You must have noticed a trend over recent years to accuse our ‘aging’ population of risking a future economic doomsday scenario.
It’s a popular argument perpetuated by our younger population members (of course) who see our universal pension as a major nail in the coffin of their future economy.
A recent Treasury report added to the wailing, claiming we face a structural fiscal deficit exacerbated by population ageing that will increase superannuation costs as a percentage of our GDP. The current Treasury suggests options such as increasing the eligibility age to 72 by 2065, or implementing means testing, alongside broader tax reforms like higher (God forbid), GST. I can’t remember our Treasury getting a five year prediction right, let alone a 40 year one, but let’s look at what is left out of this age-bashing prediction.
KiwiSaver was launched in 2007 as a voluntary retirement scheme pooling voluntary contributions (three to 11 per cent of annual income); mandatory employer contributions (usually three per cent); and government contributions into privately managed investment funds. Even by March last year almost 90% of us, aged 18-64, were KiwiSaver members, with a total of 3.33 million members participating in the scheme. Those not contributing are most likely not in paid work, on low incomes, or self-employed.
In future, the levels of all KiwiSaver contributions can be adjusted of course or even made compulsory. In Australia, our more well-off cousins and home to 700,000 Kiwis, the pension is asset tested because the country has had a compulsory super saver fund since 1992 – with significant employee and employer contributions that are now a whopping 12 per cent of earnings. Aussies can also make additional voluntary contributions to their superannuation and receive tax benefits. While there is no standard retirement age in Australia, you can draw money from the scheme from the age of 60.
The obvious omission among the pension doomsday theorists is the fact that in the 10 years leading up to the 2023 Census, the percentage of us aged 65 and over who were still gainfully employed and paying taxes increased to over 24 per cent. This shows a continued trend of older workers remaining in employment longer and paying more taxes, and likely to be on higher salaries.
Another presumption is we are living ‘longer’ but the stats are calculated from birth and, of course, fewer of us die young these days (no guarantee that won’t change), which pushes out the average age of death. But if you look at the stats the average death is about 83 years and has been the norm for the past 15 years. Not surprisingly, Statistics NZ reported this year that our overall life expectancy has stalled for the first time in 60 years.
Worse, the steepest declines in health since 2011 have been in our working-age population as the percentage of adults aged 15-65 years in excellent health has declined by 45 per cent while the proportion in fair health increased by 54 per cent. Which hardly points to a financial ‘longevity’ burden in the future. Particularly when our Ministry of Health tells us a third of us are obese and coronary artery disease (think lifestyle) is our biggest killer.
The Superannuation Fund
As a percentage of GDP, our pension is lumped under the general welfare budget, so currently 25 per cent of the pension is other welfare costs such as benefits. The doomsayers claim that our pension, which costs around five per cent of GDP (minus 25%) is expected to rise to about 7.6% by 2060. But, what about our Superannuation Fund?
This government investment fund, with assets of $76.6 billion as of June 2024, is aimed purposely at the future cost of universal superannuation payments. And, by golly, it is doing very well, with current returns over 10 per cent (before tax). At the moment this fund does not make direct monetary contributions to individual pensions; instead, it is intended to help pay for the future cost of our pension scheme when needed, starting in the 2030s.
You are already investing in your future pension through taxes. It is not an act of charity or social welfare benefit ‘cost’. Look forward to it.
If you are still working and you are over 65 – our country owes you for your service, your tax contribution and your industry experience and wisdom. Thank you!
Alan Titchall, Editorial Manager
Parting words from Jeremy Sole- a final column