By Alex Tarrant
The government is not looking at eligibility criteria for Superannuation payments despite a report suggesting greater numbers of over 65s will stay in paid work as the baby boomer generation hits the age at which they will receive the universal government pension.
Over 65s are projected to make up an increasing proportion of the labour force over the coming 40 years, although there would only be limited opportunities for increases after 2031. The greater proportion of older workers in paid employment would mean tax receipts from the group could offset the future cost of Superannuation, but only until 2031, the report says.
Minister for Senior Citizens John Carter has launched a Ministry of Social Development report looking at the economic benefits an aging population would bring to the economy. The first wave of the 'Baby Boomer' generation - born between 1946 and 1964 - is turning 65 this year, with the number of New Zealanders turning 65 in the year to June 2012 expected to be 18% higher than in the preceding 12-month period.
See the MSD's website for the report here.
Between seven and ten per cent of New Zealand's labour force is projected to be aged 65 and over by 2051, up from three to four percent currently, it says in the report. Over that period older New Zealanders' earnings from paid employment is projected to rise from just over NZ$1 billion now to about NZ$10 billion in 2051, in 2006 dollars.
That increase in projected income would mean tax revenues from over 65s in paid work would increase from NZ$200 million now to about NZ$1.8 billion in 2051, it says in the report.
However, it is likely there will be limited opportunities for raising participation rates and tax payments beyond 2031, given the increasing number of people aged 75 or more, it says.
"The current research presented in this report confirms that raising labour force participation rates among older people could contribute to offsetting the future cost of New Zealand Superannuation – but only up to 2031. An important additional finding presented in this report is that demography eventually swamps labour force participation," it says.
In order to offset the projected shortfall of Super costs between now and 2031, the proportion of over 65s in paid employment would have to rise from 16% now to over 26% in 2030, it says in the report.
'Why should we look at Super eligibility?'
Carter said the report was commissioned to look at how the demographics of the working age population were changing, and the economic benefits there might be as greater numbers of over 65s remained in employment.
“It’s not [that] we’re going to keep them working, they are going to keep working, and the whole point of the report is for us to understand that things are changing, that the baby boomers are different from any previous generation," Carter said.
"They’ve been in charge for a long time, they’re going to keep on being in charge for a long time," he said.
They will want to make a contribution to this nation, they will make that choice themselves, and it’s those sorts of things we need to understand - that the dynamics are going to be different, and we need to adapt to them.”
Asked whether government should then be looking at the age of eligibility for Superannuation payments, or whether over 65s in work should be receiving Super, Carter answered government had already ruled that out.
Prime Minister John Key has promised to resign before the pension age was raised by a government he led.
“Why would we need to do that [raise the Super age]? We’ve already made a commitment that that won’t happen. But more importantly they will be contributing to our economy, and the whole activity that they will generate, generates a whole lot of wealth in itself," Carter said.
"As a consequence then, that whole issue is there to be discussed and debated, and that’s the important point [which] is, we need to understand the dynamics are changing," he said.
Asked if a greater number of over 65s were to keep working, whether government should be paying them super," Carter replied:
“That’s part of the commitment that this nation has made to people over 65 - that we will. But the point is, that the contribution they make will enable us to do that."
"But more importantly we need to get the debate off just the narrow discussion around superannuation. It’s been too narrow, there are a whole lot of other things that are happening, from a workplace point of view, from a job opportunity point of view, from a skills shortage point of view, from a contribution point of view that the baby boomers generate," Carter said.
'The issues aren't correlated'
Meanwhile, Key said he did not think the issues raised in the report and the argument around the Super age were correlated.
"One is an entitlement that New Zealand and New Zealanders provide for those aged over 65. [And the other -] It’s a statement of fact that, actually that increasingly, New Zealanders are working longer, Key said.
"One in four New Zealanders aged over 65 are engaged in some form of employment, and I think they make a tremendous contribution, both in terms of the skills that they bring to the economy and the taxes that they pay as a result of their efforts,” he said.
Asked if over 65s who were working should be receiving super payments, Key replied:
“I think they’re different issues. In may view that is, yes, simply because we offer a universal system in terms of superannuation and no one is arguing that should be changed," Key said.
46 Comments
Is the government suggesting it doesn't need to extend the retirement age because the taxes paid by the working boomers will compensate for the pensions they'll be receiving at the same time?
