Progressive Party submission to the Retirement Income Review 2010
Introduction
These submissions are made by the Progressive Party. Jim Anderton is the only Progressive Party representative in Parliament, but was the leader of the party (the Alliance) which was one of three parties that signed ‘An Accord on Retirement Income Policies’ (the Accord, hereafter) in August 1993 along with the Labour and National parliamentary parties. The current review owes its origin to this Accord.
The 1993 Accord and subsequent developments
The Accord concluded that NZS should continue, as follows:
The Accord also provided that ‘the net amount provided from public funds for a retired person should reduce as that person’s total income increases.’ This principle could be implemented by either (a) a surcharge on income in the same form as exists at the date of this Accord; or (b) a progressive tax regime that has equivalent effect.
The surcharge was abolished when New Zealand First formed a coalition with the National Party. The Accord parties agreed subsequent to the signing of the Accord that the proposed introduction by Labour of a 39 % top marginal rate of income tax on taxable incomes higher than $60,000 p.a. would qualify under the Accord as part of a progressive tax regime with equivalent effect to the surcharge. When the Labour/Alliance formed a Government in the 1999/2000 March year, they implemented this marginal income tax rate of 39% on incomes higher than $60,000 p.a. Moreover, they implemented a funding policy by paying NZS at a rate equal to a percentage of Gross Domestic Product above the actual amount required for current payments, with the excess going into the NZ Superannuation Fund. The excess was calculated by a projection of NZS over a moving 40 year period. The Fund had assets of around $13 billion by the end of June 2009. The Fund’s assets can be drawn upon in future to help finance the payment of NZS to superannuitants. In this way, the need for future tax increases to finance the payment of NZ Super was alleviated, although not entirely eliminated.
In recent years (2006/07) the minimum level of NZS has been raised from 65% to 66% of average weekly ordinary time earnings, as defined above.
In 2009, the National government put in a small amount of $250 million into the NZ Superfund instead of the required $1.5 billion. It suspended the required capital contributions from 2009/10 until the return of a sufficient operating surplus. The Budget for 2009/10 noted that ‘an operating balance sufficient in terms of cash flows to meet contributions and other capital spending, in combination with the debt ratio not increasing, is projected for 2020/21’. However, National has noted that its commitment to current entitlements is absolute.
The Accord endorsed the lifting of the age of entitlement from 60 to 65 over a ten year period. This change was accomplished by 2001. Table 1 sets out the percentage of actual NZS paid as a percentage of the Government’s total tax income, including compulsory levy payments and fines (total sovereign receipts).
- Age of entitlement: 65.
- Level: 65%-72.5% of average weekly ordinary time earnings after tax of all industries, males plus females.
- Adjustment: in April by the movement in the CPI between the preceding December quarters.
The Accord also provided that ‘the net amount provided from public funds for a retired person should reduce as that person’s total income increases.’ This principle could be implemented by either (a) a surcharge on income in the same form as exists at the date of this Accord; or (b) a progressive tax regime that has equivalent effect.
The surcharge was abolished when New Zealand First formed a coalition with the National Party. The Accord parties agreed subsequent to the signing of the Accord that the proposed introduction by Labour of a 39 % top marginal rate of income tax on taxable incomes higher than $60,000 p.a. would qualify under the Accord as part of a progressive tax regime with equivalent effect to the surcharge. When the Labour/Alliance formed a Government in the 1999/2000 March year, they implemented this marginal income tax rate of 39% on incomes higher than $60,000 p.a. Moreover, they implemented a funding policy by paying NZS at a rate equal to a percentage of Gross Domestic Product above the actual amount required for current payments, with the excess going into the NZ Superannuation Fund. The excess was calculated by a projection of NZS over a moving 40 year period. The Fund had assets of around $13 billion by the end of June 2009. The Fund’s assets can be drawn upon in future to help finance the payment of NZS to superannuitants. In this way, the need for future tax increases to finance the payment of NZ Super was alleviated, although not entirely eliminated.
In recent years (2006/07) the minimum level of NZS has been raised from 65% to 66% of average weekly ordinary time earnings, as defined above.
