Alec Waugh: Why raising the super age is not fair

Suggestions of raising eligibility criteria are counter productive and require more balance and evidence. Photo / Thinkstock

Opinion

Brian Gaynor's article headlined 'NZ badly behind times with age Pension' could equally have read 'NZ ahead of times with age Pension'.

Gaynor, with Fran O'Sullivan and self styled commentators like Matthew Hooten and Bernard Hickey, adopt a them and us mentality to their approach to retirement income issues, continuing the theme that Len Bayliss, a New Zealand economist, aptly described in 1996 as "the doomsday rhetoric".

New Zealand's National Superannuation scheme is envied by many countries, and we should be very cautious at accepting many of the alternative thoughts being projected. Roger Hurnard a New Zealand consultant on retirement issues succinctly reiterated, in an excellent recent paper entitled 'Mixed messages: the future direction of New Zealand's retirement Income policies', that New Zealand Superannuation has a number of attractive features:

• It is extremely low cost in an administrative sense because it is funded out of general revenue, requires no individual contribution records to be kept and places no compliance cost on employers. There is no cost in administering an income test or monitoring changes in financial or employment circumstances.

• The absence of any employment or income test mans that there are no built-in penalties from earning additional income beyond eligibility age. The present value of future pension wealth embodied in the scheme is unaffected by when a workers chooses to retire. This feature helps to explain why New Zealand has one of the highest rates of labour force participation of older people in the OECD.

• Knowing well in advance how much NZS will be worth proves a secure basis for people to judge how much additional income they need to plan for in order to achieve their own desired standard of living in retirement.

• Standard amounts for each person signals fairness and promotes social cohesion.

• The scheme covers longevity risk efficiently by providing a known, fully indexed , gender neutral annuity.

Gaynor and others need to be reminded that long-term predictions are great for discussion but are frequently inaccurate and need to be viewed with caution. Media writers' emphasis on 2050 projections are just too far out in time to be useful policy tools.

Economic productivity and economic implications of an aging population must be the focus area and we know older people are more economically active, paying tax, boosting participation rates in the paid workforce, and spending more.

Measures of economic value in the context of social costs of an aging population are frequently overstated, with older populations associated with lower crime and imprisonment, fewer motor accidents, all lowering dollar costs.

The unpaid contributions to society of aging parents supporting younger ones in the form of child care, and the current trend of providing facilities for the unmarried or divorced sons and daughters returning back to the family home, all need to be factored in.

The voluntary work by seniors can also be costed and given an economic value Equally the spending habits and life styles of the younger generation need to be analyzed, all factored in to the models and measures applied.

Current measures being utilized in the fiscal cost age are crude and often produce impacts or results widely at variance to the assumptions projected.

Knee jerk suggestions of means testing for superannuation or raising eligibility criteria immediately are counter productive and require more balance and evidence.

I will leave the final remark to Hurnard "The point is that future intentions to alter any pension rules or entitlements need to be more clearly signalled and well in advance so that people have time to consider, propose modifications and absorb the implications without being presented in a fait accompli."

* Alec Waugh, is a board member of the Government Superannuitants Association and a past Board member of the Government Super Fund.