The Elderly Debate in New Zealand

We’ve talked before previously on this blog that many countries will find it harder to cope with the sheer number of people retiring as the baby boomer generations approach retirement age.  To take their place in the work force there are fewer young people meaning that there will be a growing proportion of elderly dependants to younger workers and taxpayers.  This means that it will be harder to bear the cost of cradle-to-grave welfare states.  This is particularly true since the grave is further off in the distance thanks to advances in medical science and palliative care and better lifestyles (although the obesity epidemic may have something to say about that…)
The other day I found a very interesting analysis of New Zealand’s retirement predicament which really brought this message home.  Essentially, the article’s premise was that a “pay-as-you-go” system of basic, universal retirement superannuation only works with positive trending demographics.  Now, in New Zealand we have downwards trending demographics, like many other countries in the world and we have a real problem – how on Earth will we pay for everyone’s superannuation?  To illustrate the problem, the author, David Chaston, analysed a working life of someone who retires in 2011:

“Basically, someone who finished high school…in 1962 will be aged 65 in 2011, and eligible for NZ Super.

Statistics NZ has relevant data of earnings and taxes from 1962 and we can use that data to track the earnings in that working life - and from that data determine the taxes paid over that period.

…Converting these raw earnings and taxes to 2011 dollars, they earned NZ$2.7 million, paid NZ$620,000 in taxes, and had take-home pay of a bit more than NZ$2 million.

However, for the next 20 years of retirement, they will claim in 2011 dollars NZ Super to the value of NZ$544,000 - or almost 88% of all the taxes they have ever paid.

If they live for 30 years in retirement, they will claim almost a third more than they paid in a lifetime of taxes. They 'break-even' after 22+ years.

That essentially means someone else has to pay for their lifetime use of all other public services, including their health care needs as they age.” [emphasis added] Someone who retires now in New Zealand will, if they live to 87, on average take more out of the system through superannuation payments alone (!) than they will put into the system through a lifetime of paying taxes.  Such a system is simply unaffordable. Once this becomes apparent, then there may be room for political parties to make mileage out of it.  We have a party that is seen as a friend of elderly voters, I wonder if we ever see one that is seen as an ‘enemy’ of the same elderly voters?
The article concludes that the thing that New Zealand needs to do is to raise the retirement age, and quickly. Our Prime Minister has categorically denied that this will happen under him. I have a feeling that in New Zealand we may reach the point where we no longer have a choice in the matter. Hopefully other countries will decide to make the necessary changes in an orderly, voluntary manner.  But somehow I doubt it.


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