In 2009, the National government put in a small amount of $250 million into the NZ Superfund instead of the required $1.5 billion. It suspended the required capital contributions from 2009/10 until the return of a sufficient operating surplus. The Budget for 2009/10 noted that ‘an operating balance sufficient in terms of cash flows to meet contributions and other capital spending, in combination with the debt ratio not increasing, is projected for 2020/21’. However, National has noted that its commitment to current entitlements is absolute.
The Accord endorsed the lifting of the age of entitlement from 60 to 65 over a ten year period. This change was accomplished by 2001. Table 1 sets out the percentage of actual NZS paid as a percentage of the Government’s total tax income, including compulsory levy payments and fines (total sovereign receipts).
Superannuation and the tax rate
KEY RECENT DATA
TABLE 1
Note: 1) Crown Sovereign Receipts are defined as direct income and corporate taxes, GST, all other indirect taxes, ACC levies, EQC levies, Fire Service levies, Child Support, Court fines and other miscellaneous items.
Sources: The Statistical Report of the Ministry of Social Development; Financial Statements of the Government of New Zealand.
Table 1 indicates that despite the number of superannuitants rising by between 2% and 3% p.a. in recent years, the cost of NZS has remained steady as a percentage of the Crown’s receipts of taxation, fees and fines. As a percentage of GDP, NZS has been around 4% p.a. during the years covered by the table. During the first three years covered by Table 1 there was still an effect of the age of entitlement rising from 60 to 65.
If the burden of taxation were to remain unchanged, then, with positive rates of real GDP growth, the future increases in the total payable amount of NZS on account of the so-called baby-boomers retiring would not have to cause much of an increase in the percentage of NZS as a percentage of the Crown’s revenue.
The Treasury’s projections in the Budget 2009/10 show increases in the number of superannuitants of around 3 % p.a. in June years ending 2010 and 2011 and of 3.6% and 4% p.a. in the following two June years. It is quite possible that real GDP will grow at similar rates. If it does, Government revenue will be sufficient to keep NZS as a proportion of total Government revenue around 13%. It could even fall, assuming that the tax regime continues to remain progressive.
Current plans to reduce the top marginal tax rate from say 38% to 33%, with an increase in GST from 12.5% to 15% would weaken the rate of progression.
If the top rate of tax is reduced, undermining the Accord principle that ‘the net amount provided from public funds for a retired person should reduce as that person’s total income increases’, then policy-makers need to be explicit about the impact on the future capacity to meet superannuation costs.
TABLE 1
| JUNE YEAR | NZ SUPER AS % OF CROWN SOVEREIGN RECEIPTS 1) | SOVEREIGN RECEIPTS AS % CURRENT GDP | ANNUAL % INCREASE IN SUPERANNUITANTS |
| 1999/00 | 16 | 30 | -1.7 |
| 2000/01 | 15 | 32 | -1.5 |
| 2001/02 | 15 | 31 | +0.8 |
| 2002/03 | 14 | 32 | +1.5 |
| 2003/04 | 13 | 32 | +1.6 |
| 2004/05 | 13 | 33 | +2.3 |
| 2005/06 | 12 | 35 | +2.9 |
| 2006/07 | 12 | 34 | +2.8 |
| 2007/08 | 13 | 33 | +2.3 |
| 2008/09 | 13 | 32 | +2.8 |
Note: 1) Crown Sovereign Receipts are defined as direct income and corporate taxes, GST, all other indirect taxes, ACC levies, EQC levies, Fire Service levies, Child Support, Court fines and other miscellaneous items.
Sources: The Statistical Report of the Ministry of Social Development; Financial Statements of the Government of New Zealand.
Table 1 indicates that despite the number of superannuitants rising by between 2% and 3% p.a. in recent years, the cost of NZS has remained steady as a percentage of the Crown’s receipts of taxation, fees and fines. As a percentage of GDP, NZS has been around 4% p.a. during the years covered by the table. During the first three years covered by Table 1 there was still an effect of the age of entitlement rising from 60 to 65.
