Politicians need to act now to agree policies that provide liveable incomes for the imminent boom in retirees who will live longer and cost the economy more and more in pensions and health care, says the Financial Services Council.
Treasury Long Term Fiscal Projections just released show that the cost of NZ Superannuation will likely double to almost 8 per cent of GDP within 50 years and will continue to steadily increase. The FSC thinks the Treasury projections probably underestimate the number of people likely to be eligible for NZ Super and the cost to the economy while overestimating likely economic growth.
“We already have another 100,000 people aged 65 plus than were projected in the early 1990s and over the next 20 years our baby boomers will become the retirees. By 2055 New Zealand is forecast to have 1.7 million people aged 65 or older with an expected life span of 95. That means for every two people of working age there will be one retiree,” says FSC CEO Peter Neilson.
“Something has to give if we are to avoid huge tax hikes and inadequate incomes that in no way can match the living standards we had when we were employed let alone the income secured for an Australian retiree. Taxation funded Superannuation alone and current rates of contributions for retirement under KiwiSaver will not cover the cost of this retirement boom,” he said. “We will become 70 year olds picking up the travel bags of much richer Australian retirees.”
The last time the cost of NZ Super reached 6 per cent of GDP successive governments quickly imposed a surcharge and then moved eligibility for NZ Super out by five years to get the costs back down to 4 per cent of GDP, the current position.
“We don’t want or need sudden lurches,” Mr Neilson said. “New Zealanders know the cost pressures and that the age of eligibility for the pension will inevitably move out. What we need to focus on now is getting more people saving, including lower income earners, and increase KiwiSaver contributions and coverage so that pensions can be funded from KiwiSaver and have those savings generate a retirement income that is at least two times NZ Super. But, for this to happen we need a new cross party agreement on retirement income to replace the outdated policy that was negotiated in 1993 and give some surety to people.”
According to Horizon Research only 9 per cent of New Zealanders believe they can live on NZ Super alone, currently $357 a week in the hand. Two million have signed up to KiwiSaver, half of them women. Many contributors are not regular savers and a high proportion are in low risk, low earning schemes rather than choosing growth assets which generally earn more but are more volatile. Most New Zealanders see a comfortable income as double the current pension.
“The problem of so many Kiwis facing a big shortfall in a comfortable income in their retirement is not going to go away. It is the elephant in the room and there is an urgent need for a policy framework that makes it easy, fair and attractive for people to save sufficiently today so they can live a quality life in the future,” Mr Neilson said. “The long term fiscal projections from Treasury provide the basis for the start of robust and fully informed national discussions on the future affordability of NZ Super and the options for making KiwiSaver more resilient and harder working.”no