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‘Politics is downstream from culture’

Posted to Blog on 29-03-2017

By Diane Maxwell, Retirement Commissioner

What does one generation owe the next, and who should pay for what?

New Zealand is undergoing unprecedented demographic change. Our population is ageing as we live longer and fertility rates decline.

The exact impact of these changes on the economy, on productivity and GDP growth is uncertain. How we will continue to fund NZ Super as the number of recipients rises steadily and dependency ratios decline, is a contentious policy issue, complicated by the fact that we navigate the future via forecasts, projections and assumptions that are all contestable.

In the face of that uncertainty we turn to the indisputable: demographic changes will leave us with fewer people of working age supporting a larger group of retirees, and an older population will present higher health costs. The biggest increase in crown expenses last year was NZ Super at $700 million, followed by health at $600 million. The cost of NZ Super is growing faster than GDP. 

Today NZ Super costs $30 million a day. In 20 years, it will rise to $98 million a day.

With an optimistic lens we can say that Super will remain low as a proportion of GDP, relative to many OECD countries, but the argument ignores the other government costs that will increase, including health and aged care.

Significantly, it also hides the future choices that will need to be made. NZ Super costs were $10.44 billion (net) in 2015/16, which is 14% of core crown expenses and 4.1 % of GDP. Treasury predict that it will rise to 7.1% of GDP in 43 years. If we play that scenario today using 2015/16 numbers, the bill for Super would be $17.87 billion, which begs the question, where would we draw the additional $7.43 billion from?

We cannot maintain that current NZ Super settings are ‘affordable’ without being clear what those choices would be. We could shave it off health spend? Law and Order? Education? Roads? Or we meet the gap through tax increases?

Unless we are clear with taxpayers about the choices they, their children and grandchildren will face, those of us who live and breathe these numbers are being less than candid.

This debate swings from extremes of panic to complacency but there is a middle ground. What we need to do as a country is what we ask households to do: invest in today, look after our dependents, save some money and have a plan for the future.

We need to invest in today (training and upskilling people in their 50s and 60s who can continue to work), invest in our vulnerable (people who cannot work), save for the future (resume contributions to the NZ Super Fund), and signal change a long way out so people can prepare.

And we need to inform. As we ask New Zealanders to consider the issues of intergenerational equity, what one generation owes the next and who should pay for what, we need to equip them with the facts not reassuring rhetoric.

In an era of sound-bites and social media the task is daunting. Sourcing news through selected social media entry points means that, increasingly, people are only exposed to news and opinions that support their world view, not broader perspectives or information that challenges entrenched beliefs. 

How do we inform the public if the discussion is highjacked by circular, jargon-filled rhetoric and remains the preserve of academics and officials? We cannot deliver reports written by ‘experts’ for experts, peer-reviewed by experts to confirm firmly-entrenched views that don’t get changed by reports. If the subject of an ageing population and its associated costs remains opaque, people will be informed, and misinformed, by sound-bites, such as ‘it’s affordable’ as the only consumable pieces of information available.

Those soundbites need to be replaced by a more substantive, relevant, meaningful public discourse on the subject in plain English.

The retirement income framework is an eco-system, meaning ‘a complex network’ or ‘interdependent system’. The all-dominating subject of age of eligibility cannot be addressed without also acknowledging the interdependencies: the ageing workforce, decoupling access to KiwiSaver, and more.

The much-needed national discussion needs to be reframed to focus on people aged 50-70, recognising that we do not all arrive at 65 in the same shape, physically or financially. Those differences became very apparent across 2016 as we heard from 58-year-olds who either could not work, or could not find work, and 65-year-olds who were healthy, working and did not view themselves as retirees.

It was a clear reminder that for some 65 is too early, and for some it is too late. 

This opinion piece was first published on on 28 December 2016 

Next: Walking the walk this Matariki

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