![happy old person](/sites/default/files/2024-08/old-person-happy.jpg)
By Patrick Nolan^
Social investment is one of this government’s big ideas.
This is not about simply reducing spending but is about reform. At the core of it is a belief that, as Nicola Willis has said, “we can, and we must do better” with our funding and delivery of social services.
This has two key features.
The first is taking a person-centred approach rather than looking at individual government policies or programmes in isolation.
As the Productivity Commission noted in 2017, government programmes tend to be organised in silos (what the Treasury calls Votes) for accountability reasons.
But this can mean people may have to discuss their needs several times with a range of different agencies when they are looking for support.
Social investment aims to make it easier for people to get what they need by better joining things up.
The second feature is to identify interventions that have the best long-term payoffs and to direct resources towards them.
This, in turn, places a premium on the smart use of data and analytics. It also makes it important to draw on local knowledge and allow scope for innovation.
To date much of the focus with social investment has been on improving outcomes for youth given the potential long-term payoffs.
But at Te Ara Ahunga Ora / Retirement Commission we think social investment could also apply to needs associated with an ageing population.
This is an important topic. Research undertaken for us for Sorted Money Month showed only around one in four New Zealanders have a good idea of what income they’ll need when they retire.
Addressing this requires new thinking. It is not just a question of doing what has been done before. The needs of the community continue to change.
Take housing. It used to be that nearly everyone would reach retirement age owning their own home. This meant housing costs were not a big issue in retirement and people had equity they could draw down in later life.
But, as the Retirement Commission has shown, this “golden assumption” has broken down. And figures will likely keep going in this direction with home ownership rates projected to continue to decline.
This raises questions for government transfers like the Accommodation Supplement. There are wider implications too, including for the private rental market (the ability to age in place) and the ability of people to self-fund retirement village living and aged care.
The good news is that with KiwiSaver approaching the end of its teenage years more people are reaching retirement with private savings they can draw down. Yet as KiwiSaver is an earnings-based system it has gaps. The less you earn the harder it is to build up a pension pot.
This ability to build up and make the most of pension pots also depends on financial capability, which is not just issue for policy makers in Wellington, but involves schools, banks, financial advisors, community groups, parents, and others.
And work is changing too. A quarter of all people over 65 are now in employment. Of people aged 65-69 close to half are working. This is up from around 15% at the start of this century. Many say they need to continue working as their nest egg isn’t enough.
For 40% of people over 65 their only source of income is government transfers like NZ Super and the Winter Energy Payment. A further 20% have only a little more. For years this has been enough to largely eliminate pensioner poverty.
But the effectiveness of this spending is falling, particularly for pensioners with housing costs. Women are especially affected by this.
There is of course also a cost to taxpayers. While programmes like NZ Super aren’t expensive by international standards - spending as a share of GDP is at the low end of the OECD - they do cost a lot of money.
Indeed, the government spends more on NZ Super than on education. The increase in spending on NZ Super in the last Budget alone was equivalent to around two thirds of all business spending on research and development in New Zealand. And we know that health costs are rising too.
The implications go beyond the fiscal numbers. Consider how many more people are living with dementia and what this means for our aged care system.
And there’s loneliness. About 1 in 10 people over the age of 65 are lonely all or most of the time and this increases to around a half of people over 80. Many older people in need don’t have family or friends to support them.
What’s clear from this is that thinking is needed on what the next generation of retirement income policies for New Zealand could look like. This won’t necessarily be easy, and the temptation may be to put this off.
But the result of this will be to limit our future options. It will mean that when change comes, which it will, we will be less ready. And change will be piecemeal and reactive - not the best that we can do.
We owe it to our future selves and to our children to have these conversations. The first question must be – how do we best support our older citizens?
Patrick Nolan is director of policy research at the Retirement Commission / Te Ara Ahunga Ora
26 Comments
Zach,
You do make me laugh. I must assume that your tongue was firmly in your cheek when you wrote that. Apart from the bleeding obvious-most men have wives younger than themselves- what sort of age gap do you have in mind? With a wife 11 years younger than me, would I qualify and by how much? Would it be retrospective to our date of marriage?
the pension benefit is incredibly generous compared to all other benefits combined. In fact for those who literally cannot work with higher costs of living to face they can often have zero income support or just exceedingly low. Try living like that for a while and get back on how much you think we should continue to fork out to the pigs at the trough who already have above average incomes (Animal Farm reference).
Quiz questions..
- If older people save up for retirement, where does the money or financial assets come from that they save? Who is going into debt so that they can save up?