If the burden of taxation were to remain unchanged, then, with positive rates of real GDP growth, the future increases in the total payable amount of NZS on account of the so-called baby-boomers retiring would not have to cause much of an increase in the percentage of NZS as a percentage of the Crown’s revenue.
The Treasury’s projections in the Budget 2009/10 show increases in the number of superannuitants of around 3 % p.a. in June years ending 2010 and 2011 and of 3.6% and 4% p.a. in the following two June years. It is quite possible that real GDP will grow at similar rates. If it does, Government revenue will be sufficient to keep NZS as a proportion of total Government revenue around 13%. It could even fall, assuming that the tax regime continues to remain progressive.
Current plans to reduce the top marginal tax rate from say 38% to 33%, with an increase in GST from 12.5% to 15% would weaken the rate of progression.
If the top rate of tax is reduced, undermining the Accord principle that ‘the net amount provided from public funds for a retired person should reduce as that person’s total income increases’, then policy-makers need to be explicit about the impact on the future capacity to meet superannuation costs.
Costs of Health
Concerns have been raised about increasing costs of health care as life expectancy increases by about three months every year, so that the number of elderly needing significant health care would increase and cause a rise in the total costs of health on the Government Budget.
For most people the need for intensive health care occurs during the final two years of life.
Longer periods of care may be called for on account of Alzheimer’s disease or chronic diseases such as Parkinson’s disease. Advances in medical science and technology, however, enable people to cope with the problems of the latter for longer while remaining at home.
In New Zealand people either pay for specialised medical/rest-home care themselves or have their NZS allocated to it along with most of their assets. Moreover, such care facilities, along with medical staff engaged specifically to care for the aged, provide meaningful employment and income for many (which is subject to tax).
In this context, it is worth noting that the traditional division of life into three parts: education, working and retiring, has ceased to exist. Education has become a life-long activity. Working life is punctuated for many by spells of unemployment or periods between jobs. The period beyond the age of 65 offers for many a chance of engaging in pursuits long deferred, including education, part-time jobs etc.
Thanks to NZS, which is by no means ‘generous’, thousands of people over 65 are able either to have paid work, often at easier hours, or to engage in a wide range of (unpaid) voluntary activities.
Although there is likely to be an increase in the costs of health care associated with ageing, it does not follow that it would be so dramatic as to result in a steeply rising ratio of total Government health spending as a percentage of GDP. It is definitely not a reason to curtail entitlements to NZS or to make it “means-tested”. If that were to happen, the health of many elderly would deteriorate rather than improve.
For most people the need for intensive health care occurs during the final two years of life.
Longer periods of care may be called for on account of Alzheimer’s disease or chronic diseases such as Parkinson’s disease. Advances in medical science and technology, however, enable people to cope with the problems of the latter for longer while remaining at home.
In New Zealand people either pay for specialised medical/rest-home care themselves or have their NZS allocated to it along with most of their assets. Moreover, such care facilities, along with medical staff engaged specifically to care for the aged, provide meaningful employment and income for many (which is subject to tax).
In this context, it is worth noting that the traditional division of life into three parts: education, working and retiring, has ceased to exist. Education has become a life-long activity. Working life is punctuated for many by spells of unemployment or periods between jobs. The period beyond the age of 65 offers for many a chance of engaging in pursuits long deferred, including education, part-time jobs etc.
Thanks to NZS, which is by no means ‘generous’, thousands of people over 65 are able either to have paid work, often at easier hours, or to engage in a wide range of (unpaid) voluntary activities.
Although there is likely to be an increase in the costs of health care associated with ageing, it does not follow that it would be so dramatic as to result in a steeply rising ratio of total Government health spending as a percentage of GDP. It is definitely not a reason to curtail entitlements to NZS or to make it “means-tested”. If that were to happen, the health of many elderly would deteriorate rather than improve.
Basic principles of NZ Super
The economic system generates a flow of goods and services. This flow is distributed to those who make direct contributions to its production in the form of labour (wages and salaries), capital (profits, dividends, interest) and taxes (levied on income, expenditures on goods and services, interest and dividends). The state spends income from tax revenues on a variety of goods and services as well as on social welfare.
