Is Super really so hard?

Introduction

Many of our politicians act as though retirement income policy is the ‘third rail’ of New Zealand politics: touch it and you’re dead. Arguably, however, the trauma is self-induced. Its sources are largely the broken political promises and abrupt, unforeshadowed decisions on superannuation by governments. But if we stand back and take a longer view, I suggest a considerable measure of consensus has emerged over the last 20 years, at least among those who understand the issues. To support this claim, which may seem surprising to some, I suggest that the following propositions about retirement income are now relatively uncontroversial:

The key issue is economic growth. People in retirement are dependent on a productive economy for the real goods and services they need. There should be greater reliance on private provision (personal responsibility) and less on the state (other people). Given what people earn in their working years and the present shape of New Zealand Superannuation (NZS), most people are making rational decisions about saving. Treasury work has established that it would not be logical to expect them to save more. People in the 45-55 age bracket are saving at levels that would enable them to maintain their consumption in retirement. Lower income people who consume at the NZS level would be worse off if they saved more.

The present level of NZS is at least adequate. There is no significant problem of old-age poverty as was the case in earlier times; other groups, particularly low-income workers with children, find it harder to make ends meet. The reduction in the benefit from its earlier relationship to average earnings is widely accepted, and there is no great pressure to increase it beyond the current ’65 (percent of average weekly earnings) at 65’ level. NZS is now properly understood as part of the general welfare safety net, and based on need. It is a fallacy that superannuation is an entitlement because “we paid for our pensions”, and this claim is now seldom heard. For the same reason, there is no support for a public earnings-related scheme.