Excellent Radio New Zealand Insight programme on NZ Super

 

Despite that message of self reliance, the University of Auckland’s Retirement Policy and Research Centre co-director, Susan St John, believes younger generations will feel the pinch of an aging population.

“The working age population will be squeezed mercilessly. They’ll get ever lower benefits, tax credits and lots of student debt, while an older, mostly, more affluent population lives longer and takes what is seen as an unfair share of resources.”

Susan St John believed means testing super to exclude the wealthiest pensioners would save about $1 billion a year, which could then be redirected to the poorest families, easing inequality.

http://www.radionz.co.nz/national/programmes/insight/audio/201757212/insight-for-7-june-2015-the-superannuation-conundrum

Some quick thoughts:

  • NZ Super Fund should not be paying tax – that is a failure of finance 101 – tax reduces the compounding growth of the fund materially when you forecast out to the 2020’s and 2030’s – $1 billion at a 5% real return more than doubles by 2030 – the irony here is that materially affects the deficit/surplus if you think about it!
  • Government cost of debt has been lower than both ACC and Super Fund returns since 2008 – the government can’t do what every tinpot property investor has done – borrow at low rate / invest at higher rate….billions of dollars in future compound growth lost…far lower “Save As You Go” coverage the end result
  • Kiwisaver is solid policy that has clearly helped “Generation Rent” – auto-enrolment is great and attempts to look at net wealth of Kiwisaver members a few short years into a multi-decade savings scheme with the greatest growth tacked onto the end years before retirement is pretty poor thinking particularly when household wealth data is one of the lightest data sets around and really difficult to measure accurately / reasonably
  • The fact that older people vote more than younger people will basically ruin New Zealand’s public finances unless significant levels of immigration alter the beneficiary/taxpayer ratio – forget 50,000 net migrants/year – a few million migrants could arrive between now and 2030, how will that additional infrastructure be paid for as well? Do recent immigrants care about supporting NZ Super? How will the political calculus change in that environment?
  • There is no entitlement to anything anymore unfortunately, the user pays generation won’t stomach higher taxes for nothing in return, leaders not making tough decisions now are clearly out of touch with the levels of resentment many younger people have towards the older generation – but it’s understandable because this is such a political third rail
  • This is just another one of those policy problems that can’t be resolved in a democracy without causing a whole lot of drama, so it will never be resolved until there is a crisis point and the government’s hand is forced to means test or increase the age of eligibility or increase taxes a lot
  • A cheap and easy solution to at least stem the massive outflow of cash to superannuitants, making the application process at least as painful as someone going into a WINZ office for anything else would be surely be a reasonable interim step towards means testing