How do people who have ceased contributing to the production of goods and services get access to a part of the flow of goods and services? These people are known as dependents. They include the:
Dependents can access current production, as follows:
Obviously, begging is incompatible with human dignity. Anyway, it is an option not open to prisoners, sick or invalid people, the very young or the frail old. Family care is possible if the family is able and prepared to provide financial support for as long as necessary. Many families lack the means to do it. If they consider it, then, they may face a major and possibly increasing burden for a period that might be as long as 30/40 years.
Social welfare is generally available to those who are faced with contingencies such as unemployment, sickness or invalidity.
Building up a capital fund during working life is not easy. Moreover, investment in shares and bonds is subject to risk and to fees charged by advisors and funds that invest the money. The financial crisis of 2007-2009 has shown how hazardous such capital investment can be. Even in the absence of such crises there is always the ebb and flow associated with the business cycle.
NZS is a pension made available by those who are working (paid work) to those who have ceased to be able to work or who have a reduced capacity to work.
NZS is paid from general Government revenue. It is a ‘pay-as-you-go’ system. The World Bank has rated NZS as one of the most efficient systems in the world. It involves little cost as the administration piggy-backs on the administrative machinery of the tax and social welfare systems.
How do people who have ceased contributing to the production of goods and services get access to a part of the flow of goods and services? These people are known as dependents. They include the:
- sick
- invalids
- prisoners
- unemployed
- old and frail
- young attending school/university/training.
Dependents can access current production, as follows:
- Begging
- Family care
- Social welfare
- Money from accumulated and invested savings, including inheritances.
Obviously, begging is incompatible with human dignity. Anyway, it is an option not open to prisoners, sick or invalid people, the very young or the frail old. Family care is possible if the family is able and prepared to provide financial support for as long as necessary. Many families lack the means to do it. If they consider it, then, they may face a major and possibly increasing burden for a period that might be as long as 30/40 years.
Social welfare is generally available to those who are faced with contingencies such as unemployment, sickness or invalidity.
Building up a capital fund during working life is not easy. Moreover, investment in shares and bonds is subject to risk and to fees charged by advisors and funds that invest the money. The financial crisis of 2007-2009 has shown how hazardous such capital investment can be. Even in the absence of such crises there is always the ebb and flow associated with the business cycle.
NZS is a pension made available by those who are working (paid work) to those who have ceased to be able to work or who have a reduced capacity to work.
NZS is paid from general Government revenue. It is a ‘pay-as-you-go’ system. The World Bank has rated NZS as one of the most efficient systems in the world. It involves little cost as the administration piggy-backs on the administrative machinery of the tax and social welfare systems.
Ageing and the dependency ratio
If a population ages, the proportion of older people rises, whereas, by the same token, the proportion of younger people decreases.
The total dependency ratio is the ratio of all those who are dependent, in the sense that they are not making a direct contribution to current GDP, as a percentage of the total of those working and contributing to GDP.
When, over time, the proportion of older people rises and, consequently that of the young falls, the total dependency ratio may not increase at all.
If we consider the costs of providing for the older group of people in comparison with the costs of other dependents, it turns out that the young are more expensive than the older group. The young, up till 24 years old, tend to be in education or training. They are also accident prone (car accidents in particular) and are over-represented in the prison population. The statistics of the prison population show that there has been an ageing trend in the population in recent years. Yet, of a total muster of 6,554 prisoners in 2009 no more than 3.5% were aged 60 and over.
As pointed out above, the idea that the costs of health care of the aged will become a major burden on society and on the Government Budget are highly exaggerated. Those cared for in rest homes may have sold, let or vacated their houses or apartments to younger people. It is also true that facilities like rest homes provide employment. In order to make a proper assessment of higher health costs of those over 65 one should take all these factors into account. It should also be realised that the young make considerable demands on health care: midwives, paediatricians, hospitals, vaccinations, accidents.
There is nothing new about these matters, given that the trend towards an ageing population has already been in place for a long time.
