Working longer, lifting retirement age touted by OECD as means to preserve pensions for longer living aging population. Your view?

By Amanda Morrall

An Organisation for Economic Cooperation and Development (OECD) report on public pension schemes suggests cash-strapped governments worldwide will be forced to raise the age of retirement, and potentially narrow eligibility to those who need it most, raising questions about what New Zealand will do to solve its own brewing crisis.

In the last few decades life expectancy has seen a near-continuous increase, signaling for governments with social safety nets a serious problem about how to sustain them in the face of a rapidly greying population.

The OECD, in its Pensions at a Glance 2011 report,  forecasts a necessary and growing role for private pensions to compensate for 'reductions in public benefits that are already in the pipeline or are likely to be required.'' It further underscores the need to encourage and accommodate older workers as part of a global solution.

"The public sector role's in providing incomes in old age will remain very important but will diminish. Working longer and private pensions will inevitably have to fill the gap.''

New Zealand with an older than average workforce, and one of the lowest poverty rates worldwide among the elderly was heralded as a success. The adoption of KiwiSaver, and its robust uptake of 1.6 million accounts in under four years, also received favourable mention in the report. (For more on New Zealand's public pension system see this report by Treasury).

Retirement Commissioner Diana Crossan welcomed the OECD paper and said it was a valuable resource for governments grappling with pension challenges. But she said it also reinforced the urgent need for New Zealand to address it's own ticking time bomb.

'Flogging a dead horse'

Crossan said successive governments have failed to tackle the issue but the time has come where the problem could no longer afford to be ignored.

The Retirement Commission, in its three-yearly Retirement Income Policy Review, recommended a gradual lifting of the age of retirement to the age of 67 starting in 2020.  It also outlined a formula to change the way the New Zealand Superannuation annual rate of adjustment is calculated as another means of stretching the public purse.

While Government is expected to report back on those recommendations at the end of March, Crossan was doubtful any decisive action would be taken based on the history of the political treatment of retirement age proposals.

"My real worry is that the Government is just going to say no and then something is going to have to give in the future.''

Asked whether the matter deserved to be made an election issue, Crossan said history had shown that politicians wouldn't touch it.

"It's no use flogging a dead horse. The question the press should be asking of Government is if you're not going to use our formula what are you going to use? Because they have many more levers than I do. 

"They could say we're going to stop building prisons, and we'll find the money that way, or we're going to cut back on roads, or grow the economy but something has got to give.''

Michael Littlewood, co-director of the Retirement Policy and Research Center, said public debate was desperately needed as the longer the issue was delayed the more problematic it would become.

"The issue for New Zealand is can the Government, a.k.a. taxpayers afford to pay the pension in its current form? That's the issue we need to be debating and which the Government steadfastly refuses to discuss.''

As a percentage of GDP, New Zealand Superannuation costs are expected to double by 2050, from its present 4% to 8%.

While Littlewood rejected the idea of means testing the pension as a way to preserve it, he said lifting the age of retirement from 65 to 67 was the "most obvious choice" New Zealand could make. (For more on the effect of New Zealand Superannuation eligibility age on the labour force participation of older people see this report on the Treasury's website.)

"When you think that age 65 was set in 1898 as the state pension age, it is policy madness to ignore the changes that have happened over the last 113 years.''

"Also the fact that New Zealanders are voting with their feet by working after age 65 indicates that it's not an adverse social change.''

The OECD, in its report, notes that several countries worldwide have dismantled previous incentives to retire early. It suggests governments need to do more to support older employees in the workforce through training opportunities, and work conditions.

Recommendations from the Retirement Commission's Retirement Income Policy Review.

Recommendation 6.1
That, with effect from 2020, NZS rates should be adjusted each year by the average of the
percentage change in consumer prices and earnings, subject to no less than price inflation
in any year.
Recommendation 6.2
That a future rise in the age of eligibility for NZS should be announced. The age would be
gradually increased from 65 years starting in 2020 and would rise by two months per year
until it reached 67 years in 2033.
Recommendation 6.3
That as the age of eligibility for NZS is increased above 65 years, a transitional, means-tested
benefit should be introduced to address the particular situation of people who are aged 65
and at risk of hardship because of their inability to continue to financially support themselves
over an extended period.hange that should be taken. The fact that NZ are voting with their feet by working after 65 indicates that an adverse social change.