New Zealand's retirement plan

Marcus Roberts
10 Oct 2013
Reproduced with Permission
Demography is Destiny

The NZ census results are coming out next week, already preliminary figures are shown that New Zealand's rate of growth has halved since the last census. We will provide a post on the latest figures when they come out.

Here at Demography is Destiny we've often talked about the "grey [gray] tsunami" and the economic effects this will have on countries which have a growing, under-supported elderly population. Shannon discussed this problem recently when she cited a new report by the UN calling for greater planning to deal with the growing proportion of elderly people.

Here in New Zealand, there is a statutory requirement that retirement policies be periodically reviewed by the Commission for Financial Literacy and Retirement Income. Its latest report has been released and there are 20 recommendations to the Government in it. First some background, the New Zealand Superannuation scheme kicks in at 65 years old and is not means tested. It is a fortnightly payment linked to the New Zealand average wage and is currently set at $715 for a single person, and around $1100 for a couple. It is also payable until you die. In short, it is a generous scheme. Against this background, the review was carried out. Its purpose was:

" identify ways in which New Zealand's system of retirement income can remain socially, economically and politically sustainable for many decades to come."

The problems facing New Zealand's retirement scheme are familiar:

"In common with many other countries, New Zealand's retirement income policies are subject to stresses from permanent change in the age structure of the population because of increases in life expectancy and lower birth rates...NZS is a relatively inexpensive scheme but, due to 'population ageing', fiscal pressures are coming to bear. One way to solve the problem is through economic growth but this is unlikely to be sufficient on its own. A few policy changes will be needed to ensure that our system of retirement remains sustainable."

With this in mind, the Commission makes 20 recommendations. Many of them are New Zealand specific: for example three or four are directed towards tinkering with the currently voluntary Kiwisaver retirement saving scheme. Some of them however are not specific to New Zealand. For example:

"11. That the Ministry of Business, Innovation and Employment report by 1 December 2014 on ways to increase the supply of age-friendly housing...12. That the Ministry of Business, Innovation and Employment work with employers, industry associations and unions to implement ways to encourage the recruitment, retention, retraining and mobility between jobs of older workers, and report back on progress by 1 December 2014."

Perhaps we could look at the German experience, and install age-friendly chairs on assembly-lines? Keeping the elderly in work for longer is a good idea, there is no reason why people should retire at the same age as 80 years ago when the average life expectancy has increased and people are healthier for longer. Interestingly, however, there is nothing in the report that expressly recommends raising the current age at which NZ Superannuation payments begin: 65. This is a bit of a political issue in NZ at the moment, the government is vowing not to raise it, while the opposition has promised to raise it to 67 in about ten years' time (when the problem of baby boomers retiring has largely passed anyway). I think that there are some good recommendations here, albeit broad-brushed and lacking in detail, but I do see it as tinkering around the edges. The debate is still not really being had in NZ about how to adjust to a greying population. Most people seem to be oblivious or uncaring. What do you think? What are some measures that your home countries are proposing to tackle an ageing population?