It's not clear the extra NZ$1.8 billion in taxes collected each year from working 65+ boomers makes up enough to pay for the extra pensions.
However, it does provide an extra argument to say the pension age should be extended. If they're working they don't need the pension.
Your view?
cheers
Bernard
OAPs double in number, so thats 12 to 24% in retirement which is a tripple whammy, there is 6 to 7% less ppl working, who are high earners now and wont be, and there are less X's and Y's.....than BBs... So im not sure its less jobs.....but what looks like that means is senior posts held onto by BBs would become "stepping into dead man shoes" scenarios....so less good jobs...
regards
Better qualified NZers in good health dont have to retire now at 65? and Yes maybe there should be means testing or something.
For un-qualifed BBs and ones in poor helath who cant work past 65 I assume will get WINZ support if the cant get the OAP....so whats saved by extending the age?
regards
No .....I think it's deferring the need to extend the retirement age on the basis of popularity....that little nasty will be either foisted on another administration....allowing them (Nats) full poo..poo. status..............or an altered administration including them where the good Doctor will manage to squeeze that one through as a trade off...giving them...there is the poo poo... but we didn't do it...however we can live with the stench status.
The cynic in me says that the age will be raised once the Boomers are all on Super; just as free tertiary education was a ladder kicked over as soon as it had been climbed.
A better question would be why the single biggest group of beneficiaries (55% of the primary benefit spend) are paid 66% of the average wage irrespective of need. Why are we flicking almost $20,000 a year of taxpayers' money in benefits to, say, Bob Jones and Roger Douglas?
Super should have abatement, just like any other piece of welfare. It's there to support those who need it, not to underwrite overseas holidays for those who don't.
The issue is that Super isn't welfare; it's an entitlement, bought and paid for by past work effort. It was sold to the current retirees as a trade-off for higher nominal PAYE taxes and other sacrifices 'in the common national good' in the past, to be repaid at retirement. How would you feel if you'd contributed to a superannuation scheme of any sort,only to have it withdrawn or the terms altered after 40 or 50 years in it?
The proposition that current retirees have paid for their Super is debatable, but not really relevant since nobody is suggesting that current retirees should receive less. The proposal is that future retirees should be preparing now for the distinct possibility that the following generations may not be willing or able to fund pensions in the same way as current retirees are getting.
Try putting yourself in the shoes of those future generations. How would you feel if you found yourself obliged, at great expense, to honour a contract that you hadn't had any say in and probably wouldn't have agreed to if you had?
Yet there isn't a definitive cut-off point where generational divide becomes apparent. I don't think there are differences between the wiring of a Gen X, Gen Y or baby Boomer brains. We're making it up as we go along - everyone, together.
There will not be a time when a defined bunch of people (the next generation) come along and shake their fists at the sky saying "damn you to hell...you feckelss previous generation!". it just doesn't work like that - and even if it did, it would be a fairly impotent rage.
When people try to categorise Gen X, Y and Baby Boomers into neat character traits, I am sceptical. But as a Virgo, I suppose I would be.
I'd agree that the divide is not black and white - I'm a Virgo too, on the cusp with Libra which makes me even more into balance and compromise - but I would submit that we are well into a darkening shade of grey. We already hear younger people complaining about having to work to pay taxes which go to support the lifestyle of older people, and we are already seeing younger people voting with their feet by going off to work elsewhere.
I don't think it is because they have different character traits which makes them think in a different way to the way in which their parents' generation thought when they were young - I think it is that they are facing a different set of circumstances. Notably, when the BBs were young, they had a smaller cohort of pensioners to support. If they had had to pay the pension of half a pensioner each, which is what today's youngest workers are facing over the next couple of decades, they wouldn't have liked it either.
You know what, Kate? No matter what scheme you devise, 'that' element will need to be provided for. I'm sure the stench of rotting corpses in the gutter would put you off your trip to Wollies, otherwise! And I'd guess that you, and I and most other people would have done our "worked and paid for" bit in whatever form was required, and if an entitlement is thusly expected, whatever it is, then it should be recieved? No.....
I don't know that 'that' element is provided for in the US - as if I'm not wrong the Social Security scheme there only pays you in accordance with what you contributed - a greater contribution means a greater pension. Not sure what happens if you never worked - I'm guessing your kids and/or partner care for you?
Also a question on this statement:
It was sold to the current retirees as a trade-off for higher nominal PAYE taxes..
I've heard this argument a number of times, but what year are we talking about it having been "sold" to the populus on this basis?
