New Zealand Superannuation (NZS) is one of the simplest Tier 1 pensions in the developed world. It provides a net 66 per cent of the net national average wage for a married couple and about 43 per cent for a single person who lives alone. It is adjusted annually to reflect changes in inflation but with an underpinning link to the national average wage.
NZS currently costs a net 4.2 per cent of Gross Domestic Product (GDP) and the Treasury says that this, without change, would have increased to a net 7.1 per cent by 2060. The changes announced by the government this week will cut about 0.5 per cent off that - down to a net 6.6 per cent.
In 2011, the average net cost of public pensions in all OECD countries was 7.3 per cent of GDP. Even before the recent announcement, our Treasury expected New Zealand to spend, in 40 years, less than the average pension spend of all OECD countries in 2011.
Health spending will have a similar trajectory to the cost of NZS. Currently, the gross health spend is about 6.1 per cent of GDP. The Treasury expects that to be 9.5 per cent by 2060. We don't say that health spending is 'unsustainable' and must reduce today (or in 2037).
So, what do we make of the government's changes to NZS?