Editorial: Key should rescind his super pledge

Opinion

When John Key looks back on his first year in office he ought to have one regret. His commitment to resign should his Government ever change the entitlements for national superannuation was short-sighted and unnecessary.

Short-sighted because he must have noticed how rapidly life expectancy has been rising in recent years and he knew the previous government had left him with a level of public spending that is not sustainable. Worse, he did not limit this pledge to the first term of his government, as he had over state asset sales, and is seemingly locked in to the status quo for as long as he is premier.

This week the Treasury confronted his Government with a forecast that superannuation will be the largest growing item of public spending over the next 40 years. Unless something is done to contain the cost it will force a reduction in other public services for the working age generation whose taxes will be paying pensions to everyone over 65.

The Treasury has suggested several solutions. They include raising the age of eligibility, reducing the rate for superannuitants with other incomes and indexing the rate to inflation rather than average wages.

The first option would be the easiest. The second, income testing, carries echoes of the surcharge that caused so much consternation late last century and the third would be unfair if inflation is contained and wages rise as they should in a healthy economy.

But the age of universal entitlement ought to reflect life expectancy. The age was set at 65 when people could not expect to survive much past 70. Now we are commonly living into our 80s. At 65 we are fit, healthy and active and have every chance of remaining so for another five or 10 years. We can look forward to a fortnightly pension for perhaps 20 years, much longer than our parents or any previous generation.

We are the beneficiaries of better education, better lifestyles, better healthcare and medical treatments that enable us to survive heart attacks and cancers that killed earlier generations sooner.

The costs of our health services are also rising faster than economic growth and adding to the burden the younger generation of taxpayers will face as the post-war baby-boomers retire. Those born in 1946 can claim the pension the year after next. Many of them will still be alive and receiving it when the entire 20-year cohort of boomers has joined them.

They will comprise a fearful number of voters, a greater proportion of the electorate than Grey Power represented in the 1980s when it resisted an attempt to restore means-testing in the form of a surcharge on independent incomes.

That campaign, which lasted well into the 1990s, did more than any other to highlight "broken promises", destabilise reforming governments and bring about a change in the electoral system. It has scarred a generation of politicians and left them afraid to touch the subject of superannuation again.

Even when the Budget surplus disappeared and the present Government sensibly suspended payments into the Cullen Fund, it hastened to give an assurance the pension terms remained inviolate. Yet if fewer baby-boomers' pensions can be pre-funded the need to raise the age is greater. The age was raised as recently as the 1990s, in gentle steps of six months each year so that nobody had to wait much longer for the pension than they might have planned. There was no outcry about that and there probably would not be one now.

The age could be raised to perhaps 68 or even 70 with a different benefit available for those incapable of continuing past 65. The increase could be phased in over the next five or 10 years.

Other countries are doing this or considering it. New Zealand's Prime Minister should rescind his unfortunate resignation promise. He needs to face the facts of fiscal need and longer life.