- When our aged population retires and they decide to draw down those savings and spend them, how do we know that there will be enough stuff for them to buy with their savings? Won't it be inflationary if you have older people trying to buy lots of stuff we don't have.
What we need to (socially) invest in is the infrastructure that makes life easy and cheap for older people. Instead we dump the problem on the individual and persuade them to save up... An approach that only works for the few, at the expense of the many.
While I agree this would be a wonderful society to be able to provide this, there is no way our country could afford to provide free dental, optical and aural healthcare on the current trajectory. I'd have to hazard a guess that even if LVT and CGT were implemented we could afford this but hey ho, let's give it a go!
ABSRUD. National's policies are the antithesis of social investment.
National is busy slashing its financial knife with no idea or respect for the socioeconomic disbenefits.
Proper social investment requires socioeconomic cost/benefit assessment or regulatory impact assessment including the consideration of the distribution of the impacts and where needed adjustments to address the impacts. And then it requires the actual implementation of the best policies based on this assessment, not policies which suit your mates.
e.g. congestion tolling produces a high socioeconomic cost/benefit but has an adverse impact on the poor which should be offset by the revenue going into improved PT and welfare transfers.
A proper social investment should also consider the intergenerational distribution of benefits and disbenefits. e.g. The boomers in NZ have ripped off the young in NZ, e.g. free university, cheap houses etc etc. A cost benefit assessment would probably show that the age or retirement needs to be raised (in line with life expectancy while maintained at 65 for those medically unable to work) and the revenue gains targeted towards the younger in society.
Raising the retirement age except for those 'medically unable to work' implies a 'fitness test', inevitably open to rorts, and certain to be accompanied by assets and income tests.
Better, surely, to leave the NZ Super qualifying age at 65, but to put all who sign up for Super on a separate tax scale that would claw back some or all of Super from those with significant other income, while ensuring that those who really need it get all of it.
We owe it to our future selves and to our children to have these conversations. The first question must be – how do we best support our older citizens?
This didn't even use to be a question. Retirement is mostly an industrial era phenomenon, the pre-existing tendency was for old people to live amoung their family, contribute till their bodies weren't physically capable, and be looked after by their kin.
We're shifting from that, to now future generations having no kin at all.
No state apparatus can come close to what can be provided (for free) by people close to you. The shift to nuclear families, and then onto what we have now, fundamentally changes the human experience.
I think the whole mindset around the elderly should change. I don't mean that we should go so far as the eskimos and do the equivalent of consigning the unproductive elders to spend a night outside the igloo to reduce the number of mouths to feed.
But I think we should look to the likes of the pre-war novelist Aldous Huxley whose novel "Brave New World" had all people of a certain age be humanely euthanised to decrease the burden on society. ( In Huxley's novel I think that age was 65-years-old.) Today, we could make it say 75-years-old and gradually reduce it to say 70-years-old over time.)
We certainly already have a prototype in the form of David Seymour's euthanasia legislation, so it would only entail an amendment or two to bring about this social reform.
Seymour's legislation was just the beginning and IMO too restrictive.
If I were to get diagnosed with the likes of alzheimers or dementia, I want to be able to have an advanced health directive, or whatever the equivalent document is at the time that allows me to make my own choice with my own life with no possibility of external interference. I am but one human, with one family, who will be replaced by another human, and If I see fit that the resources that would keep me alive would better be spent on someone in greater need, or who would give greater benefit to society then it should be my indefinite right to choose so. At the very least it is a positive shift to start this discussion and hear more people making preparations for their eventual end in the later years.
The most important social investment needed for people over 65 is much the same as for a great many people under 65: universal health care that is free, accessible, timely, and comprehensive, including dental, optical, and aural.
Super needs to be restored to the levels it was in 1978: the after-tax benefit for a couple 80% of the after-tax average wage, up from the 65% it is now; with other rates raised in proportion.
Leave the NZ Super qualifying age at 65, but put all who sign up for Super on a separate tax scale that would claw back some or all of Super from those with significant other income, while ensuring that those who really need it get all of it.
A long-term investment would be to reverse the present Government's policies and build 100,000 more homes owned and managed by the state for secure, lifetime, income-moderated rent by all who want them.
Being 65 does not cripple them or make them incapable of working. But a the call of the lazy is hey I can get a freeride simply for a birthday while absolutely not needing the benefit support. The pension benefit is incredibly generous compared to all other benefits combined. In fact for those who literally cannot work with higher costs of living to face they can often have zero income support or just exceedingly low. Try living like that for a while and get back on how much you think we should continue to fork out to the pigs at the trough who already have above average incomes (Animal Farm reference).
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