Bernard Hickey: We have to fix our pension problems before debt overwhelms us

Photo / The Aucklander

Prime Minister John Key has done his best to shut down any debate about reforming New Zealand's pension system.

This is a pity but the good news is there is still time to solve our problems before public debt overwhelms us in a Greek-like wave.

Key's pledge to resign if the retirement age was raised from 65 or the New Zealand Superannuation income was cut from its current 66 per cent of median incomes has blocked discussion at a political level.

So it was great to see policymakers, rather than politicians, continue to debate the need for reform at a conference in Wellington on Retirement Income Policy and Generational Equity this week run by the Retirement Commission and Victoria University.

Senior Citizens Minister John Carter stuck closely to his script about how everything was just fine. He opened the conference with a Polyannish speech which even denied there were any issues with younger generations being forced to repay debts in future that were being incurred now by older generations.

Treasury was not so sanguine. Deputy Chief Executive Gabs Makhlouf told the conference that Treasury had redone its long term fiscal projections that worried so many when it was released in 2009.

Back then, in the midst of the Global Financial Crisis, Treasury forecast net public debt would rise from around 20 per cent now to an unsustainably high 223 per cent by 2050 unless New Zealand changed its policy settings on free public health and universal pensions.

Treasury warned New Zealand faced sharply higher interest rates, higher taxes and slower growth unless it reformed its pensions and health system and/or reformed the economy.

The ageing population and an increase in the dependency ratio would stunt New Zealand's growth and the resulting budget deficits would quickly build up debt to the point where foreign creditors would turn off the taps.

But things have improved somewhat since last year. The starting point for debt is not so high and the growth outlook is better. But the outlook was still not sustainable.

Treasury is, of course, right. Solutions include a later age to start receiving NZ Superannuation, a lower pension payout, means testing or a surcharge for high earning pensioners.

Strengthening economic growth now is also crucial. Most are long term solutions for a long term problem. We should be debating them now.

bernard.hickey@interest.co.nz