Between the lines: Danger of meaner attitudes to pension

Can we trust politicians to be more provident on our behalf than we have proven to be ourselves?

Every dollar the Government pays into the planned superannuation fund (apart from those which go straight out again to pay current pensions) is a dollar the Government cannot spend on something else, or give back in tax cuts. There is no free lunch, as Opposition finance spokesman Bill English reminds us.

Scepticism about whether there will be the fiscal surpluses (around 2 per cent of GDP a year in the medium term) needed to adequately capitalise the fund is really doubt about whether future Governments will be ready to bear that opportunity cost.

Will they be willing to forgo spending on other things or vote-winning tax cuts?

The scheme aims to strike a delicate balance between credibility and flexibility. Unless people can be sure that the required contribution rates will over time be met, it will not deliver the certainty and security which are its main objectives.

But it also has to be flexible enough to ensure that contributions can be dialled back at times in the business cycle when fiscal policy should be relaxed.

The cynics can point to the evidence, such as low household saving rates or the high current account deficit, that as a nation we are pretty improvident.

Can we expect our future Governments to be better than we are in that respect?

But if the answer is no - and this is where the scheme's architect, Michael Cullen, is right - where does that leave us?

Sometimes baby-boomers take comfort in their numbers and the voting power that represents. Can they not rely on that to ensure the pay-as-you-go pension is adequate when they need it?

But the next generation of taxpayers can also vote, with their feet, and seem to be doing so already in disconcerting numbers.

The mobility of labour puts a real limit on the extent to which the future tax burden can be increased to fund pensions for the baby-boomers when they retire.

The do-nothing option is really means-testing in drag.

We are talking clawing back, through income or asset testing, not the few hundred million dollars a year which the hated surcharge involved, but billions.

It would mean high effective marginal tax rates on the retirement incomes from people's own savings, and a correspondingly strong disincentive to save.

The flipside of that could well be a change in attitude towards the state pension, away from the idea that it is an entitlement of any New Zealander who attains a certain age, towards the mean-spirited idea that it is a welfare payment to be doled out grudgingly to those too poor or feckless to have provided for themselves.