Editorial: Parties wrong to snub Brash ideas on Super

Don Brash. Photo / Doug Sherring

The way in which the National and Labour parties slapped down a welcome entrance by Don Brash into the vexed issue of superannuation did them absolutely no credit.

The Deputy Prime Minister, Bill English, and Labour's deputy leader, Annette King, were guilty of burying their heads even further in the sand as they insisted, in effect, that there was no problem.

Both said there was no need to change either the qualifying age or payment levels of NZ Superannuation.

They know quite well, however, that the movement of baby boomers into retirement, always a daunting prospect, has now been complicated further by the forecast decade of deficits and the suspension of Cullen Fund contributions. Something will, indeed, have to change.

As much has been confirmed by the Retirement Commissioner. Even in a far more benign economic climate, Diana Crossan was warning of sustainability problems.

She suggested four main options: reducing the rate of superannuation, raising taxes, a form of means testing, or lifting the age of entitlement. The potential fall-out from any of these explains why politicians of all stripes have been so keen to sidestep the issue.

Now Dr Brash has offered a further alternative. He suggests, as have many others, that the age of entitlement should be raised from 65 to 67. But he would also allow people to retire earlier or later on different superannuation rates.

Under Dr Brash's scheme, people who chose to take the pension early would be paid at a lower rate over the rest of their lifetimes compared to those who claimed it later.

This would not directly reduce the cost of NZ Superannuation - the amount paid out would be equivalent to drawing the pension at the age of eligibility - but it would encourage people to continue working longer, and to continue paying tax.

With the importance of work for physical and mental wellbeing being recognised increasingly, there would be a further plus in reduced health costs.

Of most appeal in this concept is the way people are able to choose when they will retire. Every generation of retirees is different. The reality today is that many people are already working longer, thanks in large part to improved health care and increased life expectancy.

They feel that at 65 they still have much to contribute. Giving them greater flexibility about when they start drawing superannuation acknowledges this.

That very feature will irk those who admire the simplicity of the present system. But this attribute means little if it acts as a constraint.

More pertinent as a criticism might be the fact that such choice will be of little interest to many blue-collar workers after years of manual labour.

The salient point here, however, is that all the options have drawbacks. Means testing, for example, has appeal because many of those receiving superannuation are better off than those paying taxes.

But it would end universality, one of the present scheme's key attributes, and prompt Working for Families-style financial rearrangements.

Lifting the age of entitlement to 67, as is to happen in Australia, is the most logical step, but more may well be needed. The scope of the problem was indicated by Dr Brash when he noted that NZ Superannuation's cost was projected to rise from 4.4 per cent of national income now to 8 per cent by 2050.

At some stage, all this will have to be addressed, as much as a matter of intergenerational fairness as anything.

If nothing is done, those who follow the baby-boomer generation will have to contribute far more towards its retirement costs even though they are far fewer in number.

It may be politically savvy for the major parties to say Dr Brash's concern is unwarranted. Their approach is, however, ethically bankrupt.