Our income tax rates came down significantly in the mid 80s with the introduction of GST - so that "old argument" doesn't really apply to much of the working life of the BBer generation, correct?
And the promise to those who were in the workforce at that time has been kept, even though the cost fell on people who did not actually agree to it (ie, those who have joined the workforce after that time), since even the youngest of the workers of the 1950s is now well over the age of eligibility for NZS.
But how does that bind people who weren't born then, to provide support to people who weren't working then?
So, Kate, even you have heard 'that' arguement before. Perhaps 'sold' is not an appropriate word, but the fact that you know about it, acknowledges that is was/is a mainstream idea, and as such accepted as an entitlement in our society? And when, as you say, 'Our income tax rates came down significantly in the mid 80s with the introduction of GST', and applying your argument; When was the date, back then, that we were all told 'the super is up for negotiation'as a result of those taxation changes?
But nobody is saying the deal should be changed for today's superannuitants. The issue is between today's middle aged workers and today's younger workers (and those who aren't in the workforce yet) as to how tomorrow's superannuation is to be paid for.
Therefore, people who are already, or nearly, receiving superannuation are not an interested party in that debate.
And now that everyone is encouraged into Kiwisaver there's their retirement fund. No need for any future superannuation. What about tax rebates for savings? What I'd like is some sort of acknowledgement from the govt. for my personal superannuation fund (started when I was a teen) instead of effectively being penalised because it's not a recognised Kiwisaver fund.
Isn't 'upping 'the age of entitlement', changing it for today's, or the very near tomorow's, superannuitants? I fully understand the financial diemna that we face on this topic, and I know life isn't fair; but it just strikes me as 'unfair' that those who have, by and large, created the country we have today, are to be denied some of what they belived that they were entitled to for doing so. And I sympathise somewhat with those who say " why should tomorrow's young pay for the upkeep of today's elderly?" My answer is, "that it's because what the young have always done, one way or another". The alternative involves and iceflow or perhaps chewing the poisonous frogskin to make the toxin to go on the young hunters' arrowheads!
My answer is, "that it's because what the young have always done, one way or another".
Wrong. You need to understand the difference between what NZ provides through it's social welfare system - and what other countries provide via contributory (not universal) retirement schemes.
See;
Many countries have created funds for their citizens and residents to provide income when they retire (or in some cases become disabled). Typically this requires payments throughout the citizen's working life in order to qualify for benefits later on. A basic state pension is a "contribution based" benefit, and depends on an individual's contribution history.
For examples, see National Insurance in the UK, or Social Security in the USA.
Many countries have also put in place a "social pension". These are regular, tax-funded non-contributory cash transfers paid to older people. Over 80 countries have social pensions.[4] Examples are the Old Age Grant in South Africa and the Universal Superannuation scheme in New Zealand.
http://www.pension-watch.net/country-fact-file/
New Zealand has a guilt edged "social" (as in a social welfare cash transfer, non-contributory, paid for via general taxation) scheme.
Sure it's a nice-to-have, but are we as a nation that wealthy? The answer is no - our tax rates are too low to support it - so we borrow to pay it.
Golly, Kate. You must be an acedemic! ( that's a reference to your links, by the way, not an insult!) A bit of lateral thought might help you understand another's points of view better. My statement re "..it's because what the young have always done,.." referrs to how any civilised society, cares for it's eldery. That comment is not directed soley at fiscal matters, rather social ones. And whatever support mechanism you have in place for your old age; whether it be financial or social, lets' hope that 'come the day' that another has not changed the rules for you. I shall not bother repeating other posts I have made here today sympathising with the dilemna that we face. If you choose to seek them out, then you will have a wider appreciation of my stance.
Interesting debate. In France, the system is as you describe above. You've got to have contributed (=worked and paid taxes) for 40 years to receive your full pension. If you do a few years' less, the amount you get is slashed.
There is also a "bare minimum" social pension which corresponds to the NZ Super amount but it's only for people who don't or barely get a pension, basically to avoid having elderly people living on the streets.
I found it quite surprising that there was no pension scheme in NZ (one where one contributes I mean, although there kind of is one now with KiwiSaver) and that to get the universal one you only had to have lived in NZ for 10 years, not even worked here.
These are fair points - but it's also fair to say that means testing discourages working and/or saving; and it creates incentives to lie and cheat, which then requires more Government monitoring and enforcement which is intrusive, expensive and complicated, increasing the risk of errors being made. Personally I'd raise the age of eligibility, starting soon, before I would look at abandoning the universal flat-rate.
