Political Porn With Hamish

by / July 16, 2012

National’s Refusal to Budge on pension age is pure politics

John Key’s and National’s refusal to raise the eligibility age for superannuation is no more than pure politics.

The Prime Minister’s stance – he’ll rather resign than lift the eligibility to 67 from 65 years – is not based on affordability or any social policy agenda. Instead, it’s the life support for a party whose ability to govern post-2014 is based on a handful of percentage points.

Parties to both the left and right of National know that the eligibility age of 65 is unaffordable for the country, with the coming grey tsunami of baby boomers entering retirement age swelling the number of superannuation claimants, not to mention associated health and aged care costs. Some estimates have the number of people over 65 to increase from 500,000 to 1.3 million by 2050. Such an increase will see the percentage of GDP spent on super increase from 3.4 per cent to 8 per cent, according to the Treasury.

Key maintains that the country, and therefore the taxpayer, can hold the age at 65, yet he criticises parties to the left for their policy of interest-free student loans. Back in March, the National Party leader stated that “it’s not politically sustainable to put interest back on student loans. It may not be great economics, but it’s great politics”. His solution that National will lift wages enough is not backed by evidence of that occurring and also overlooks the fact that pension payments are tied to 66 per cent of the average wage, meaning, taking a simplistic view, that wages raises don’t necessarily alleviate the tax burden of superannuation.

For the Prime Minister, and National’s strategist Steven Joyce, a “retirement age” of 65 is about keeping their party vote percentage in the high 40s. The duo believe that raising the age will cost the party more votes than leaving it as is, a position which is undoubtedly formed on the back of polling (or in the hope that it’ll tip the scales in their favour should Winston Peters be the Kingmaker post 2014).

This sort of myopic and short-term thinking should be of concern to the vast majority of students at this University, as historically the percentage of superannuates to working age people has floated around 15 per cent. This decade will see that percentage increase to high twenties; by 2050, there will only be three working age people to every person aged over 65. If the age is held at 65, the pressure to fund the entitlement at 65 will fall on today’s students, meaning they will need to fund not only their children’s education but the retirement of theirs and others parents. This funding will need to come either through cost cutting or lifting income taxes, with a 28 per cent increase touted by some think tanks.

Others may feel less concerned, as the a Labour/Greens coalition is being tipped to be in government in December 2013, meaning the retirement age can be lifted in the next Parliamentary term. The issue with this view is that Labour, who do favour raising the eligibility age, have indicate that any raise will be by incremental increases, in order to give individuals sufficient notice to plan for the change to their retirement. As such, we’re looking at a 2015 being the first year for the legislation to simply pass, let alone have incremental increases to the retirement age. In the 2011 campaign, Labour’s pension age increment model didn’t reach 67 until 2033. From 2014, we could be looking at 2036, a decade after the peak in superannuation claimants.

Even in the short term, super is becoming a growing cost; $12 billion over the next 4 years, increasing pressure on a budget that’s looking less and less likely of making it’s slim surplus target in 2014/15–the Reserve Bank is now predicting a $2.5 billion deficit for the same period.

National will realise that the benefit of increasing the eligibility age does not create any significant funds in 2012, and the incremental increase proposals mean that any notable savings would be several Parliamentary terms away.

Much of the discussion in recent months has focused on the cost of superannuation alone. We also have other associated issues which have received less media attention. The cost of health care will also increase during this period, and the country is facing a shortage of medical practitioners; many are baby boomers. This has been addressed, in part, with increased government subsidies creating further spaces at New Zealand’s medical schools, but the full benefits of this policy will not be realised until 2029.

The government needs to follow the lead of 13 other OECD counties and look at addressing the issues of an aging population, rather than leaving its head in the sand.

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