In order to assess the costs of ageing on the State’s Budget, one should split up Government expenditures over three age groups:
In terms of the costs of health, the Treasury’s long-term model indicates that of total state expenditures on health 35 % are younger than 25 and account for 21% of the state’s expenditure on health, whereas 13% are aged 65 and over and account for 39% of total health expenditure.
One should carry out an analysis along these lines for all categories of expenditures, including education, accidents, imprisonment, social welfare etc.
The higher costs of health for the group over 65 are partly compensated by lower costs in other categories of expenditure.
Although one may have to make some arbitrary decisions in some cases, broadly this exercise is feasible. One could then take the most recent population projections by age group and project future Government expenditures by age group. As far as Government income is concerned, one should take the current ratio of tax revenue to GDP as a guide and project real GDP growth as the sum of the growth in population plus the rate of technical progress (say, 0.5% p.a. longer term, but it will always be highly uncertain). One should also build in the rate of progressivity of tax revenue with respect to GDP growth (it is very low at present).
Of course, if the Government were to reduce the rate of taxation, then, this should also be taken into account. I suggest that presumed secondary effects of lowering taxes such as higher productive investment should be ignored, being highly uncertain. Higher income earners who receive a tax cut may make financial investments abroad rather than in New Zealand businesses.
In general, the costs for the state associated with ageing are by no means as high as suggested by a ratio of people over 65 to those of working age. That ratio is irrelevant. Moreover, entitlements to NZS should be based neither on this ratio, nor on presumed high costs.
The total dependency ratio is the ratio of all those who are dependent, in the sense that they are not making a direct contribution to current GDP, as a percentage of the total of those working and contributing to GDP.
When, over time, the proportion of older people rises and, consequently that of the young falls, the total dependency ratio may not increase at all.
If we consider the costs of providing for the older group of people in comparison with the costs of other dependents, it turns out that the young are more expensive than the older group. The young, up till 24 years old, tend to be in education or training. They are also accident prone (car accidents in particular) and are over-represented in the prison population. The statistics of the prison population show that there has been an ageing trend in the population in recent years. Yet, of a total muster of 6,554 prisoners in 2009 no more than 3.5% were aged 60 and over.
As pointed out above, the idea that the costs of health care of the aged will become a major burden on society and on the Government Budget are highly exaggerated. Those cared for in rest homes may have sold, let or vacated their houses or apartments to younger people. It is also true that facilities like rest homes provide employment. In order to make a proper assessment of higher health costs of those over 65 one should take all these factors into account. It should also be realised that the young make considerable demands on health care: midwives, paediatricians, hospitals, vaccinations, accidents.
There is nothing new about these matters, given that the trend towards an ageing population has already been in place for a long time.
In order to assess the costs of ageing on the State’s Budget, one should split up Government expenditures over three age groups:
- Young up to 25
- 25-64
- 65 and over.
In terms of the costs of health, the Treasury’s long-term model indicates that of total state expenditures on health 35 % are younger than 25 and account for 21% of the state’s expenditure on health, whereas 13% are aged 65 and over and account for 39% of total health expenditure.
One should carry out an analysis along these lines for all categories of expenditures, including education, accidents, imprisonment, social welfare etc.
The higher costs of health for the group over 65 are partly compensated by lower costs in other categories of expenditure.
Although one may have to make some arbitrary decisions in some cases, broadly this exercise is feasible. One could then take the most recent population projections by age group and project future Government expenditures by age group. As far as Government income is concerned, one should take the current ratio of tax revenue to GDP as a guide and project real GDP growth as the sum of the growth in population plus the rate of technical progress (say, 0.5% p.a. longer term, but it will always be highly uncertain). One should also build in the rate of progressivity of tax revenue with respect to GDP growth (it is very low at present).
Of course, if the Government were to reduce the rate of taxation, then, this should also be taken into account. I suggest that presumed secondary effects of lowering taxes such as higher productive investment should be ignored, being highly uncertain. Higher income earners who receive a tax cut may make financial investments abroad rather than in New Zealand businesses.
In general, the costs for the state associated with ageing are by no means as high as suggested by a ratio of people over 65 to those of working age. That ratio is irrelevant. Moreover, entitlements to NZS should be based neither on this ratio, nor on presumed high costs.
