Economy Hub: Will Super changes be enough?

The Economy Hub: The economic challenge caused by our ageing population is so hard to predict that there is no guarantee raising the Super age will be enough, says fund manager Matthew Goodson.

On Monday Bill English announced a new policy which will see the Government seek to raise the retirement age from 65 to 67 by 2040.

Treasury has projected that superannuation costs could blow out to 8 per cent of GDP by 2060. Up from just 4.3 per cent in 2010.

It was courageous of the Prime Minister to tackle the issue in an election year, Goodson of Salt Funds Management told The Economy Hub.

But Treasury predictions were highly speculative and based on assumptions about GDP growth.

"If GDP grows a little faster then it won't be a problem. If GDP grows a little slower then it will be a huge problem," he said.

There was no room for political dogmatism, he said. "It's good to have the debate. But the key here is flexibility."

The age of eligibility will begin progressively lifting in 2037, reaching 67 by 2040. Anyone born on or after July 1, 1972 will be affected.

The proposed changes wouldn't solve the issue but should be the start of a debate about a whole lot of issues about our ageing population, said ASB senior economist Chris Tennent-Brown.

"One of the tough things about this one is if you are born a couple of years either side of the line you could be $50,000 better [or word] off," he said. "That's why the debate need to be about a whole range of issues around this inter-generational stuff and how we fund retirement."

The proposed changes would save the Government $4 billion a year, or 0.6 per cent of GDP, once fully phased in.

But opposition leader Andrew Little has indicated Labour would oppose a lift in the age.

He has argued that the Government would be better to resume contributions to the NZ Super Fund to cover the costs of the scheme.

Goodson said he felt that opportunity may have been missed.

If returns were ahead of the interest the Government was paying on debt then it would help, he said. But it wasn't reasonable to extrapolate the returns of the past few years out to the next 20 or 30 years.

"With no contributions in the past few years we've missed the greatest bull market in bonds in history and a wonderful equity bull market as well. Right now from a tactical point of view it would be a particularly poor time to resume contributions."

In the end big challenge for New Zealand and many other Western nations - was dealing with the demographics of a population was living longer and had a low birth rate, said Tennent-Brown.

So the super changes reflected a bigger question about how long we wanted to be retired for and how productive we needed older people to be.

In was going to be important for governments to look at how older people fitted in to the work place and issues like retraining, he said.

Likewise there could be a range of different solutions, Goodson said.

"Maybe it's New Zealand still being an attractive place and with sufficient infrastructure to attract continued immigration, maybe its a more aggressive policy aimed at boosting the current birth rate, maybe its a range of different choices around healthcare. Which is just as a large a problem as pensions."