NZ likely to be equally affected by world pension crisis

By NZPA

Thursday 13th March 2003

New Zealand is no more going to escape the problems of an ageing population and the crippling costs of paying pensions than any other industrialised nation.

The current ratio of or working aged people to pensioners is going to reduce from nearly six to one now, to a little over two to one by 2060. The cost of New Zealand superannuation is forecast to rise to 9 percent of gross domestic product (GDP) in 30 years from the current 4 percent.

New Zealand has chopped and changed its government pension or superannuation scheme over the last 30 years, and there is far from political agreement about the current arrangement.

New Zealand has a two-tier structure -- a government universal scheme overlaid by private schemes for those who can afford them.

The government scheme is a dubbed the 65-65 scheme -- paying everyone who reaches the age of 65, with a married couple getting 65 percent of the average wage after tax ($18,092 a year or $347 a week). For singles it is about 40 percent.

New Zealand voters overwhelmingly rejected the compulsory superannuation scheme proposed by Winston Peters in a referendum in 1998.

Pensions were introduced here by Richard Seddon's government in 1898. It was means-tested for residents over 65.

In 1938, a means-tested pension was introduced for people over 60 and a universal pension for all those over 65.

In 1975, Sir Roger Douglas in a Labour government introduced a compulsory scheme where employees and employers contributed 4 percent of wages.

But a few months later, Sir Robert Muldoon's National government swept to power and replaced it with a tax-funded scheme for over 60 year-olds that by 1979 was delivering 80 percent of the average wage.

In 1985, the unsustainability of Muldoon's scheme was apparent and the Labour government introduced a deeply unpopular means-tested surcharge.

In 1990, the National government raised the surcharge despite promises to scrap it, froze pensions, and lifted the eligibility to 65.

The Todd taskforce on retirement it set up in 1992 recommended political parties find consensus and from that the now dead Super Accord was born.

In 1996 the New Zealand First/National government scrapped the surcharge and embarked on the referendum.

Finance Minister Michael Cullen has now established his controversial New Zealand Superannuation Fund, which is designed to smooth out the funding requirement for the ageing population. It is planned to swell to about $100 billion in today's dollars by 2030, and will then be run down over 25 years.

"We cannot ignore the fact that, over the next 50 years or so, a permanently higher proportion of the population will become eligible to receive payments of New Zealand superannuation," Dr Cullen said last week.

Critics attack the scheme on a number of grounds -- that it stifles the economy which would grow faster with lesser tax; that the projected investment return of 9 percent per annum is far too ambitious; and that it is an inter-generational transfer of the tax burden and benefits.

Some surveys have shown Dr Cullen's scheme has discouraged people from saving in the mistaken belief that the fund will better provide for them in their old age.

Dr Cullen admits to concern on the lack of savings and is looking at easing the tax requirements on private schemes.

National has confirmed it is committed to the current scheme but strongly opposes the concept of partial pre-funding.

National spokesman Don Brash last week warned New Zealanders in their 40s and younger they are unlikely to get their pension until after they are 65.

Despite this and other warnings, the Retirement Commissioner's website states: "Our advice is, firstly, to ignore the scaremongers who say to younger people `by the time you retire there'll be nothing from the State'.

"No New Zealand government can ignore the reasonable needs of older people. The type of pension available could change over time, but there will be some financial support for people in retirement."

The commission also advises people to plan on the basis of current pension levels.

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