How expensive are superannuitants?
NZS is paid from all sources of Government revenue: not only from taxes on wages, but also from taxes on income from capital. Should technical progress lead to higher unemployment, then profits are substituted for wages. Total tax revenue would not necessarily decline. This is overlooked by those who only look at the ratio of workers to superannuitants. In our technological society work is done by people as well as machines and, in New Zealand specifically, by nature. The ratio of workers to superannuitants is also irrelevant on this count.
The current amount of superannuation tends to be sufficient for buying the essentials of life like food and electricity. It is virtually spent in its totality. This means that it provides a flow of GST and excise duties to the Government. The net costs should be calculated as total gross NZS less income tax less GST, less excise taxes (the old keep driving, drinking and, unfortunately, smoking, although the incidence of the latter has been reducing).
Those superannuitants who are working full-time or part-time, of course, pay a part of their own super. The regular spending of NZS provides a stabilising element to the economy, as it is not dependent on the movement of the business cycle.
The current amount of superannuation tends to be sufficient for buying the essentials of life like food and electricity. It is virtually spent in its totality. This means that it provides a flow of GST and excise duties to the Government. The net costs should be calculated as total gross NZS less income tax less GST, less excise taxes (the old keep driving, drinking and, unfortunately, smoking, although the incidence of the latter has been reducing).
Those superannuitants who are working full-time or part-time, of course, pay a part of their own super. The regular spending of NZS provides a stabilising element to the economy, as it is not dependent on the movement of the business cycle.
Means-testing?
NZS is neither income-tested nor means-tested. Those who are rich on retirement receive the same amount at 65 as those who are poor. Is this equitable?
When people start out on their working life, they have no idea as to how they will fare financially. In the modern world working life is hazardous. Those who suffer accidents, have bad luck in business, become chronically ill at an early age or incur long spells of unemployment and contribute much less in tax than those who are successful, not because they want to do so but because of circumstances beyond their control. Those who inherit major fortunes and earn high incomes during their working life may contribute much more to tax revenue. Considered in this light, NZ Super is ‘income-tested’ as well as ‘means-tested’ for all who travel through life from school to the retirement age of 65. They pay, according to ability, for all those already retired.
When people retire, they suffer the common fate of ageing and being unable to work or much less able to do so. They all receive the same amount of NZ Super. It recognises the fact that how one fares during working life is highly uncertain, whereas the wear and tear of ageing is common to all.
However, those who enter retirement on high incomes and with significant assets continue to pay tax on their investment income. Those who enter that state of life without additional income or assets pay tax only on their NZS.
Those who continue working, also continue to pay tax on the income they earn, sometimes many times the amount of the superannuation payments they receive. Moreover, all pay tax on their consumption expenditures. My own income tax plus GST payments would exceed any NZ superannuation payments I receive by a factor of five or six times. Not a bad return for the government for working past the age of entitlement for superannuation.
The Progressive Party, therefore, rejects that there is a need to specifically income- or means-test NZS.
When people start out on their working life, they have no idea as to how they will fare financially. In the modern world working life is hazardous. Those who suffer accidents, have bad luck in business, become chronically ill at an early age or incur long spells of unemployment and contribute much less in tax than those who are successful, not because they want to do so but because of circumstances beyond their control. Those who inherit major fortunes and earn high incomes during their working life may contribute much more to tax revenue. Considered in this light, NZ Super is ‘income-tested’ as well as ‘means-tested’ for all who travel through life from school to the retirement age of 65. They pay, according to ability, for all those already retired.
When people retire, they suffer the common fate of ageing and being unable to work or much less able to do so. They all receive the same amount of NZ Super. It recognises the fact that how one fares during working life is highly uncertain, whereas the wear and tear of ageing is common to all.
However, those who enter retirement on high incomes and with significant assets continue to pay tax on their investment income. Those who enter that state of life without additional income or assets pay tax only on their NZS.
