Time to plan for retirement

Diana Crossan.
Diana Crossan.
As Retirement Commissioner Diana Crossan gears up to leave in January the role she will then have held for 10 years, the tireless advocate for financial literacy and retirement planning is taking some parting shots at Prime Minister John Key, warning his refusal to raise the eligibility age for New Zealand Superannuation means he will have to cut other spending to pay for it.

Ms Crossan has been frustrated by successive governments' ongoing refusal to consider her recommendation, first made in 2006, of gradually raising the age of superannuation entitlement from 65 to 67, starting in 2020.

Statistics New Zealand figures show that at June 30 this year, the number of New Zealanders aged 65 and above was more than 610,000 - 14% of the total population of 4,433,100.

Looking ahead about 25 years, the number is projected to rise to 23%, and in about 50 years to 26%, or 1.5 million of the projected population of 6 million. The number of New Zealanders aged over 85 could rise at least fivefold to up to 430,000. With a declining birth rate, the country's smaller working-age population will shoulder an increasing burden, exacerbated by the health costs associated with an ageing society.

The Prime Minister said in 2008 he would resign before he would raise the age of entitlement, and his position has not wavered.

The Labour Party says it will work towards increasing the age.

Both major parties have changed their stances: the then Labour government condemned the commissioner's 2006 report; and, in 1991, it was National that started the process of raising the age of entitlement from 60 to 65.

The current deadlock has clearly frustrated Ms Crossan, who last year said politicians appeared to "have their heads in the sand". However, others are listening. Financial adviser and KiwiSaver provider Mercer New Zealand has warned of a "fiscal time bomb" and backed the call for an increase in the age of eligibility to 67, suggesting New Zealanders defer retirement to 70.

The Treasury has warned the Government must start addressing future superannuation costs, and makes a case for lifting the retirement age. It projects the current cost of superannuation of about 4% of gross domestic product (GDP) will double by 2050. And the Financial Services Council has warned taxes will have to rise by a third to cover superannuation. It says the Treasury's estimate of 8% of GDP by 2050 is much too low because the department is underestimating how long people will live and says there is evidence the cost of superannuation will double by the end of the century to 12% of GDP - or $24 billion in today's money.

Mr Shearer has called for a cross-party solution, calling the current situation "unsustainable".

Mr Key says no discussion is required and there are more pressing issues with which to deal. He says New Zealand can afford the increasing costs until 2020.

In May, Finance Minister Bill English said the Government was focusing on policies "to grow the economy" to meet the rising cost.

Mr English also said the only feasible way to raise the superannuation age was to signal it "well ahead of time".

Of course, that is exactly what Ms Crossan's approach during her tenure has been: to encourage long-term planning on the issue, and to give the public a chance to get used to the idea long before it is required - something that was criticised in 1991 as the policy was brought in almost immediately - albeit spread over several years.

"If we plan ahead, New Zealand could afford it," Ms Crossan says.

Mercer New Zealand head Martin Lewington says: "Ultimately, the industry, government and individuals must come together to solve the national retirement issue and do what is best for New Zealand's future generations."

Other countries with a pension age of 65 are in the process of raising it. These include Australia, the United States, the United Kingdom, and most European Union countries. It seems inevitable the same must happen here. But just which government will heed the calls - and when that will be - remains to be seen.

 

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