Sunday, 30 October 2011

John Key - More Ostrich than Kiwi on Retirement

Labour’s policy announcement last week about gradually lifting the retirement age to 67 by 2023 has provoked some interesting comments on my travels around the electorate. Most people realise the sense of the move. As life expectancy grows the entitlement age should move with it. The demographers show us the fiscal time bomb is out there, the sooner action is taken, the smoother the introduction. Most people accept that, as people live longer (life expectancy is rising at the rate of 3 months per year) and the population ages, the retirement age needs to go up. Most of us realise that the limited resources of the welfare system need to be fairly distributed over the whole population. The pension system was never intended to support the average retiree for 25 years as it does now (that average is rising). Nor was it intended to support one pensioner for every three working age people.

It has been recognised for decades that in the long term our national superannuation scheme was going to be unsustainable. Over time the payments became meagre with many superannuitants, whose only income is national superannuation, struggling to survive. Many Kiwis thanks to low wages and no savings scheme had no nest egg available for when they retired. It was Labour under Helen Clark and Michael Cullen that took the bold moves to address this issue with the NZ Superannuation fund (the “Cullen fund”) and the introduction of KiwiSaver in 2007. Now Labour is proposing to make KiwiSaver compulsory, to raise employer contributions from 3% to 7% by 2014, and to restart funding the New Zealand Super Fund, the combined effect of which will bolster and fortify savings.

John Key during the last election campaigned on New Zealand “closing the gap with Australia”. The comparison with Australia is worth reviewing. Australian employers pay about a 9% levy on top of their wage bill to fund their employees' retirement plans. In New Zealand, it is a minimum of 2% and that 2% is only payable if the employee joins an approved scheme. The gap will continue to widen when Australia moves its rate to 12% in 2019 (New Zealand's will rise to 3% in 2013).

People are increasingly healthy and capable as they age. Every dollar spent on supporting 65 and 66 year olds who are capable of supporting themselves (and 40% of them are working) is a dollar that can’t be spent on higher priorities, like health, education, tackling climate change, and investing in the future for us all.

Despite the odd negative comment, most people recognize the need to plan for the expected increase in the population of older people in New Zealand. The cost of providing superannuation, accommodation and healthcare for older New Zealanders will balloon from 2020 as the “baby boomers” start to retire.

Retirement Commissioner Diana Crossan has been beating the drum for ages on the retirement age issue, saying it needs to be planned for now to avoid having to make harsher cuts later on. Labour has now taken two major steps to ensuring the ongoing affordability of NZ Super by broadening the tax base via a capital gains tax, and now the small increase in retirement age.
Labour’s retirement and savings policy is about building savings for the country and for every New Zealander. The goal is to ensure that all Kiwis will have a nest egg of hundreds of thousands of dollars they wouldn’t have had otherwise. If we take the initiative now, a twenty five year old putting in $10 a week will have about $400,000 when they retire. That’s a very comfortable nest egg. Simply put Labour realises that we can’t afford not to save.

One news item that concerned me recently raised the specter of having to accommodate the elderly in care two to a room – this is an appalling idea and must be avoided. Our elderly deserve the right to be treated with dignity and respect in their vulnerable years; the idea that cost cutting in this way is better than biting the bullet on issues like the retirement age is ridiculous.

Winston Peters has commented that a raise in the retirement age can be avoided if we lift our economic performance. The problem with this is that basing vitally important policy on the level of economic growth in the future can only end in tears when things turn out differently than expected (just ask the folks at Treasury about how easy it is to accurately forecast economic growth). Too many factors can affect our small, open economy, so even if we do everything right to lift our productivity and rate of growth, outside factors can overwhelm us. Policy has to be based on simple, logical steps not hopes that we’ll be able to afford the status quo if we crank the handle on the economy.

Kiwis will be assisted if they can’t work past 65 with access to a transition allowance of the same value as the pension. Most of us are pragmatic and realize we must make some sacrifices now to improve things later on.

My visits to local retirement villages and discussions with residents in the electorate have highlighted to me that we have some work to do to ensure that those who need it have access to quality care in their area. I met a woman from Dannevirke who was having to quit her job to look after her elderly father because the nearest available care facility was in Marton. It’s all too easy to romanticise the idea that family should look after their own, but the disruption to this family’s life was severe. We need to plan now to make sure enough elderly care facilities are built in our area.

It is negligent of the current Government to refuse to deal with this looming issue of retirement, aged care and savings. Mr. Key in saying he would rather resign than raise the retirement age is more ostrich than kiwi with this issue, and his lack of vision will only hurt us all downstream.

Only Labour has the bottle to plan for a long-term future that is fair and benefits us all.

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