Scoop Election 08: edited by Gordon Campbell

On Labour’s plans to raise the retirement age

October 28th, 2011

Labour’s plan to raise the retirement age from 65 to 67 by 2033 (with exemptions for some manual workers) and to gradually lift employer Kiwisaver contributions to 7% over the same period is hardly a revolutionary step. As many have already pointed out, they’re doing much the same across the Tasman, only faster.

The retirement age in Australia will shift to 67 in small six month steps from 2017, reaching 67 in 2023 – and employer contributions to compulsory savings will rise to 12% over the same period. The US will lift their retirement age to 67 by 2022. The UK plans envisage a retirement age of 68, by 2046.

So if Labour’s plan is not draconian, it is in step with changes being made elsewhere in the developed world, and marks an attempt to deal with the looming challenges of demographic reality and generational justice. Nor is it purely a centre left initiative. The Act Party has been pushing for some time for the change that Labour is now promoting.

National however, is choosing to live in denial. At some point, voters are going to have to decide whether the conservation of John Key’s popularity really should be the country’s No.1 priority.

In the real world, the dominant role of National Superannuation in the public accounts must be confronted. We have an aging population, and one where many of the aged are fit and able to work at 65. Fairness between generations and sheer affordability mean that either the retirement age will have to be raised and/or some form of means testing for the pension introduced. This debate can’t be postponed, because the burden of the current National Super scheme is already taking its toll – and at this election, it is already putting the needs of pensioners ahead of the needs of other forms of social spending.

If re-elected, the Key government has pledged to carry through on its plans to crack down on beneficiaries. It will be doing so for ideological reasons – and also, to pay for National Superannuation. As this year’s Budget papers showed, the growth in spending on the kinds of beneficiaries who are likely to be most in the firing line next year was actually neutral before the global recession hit (see page 79, Social Development Ministry Appropriations) The payments for the dole and for the Emergency Benefit payments had decreased, and this had offset the rise in payments for other benefits.

However, during the same two years before the global recession arrived, the rise in National Superannuation costs had accounted for ALL of the $535 million growth in expenditure on benefits in those years. This situation is likely to continue, and to worsen. During the nine years from 2006/07 until 2014/15, the numbers on National Super will rise by nearly a third, or some 150,000 people. Costs will rise steeply, in tandem. “Annual expenditure on [National Superannuation] will increase by 71% from $6,810 million to $11, 670 million during the 2006/07 to 2014/15 period.” Nearly two thirds of this rise will be due to the annual cost-of-living adjustments. Obviously, much more could be said about this unsustainable crowding out by National Superannuation of the needs of other beneficiaries. Yet plainly, a fairer distribution of the tax burden would avoid National Super recipients and those on other benefits being put in head-on competition with each other.

It is not as if the National Party has never before seen the need for action in this area. The change from 65 to 67 that Labour is mooting will not take full effect for 20 years. By contrast, the Bolger government phased in a far more extensive hike of the pension entitlement age (from 60 to 65) relatively abruptly, between 1992 and 2001. As Bolger said in his autiobiography:

The [Todd] Task Force produced a report that all parties, except New Zealand First, signed up to. In essence the Accord confirmed the steps we had taken to raise the age of eligibility from 60 to 65, to lower the pension as a percentage of the average wage from the original 80 to about 65 per cent, and to retain and strengthen the surtax [sic] arrangements.”

Labour is proposing nothing as wide-ranging as that. But it does raise the question – how could a relatively abrupt rise in age eligibility and a lowering of entitlements be promoted by the National Party 20 years ago, while a far smaller change seems to be anathema to the same party now? Yes, the National Party took a popularity hit at the time for the actions it took on this issue – but does Key seriously think that the retirement age should still be being paid out at 60 and at 80% of the average wage? And if it was the right thing to raise the retirement age and to lower the entitlements back then, why is it wrong to even consider a smaller, less abrupt change in this area now?

Key, for his part, is now calling the Labour plan ‘unaffordable.” That takes some gall, given that Key is going into this election on the back of an unaffordable round of tax cuts and with a National Superannuation scheme that is economically and socially unsustainable. Of course, if Key endorsed Labour’s plan in the same bipartisan fashion that Bolger proceeded 20 years ago, he would open the door to Winston Peters once again, as the sole champion of the pensioners.

To that extent, Key’s motivation is probably self preservation – if he tosses Peters a lifeline at this stage of the election campaign by cracking down on pensioners in any way, he gets Peters over the 5% threshold and puts his own government’s survival in peril. Once again, this is more about the wellbeing of John Key, than it is about the wellbeing of New Zealand.

To that extent, perhaps we should forget about the analogies between this election and 2002. On this issue of National Superannuation, those with long memories will be having flashbacks to the 1975 election – and to Robert Muldoon’s willingness to beggar the country for generations, in order that he could get and keep the pensioner vote. Somewhere in the beyond, Muldoon must be cackling at the actions of his current protégé.


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