Jobs are key to raising the retirement age
“Unconscious bias” is a trendy term and one we may discount as bollocks, or worse.
But here’s a question: when did you last employ someone in their sixties or seventies in a significant, full-time job?
Unless your answer is “I would never think about someone’s age as I simply employ the best person for the job”, those heading towards retirement are likely to suffer a miserable future. Their chances of remaining gainfully employed until their seventies is remote.
Across the Tasman, Treasurer Joe Hockey intends raising Australia’s retirement age to 70. In New Zealand, we know any change in our retirement age is highly unlikely, because of an undertaking by Prime Minister John Key.
But the current Australian government also made a pre-election promise not to increase the pension age. And here in NZ the challenge cannot continue to be ignored.
The Labour Party is promising to increase the entitlement age for superannuation to 67 on a graduated basis, starting in 2030. It is difficult to argue with its logic, given the future cost of funding superannuation and healthcare and especially in light of our increased life expectancy.
The harsh reality is that unless those facing retirement have bucked the trend and saved enough, they need focus on the reality the retirement age will increase.
The other reality is that it’s highly unlikely they will be gainfully employed by the time they reach 70, meaning they must earn enough from their investments to self-fund their retirement.
Is National adopting a head-in-the-sand approach? Australia’s last Labor government increased the retirement age from 65 to 67, effective from 2023. Countries such as the United Kingdom are also looking at increasing their retirement age to 70.
What does super cost?
In New Zealand, the cost of superannuation - $10.2 billion a year, or 4.5% of GDP - exceeds the cost of all other benefits, including Working for Families.
This is an increase of $2.9 billion since 2008. Future projections indicate that by the middle of this century, one in four New Zealanders will be over 65.
Increasing the entitlement age from 65 to 67 saves less than 1% of GDP and would not apply until 2030. If nothing is done, superannuation costs could increase to between 8% and 9% of GDP.
KiwiSaver is only part of this solution, and providing more tax concessions for people to save for their retirement will merely bring forward the cost to the government.
Australia provides extensive tax concessions for superannuation savings, costing A$40 billion a year - equal to the existing cost of the Australian government pension.
This is clearly a complex and multifaceted problem and unless employment opportunities exist for those aged between 60 and 70, then adopting a one-sided approach is simply exchanging the costs of superannuation with the cost of unemployment benefits. In times of full employment a higher retirement age may be the answer but this would depend on the employee’s industry sector.
Will income testing work?
Income and asset testing of superannuation is a potential solution. But Australia already does this and its experience is that more than 80% of men and nearly 90% of women receiving a full pension at age 65 are moving from other welfare benefits.
Amongst all the noise, it is difficult to see any in-depth analysis of all the issues involved. Perhaps the name-calling and focus on increasing our retirement age in 2030 is simply a political ploy.
After all, how can you promise to do something that will extend beyond your electoral term? What is needed is a cross-party solution that puts aside political differences and looks at what is best for New Zealand.
The best offer so far seems to be that of United Future leader Peter Dunne who is promoting a flexible policy where, if you retire between 60 and 70, you receive a lower amount than those retiring at 70-plus.
The success, or otherwise, of this policy still depends on New Zealand ensuring there are employment opportunities for 60-70-year-olds.
For their part, individuals need to focus not only on saving for their retirement but also on other ways to release capital by selling assets, such as their family home, and moving to a model such as is leasing for life.
Given the cloud of a future capital gains tax, this also could have some challenges.
Meanwhile we can actively work on our unconscious bias or ageism.
Joanna Doolan is a tax partner with EY.