Those who continue working, also continue to pay tax on the income they earn, sometimes many times the amount of the superannuation payments they receive. Moreover, all pay tax on their consumption expenditures. My own income tax plus GST payments would exceed any NZ superannuation payments I receive by a factor of five or six times. Not a bad return for the government for working past the age of entitlement for superannuation.
The Progressive Party, therefore, rejects that there is a need to specifically income- or means-test NZS.
Longer life spans and the age of entitlement
Due to better working conditions and improved health, people are living longer than in the past. Some people believe that this is a good reason for increasing the age of entitlement.
However, they overlook that there are still many people who are worn out by the time they reach 65. This includes people who have spent their working life as manual workers in forestry, farming or other physically or mentally demanding jobs.
Unfortunately, Maori still have a lower life expectancy than Pakeha.
Moreover, if we consider the effect of technological progress, less people are able to work without interruption from, say, age 18/20 until 65. Unemployment is becoming a structural, permanent phenomenon. Indeed, those wanting higher productivity also want, by implication, lower employment.
Increasing the age of entitlement would be inconsistent with the objective of raising the rate of labour productivity. This is so because an increase in the age of entitlement increases the supply of people looking for work. Employers faced with a larger supply of workers will keep using existing machinery. In the opposite case of a tightening labour market they have an incentive to install labour-saving machinery, which raises the rate of productivity per hour of labour worked.
As shown above, there is no need to raise the age of entitlement for financial reasons.
However, they overlook that there are still many people who are worn out by the time they reach 65. This includes people who have spent their working life as manual workers in forestry, farming or other physically or mentally demanding jobs.
Unfortunately, Maori still have a lower life expectancy than Pakeha.
Moreover, if we consider the effect of technological progress, less people are able to work without interruption from, say, age 18/20 until 65. Unemployment is becoming a structural, permanent phenomenon. Indeed, those wanting higher productivity also want, by implication, lower employment.
Increasing the age of entitlement would be inconsistent with the objective of raising the rate of labour productivity. This is so because an increase in the age of entitlement increases the supply of people looking for work. Employers faced with a larger supply of workers will keep using existing machinery. In the opposite case of a tightening labour market they have an incentive to install labour-saving machinery, which raises the rate of productivity per hour of labour worked.
As shown above, there is no need to raise the age of entitlement for financial reasons.
Belonging to the community
NZS is adjusted annually on the basis of movements in the CPI (December quarter preceding over December quarter previous year), provided the new rate (married couple after tax) falls within a band of 66%-72.5% of average weekly ordinary time earnings all industries all people after tax. It is important to retain this link to average earnings because it meets the objective of allowing superannuitants to participate in their communities in a reasonable manner. Again, this is an expression of solidarity between the generations of workers and those who have ceased working because of being older than 65.
When NZS was introduced (1978), it was based on the assumption that retirees would have a mortgage free house. The rate of NZS was much higher then than it is at present. Over the years it has been whittled down to the present rate.
It is debatable whether the current entitlement allows superannuitants to participate in their communities in a reasonable manner. It certainly does not provide an overly generous level of participation. The current rate is sufficient to pay for the weekly shopping, petrol, power, chemist, telephone, local authority rates and car registration. It does not allow for travel or larger medical expenses (including expensive dental treatment). Even house maintenance is virtually impossible. In other words, the current level of superannuation pre-supposes other sources of income.
From this point of view the introduction of Kiwi-saver should be welcomed, although it is subject to the vagaries of financial markets and fees charged by funds.
When NZS was introduced (1978), it was based on the assumption that retirees would have a mortgage free house. The rate of NZS was much higher then than it is at present. Over the years it has been whittled down to the present rate.
It is debatable whether the current entitlement allows superannuitants to participate in their communities in a reasonable manner. It certainly does not provide an overly generous level of participation. The current rate is sufficient to pay for the weekly shopping, petrol, power, chemist, telephone, local authority rates and car registration. It does not allow for travel or larger medical expenses (including expensive dental treatment). Even house maintenance is virtually impossible. In other words, the current level of superannuation pre-supposes other sources of income.
From this point of view the introduction of Kiwi-saver should be welcomed, although it is subject to the vagaries of financial markets and fees charged by funds.