $10 billion, and for the next decade, is the chief reason why contributions to the Cullen fund have been suspended, but as Mr English has said, they will resume when the economy returns to surpluses; that was why the suspension of contributions was envisaged in the empowering Act.

The Treasurer's decision to suspend contributions is correct because it makes no sense to continue with borrowed money. The Cullen scheme was designed only to soak up surpluses - to keep the "savings" in the bank, so to speak.

For the Government to now decide, when times are tough, to borrow the funds to keep the scheme propped up would be to concede that providing certainty in state superannuation was guaranteed, no matter what, and never mind the true cost to future generations.

The first casualty were this to happen would be private savings. Government superannuation will never be more than modest and there needs to be renewed vigor to promote private savings to supplement it.

The task force on superannuation, which was the last pre-Cullen proposal, attempted to take it out of the political arena by encouraging private savings. The response from younger people with good incomes has since been encouraging, for many are now investing in retirement.

But older people with few income-earning years left before retirement, and those without much disposable income to save, especially women, are faced with a frustrating quandary: they are being urged to save from small or non-existent resources and warned they will otherwise face a retirement in poverty.

It is a prospect for this particular group deserving of Parliament's further attention, particularly in a search for ways where the costs of living for pensioners can been reduced in key areas such as electricity and heating.

Some worthwhile achievements have already been made with health expenses and transport costs, but there needs also to be attention to more innovative ideas, such as a carer's credit where the State would top up the savings funds of mothers who stay at home to look after children.

Divorce can also expose women to poverty in middle age when the division of assets reduces income for both partners, although usually the male has the better chance of continuing earning capacity and is therefore in a better position to supplement a retirement pension.

The suggestion by the multi-millionaire economist Gareth Morgan, for the age of eligibility for state pension to be raised again, can only be justified in the existing situation as a long-term measure, that is to say one requiring a signal of at least 10 or 20 years so that people on average or below average incomes have the time to make provision with private savings.

But, as a correspondent to our letters column noted, not everyone makes their income sitting at a computer desk; many spend their lives in hard, physical work, and the prospect of still having to do that at 68 to even 70 before being eligible for superannuation is, at the very least, disheartening.

A prudent person, perhaps now in their 20s or 30s, should realise there is a high probability universal state superannuation is unsustainable in its present form; that it is a false mindset to assume because people have paid their taxes they will get state superannuation; that superannuation will inevitably be means tested and the retirement age extended. It is a sobering but realistic prospect.


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