By Alex Tarrant
Sixty-seven should be the new sixty-five for developed nations' pension ages, according to the Organisation for Economic Co-operation and Development (OECD).
In its Pensions Outlook 2012, the OECD said governments would need to raise their retirement ages gradually to address increasing life expectancies, and to ensure their national pension systems were both affordable and adequate.
The report comes as the Opposition Labour Party, and government partner ACT, have increased pressure on National to look at raising New Zealand's retirement age from 65. Both Labour and ACT suggest raising the age by two months a year over a 12 year period, but differ in when that should start.
Labour's policy is to make the change between 2020 and 2032, a suggestion put forward by the Retirement Commissioner, while ACT wants changes to start before 2020. See all political party Super age policies here.
A TV3-Reid Research poll released last night showed 63% of voters supported the age being raised to 66 or 67. Of these, just over half supported raising the age sooner than 2020, if possible, while nearly half supported a post-2020 policy to raise the pension age. Thirty-seven percent of voters were opposed to raising the pension age.
Fifty-four percent of voters thought Prime Minister John Key should break his promise not to raise the pension age, and agreed he should set new rules now for an increase from 2020. The poll had a margin of error of 3.1%.
In promising not to raise the age while in power, Key has repeatedly said Treasury projections showed current superannuation settings were affordable out to 2020.
Retirement Commissioner Diana Crossan has said the move to raise the age to 67 between 2020 and 2032 should be foreshaddowed well in advance, to allow workers to plan for the changes appropriately.
67 the new 65
"Over the next 50 years, life expectancy at birth is expected to increase by more than 7 years in developed economies. The long-term retirement age in half of OECD countries will be 65, and in 14 countries it will be between 67 and 69," the OECD said in the report.
Increases in retirement ages were underway or planned in 28 out of the 34 OECD countries. These increases, however, were expected to keep pace with improved life expectancy only in six countries for men and in 10 countries for women.
"Governments should thus consider formally linking retirement ages to life expectancy, as in Denmark and Italy, and make greater efforts to promote private pensions," the OECD said.
“Bold action is required. Breaking down the barriers that stop older people from working beyond traditional retirement ages will be a necessity to ensure that our children and grand-children can enjoy an adequate pension at the end of their working life,” OECD Secretary-General Angel Gurría said.
“Though these reforms can sometimes be unpopular and painful, at this time of tight public finances and limited scope for fiscal and monetary policy, these reforms can also serve to boost much needed growth in ageing economies,” Gurría said.
KiwiSaver
The OECD said a growing role for private pensions would be essential.
New Zealand's KiwiSaver scheme was praised for the major expansion of private pension coverage it had introduced since 2007. However, the OECD recommended the pending 3% contribution rate for KiwiSavers be raised.
With KiwiSaver, workers are automatically enrolled when they start a new job, but are given the option to opt out. Workers in the same job as when the scheme was introduced have not been automatically enrolled. A plan by the National-led government to enrol these workers in 2014, with an opt-out option, was dropped in Budget 2012.
"Making private pensions compulsory is not necessarily the answer for every country. According to the report, such action could unfairly affect low earners and be perceived as an additional tax. Auto-enrolment schemes – where people are enrolled automatically and can then opt out within a certain time frame – might be a suitable alternative," the OECD said.
"Italy and New Zealand have already introduced such schemes and the UK is set to roll one out in October 2012. However, the report finds that results are mixed, with a major expansion of coverage of private pensions in countries like New Zealand, and having only a small effect in others like Italy.
Reforming tax reliefs to encourage private pension savings was also needed, as low earners and younger workers were much less likely to have a private pension.
"Facilitating matching contributions or giving flat subsidies to savers, such as in Germany and New Zealand, would improve their incentives to contribute. To boost confidence in private pensions, governments also need to improve their oversight of funds to ensure that charges are kept low and risks minimised," the OECD said.
"This inaugural edition of the Pensions Outlook also includes the first comprehensive evaluation of national Defined Contribution systems, which are now a central feature of many countries’ pension systems. Among other recommendations, the report argues that it is critical to set the minimum or default contribution rate in Defined Contribution systems at an appropriate level," it said.
"Contributions to these systems need to be high enough so that together with public pensions they generate sufficient income at retirement. While Australia is moving in the right direction by increasing its contribution rate from 9% to 12%, it remains too low in countries such as Mexico and New Zealand (6.5% and 3%, respectively)."
See Prime Minister John Key's response to the TV3 poll in the video below:
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