Superannuation costs are set to increase rapidly. Photo / Getty Images
New Zealand’s superannuation costs are set to balloon amid our ageing population.
This has led to questions about whether it might be time to lift the eligibility age for the first time in decades.
Raising the age has happened before, but it’s become increasingly difficult to find the political will for change in the modern context.
In the 1970s, the superannuation scheme first kicked in from the age of 60 before steadily rising to 65 in the decades that followed.
But since 2001, the age of eligibility hasn’t moved at all – despite the fact that New Zealanders are living longer and having fewer children.
Sense Partners economist Shamubeel Eaqub says that these factors combined with the lack of political will to evolve our superannuation system will lead to it becoming more and more expensive over time.
“New Zealand Super currently costs about $18 billion a year, which is more than all the taxes paid by businesses,” Eaqub tells The Front Page podcast.
“It’s about half of all the taxes we pay on wages or about two-thirds of all the GST we pay. A big chunk of our taxes and government resources are going toward paying this benefit to older people.”
The challenge facing the country is that this expense will only become greater as the population of those over 65 increases over time.
“It’s rising at a billion dollars a year,” says Eaqub.
“It is soon going to become so big that at some point we’re going to have to decide if this is the best way to spend our hard-earned taxes. The reality is that at some point in time, we have to decide to do something differently.”
Under Christopher Luxon, the National Party has outlined plans to progressively lift the age over time but there is little indication of the suggestion gaining enough support to cross the line.
Eaqub says that we could, in theory, continue to cover this cost, but something will have to give.
“We can keep doing that if we want to, but the issue is that we have to make some choices. Either we have to increase taxes to be able to afford it… or we have to cut other services that we might also want: for example, good healthcare, infrastructure or social services. It’s in those tensions that we have to make some really tough choices.”
Creating even greater tension in society is the fact that the tax burden could in the future rest on fewer New Zealanders in the future because the stock of young people is shrinking, relatively, over time.
“Politically, this issue is very hard, so what tends to happen is that we just keep kicking the can down the road, even though this is the one cost we could predict with a huge amount of accuracy.”
And the longer we kick the can down the road, the more difficult it will be to respond to the challenge on the way.
So what should a fairer, more sustainable system look like? And how likely are we to see changes in the near future?
Listen to today’s episode of The Front Page podcast to hear Eaqub’s ideas on how we could tackle the problems we know we’re going to have, but haven’t done much about.
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