Pension costs may not be unsustainable: Report

Data showing that national superannuation isn’t under as much threat as many people think should be good news to financial advisers, an analyst says.

Thursday, March 12th 2015, 5:59AM

by Susan Edmunds

Michael Littlewood, of the University of Auckland Retirement Policy and Research Centre, has released a report analysing Treasury figures.

He said it was widely known that the over-65 population would double over coming decades and the cost of healthcare and superannuation would increase substantially.

“However, we also know that New Zealand’s economy will grow and, barring catastrophes, we should as a country be able to afford more than we currently pay for age-related programmes… We know that an ageing population will require an increase in taxes unless current programmes are cut. We also know that what we have has worked reasonably well and costs less than many other countries currently spend on the old.”

It is expected that a net 6.7% of GDP would be required for the pension by 2060.

“There is usually an assumption in calls for a review of NZS benefits that they will have to reduce. International comparisons of New Zealand’s expected pension costs at least question that assumption but should not preclude a full principles-based and research-led, national debate on the size, shape and implications of the current design of NZS. That debate may lead to a consensus that supports a continuation of the present arrangements but it may not. The sooner that debate happens, the better.”

Littlewood said the data showed that when Prime Minister John Key said he was not going to talk about changing the superannuation entitlement now, he was right that he did not have to.

“But that doesn’t mean we shouldn’t. The numbers say New Zealand Super will continue to form the bedrock of retirement income. If there is going to be a change it doesn’t need to be a major change.”

He said that meant that advisers’ clients could plan with the confidence that New Zealand Super would be there when they reached retirement.

“It tends to go against the typical vox pop on the street where people are asked if they think New Zealand Super will be there and they say no, and when they are asked what they’re doing about it, they say they don’t know. We do have time to gather the information we need to have a national conversation about what NZ Super should look like in 30 or 40 years’ time.”

Littlewood said it was not the time to become complacent. He said the pension was a good start but did not give a lot of room to move, particularly if they did not own their own home.”

Any change to the superannuation system should not be rapid, Littlewood said, “That’s why we need to talk about NZ Super now and to run that discussion on a regular basis in the future.”

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