It seems obvious that means-testing superannuation (and other benefits to a lesser extent) discourages saving by individuals. This in itself can be costly. It is interesting to calculate the typical investment amount needed for the tax-take on investment income to exceed amount of super received. It is not as high as might be guessed (maybe $900,000?) - although the current low interest rates and reduced income tax level has pushed the figure up in the past year.
Personally, I think it would be preferable to abolish superannuation and replace it with sickness and unemployment benefits - i.e. test ability to work rather than age or wealth. Any benefit would need a bit of leeway around age-related illness and employability. Hand in hand with this, need to work on aspects of employment law and practice to encourage a "sunset" approach to employment.
We need to be able to recognise that the usefulness of employees can be age/health-impaired, but that they are still useful. Anecdotally, young people were able to get jobs more easily when they could be paid less under the youth rate. I would think that employers would be more likely to encourage experienced staff to stay on longer if they could also reduce their pay to something more in line with productivity. For now, the threat of "ageism" or being accused of "constructive dismissal" makes this a difficult subject to broach.
Most of the over 65s I know work or have businesses, and most of those are cash based, and they are doing very well thankyou. One guy I know is 75 and has been letting his pension accrue in an account untouched since 65, work out how much that is even without interest!
The over 65s in small business anoy me the most as being given free money to live on reduces the risks involved. If I don't sell enough of my services for a good enough value I can't pay my bill but someone over 65 doesn't have this risk to the same extent and also can offer their services cheeper.
JK & Wild Bill know their history , and have learnt from it ; don't piss around with the pension in any way , shape , or form ........ Jim Bolger / Jenny Shipley did , and look what it did to their popularity ........
............ and smiley John loves to be popular , everyone's buddy ........
Key and Carter seem to be making an argument that any time you pay tax this entitles you to a benefit of equal value. Why should this just apply to old people? I believe that the original welfare state was founded on the notion that once you move into the stage of life where you are working but no longer have dependents it becomes time to start paying back, not time to start getting a bonus payout at others expense. What we have now (and look set to have for many years into the future, thanks to John Key et al) is a grotesque reversal of the founding concepts of the welfare state.
Having shackled himself to the ultimately disasterous 'no change to superan. while I am leader' mantra clearly Key has to cast his eye elsewhere. One obvious target is Kiwisaver incentives (as I recall the Nats were never big fans of Kiwisaver anyway). I have been expecting them to have a go at the incentives for a while (in fact this was flagged some time ago) - it seems the industry itself is now starting to worry cuts are now imminent:
http://www.stuff.co.nz/business/money/4960872/Concerns-over-future-of-K…
Has he said so?
I think even 7% woud be a huge ask....he may not break 5%....so he'll need Epsom to be sure.
NB? Anyone recall the highest % ACT ever got in an election BTW? 6%? 6.3%?
In any event even if Brash gets 10% there is no guarantee he gets any such thing...in effect National has got 41%+ bearing in mind if National doesnt, Brash can get any % he wants, if the rigth isnt past 51% its moot.
But National may not as the swing voters who voted for National on the centre ground run a mile...panicking about Brash....So yes It may well be the right wing voters in National desert and vote ACT hoping for a true right wing party, I wouldnt be surprised, but that robs National of votes and MPs and not the left. I suppose Brash and the right are seeing this as a probable one off opportunity to jump on National's coat tails and get in and get what they want.
Its going to be a very interesting election.....wheels within wheels...I think Im going to enjoy it....but I usually do....
regards
I think it will end up being both asset and earnings assessed eventually, which means they may not need to raise the age at all, and that way there is no hardship for someone who is 65 but is worn out from working. I know someone who is getting 40k on a superannuation package, and then they also pick up the government super topping it up, so they are doing pretty well. They also have earnings off investments. But then I guess they have paid taxes ove the years and have saved and invested and they deserve it all. The thing is whetehr the country can afford it.
They could bring in asset and means testing, yer that's pretty stupid if you actually want people to take some responsibility for themselves, why bother if penalise those who do by means testing and reward those who don't/won't? And trusts can usually take care of assets so there won't be many to assess.
Another factor, if there is an increase in heath costs with the increasing ratio of elderly, won't there be a corresponding decrease in shooling costs with the decease of those in the compulsory education group?
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