The Retirement Commissioner made the modest suggestion that the age of eligibility for government-provided superannuation be raised by two months for every year from 2020 until 2033, at which point the age of eligibility would have risen from 65 to 67.
That's exactly the kind of recommendation that should be easily implemented given political constraints. Financial problems from Superannuation obligations obtain in the medium to long term. Moving now to commit the plan to starting hiking the age of eligibility in eight years' time, and then with only very mild annual changes, hardly seems politically courageous. Indeed, it's the kind of thing where a government could position itself as caring about the longer term with very little political cost. Even someone expecting to retire in 2020 has eight years to save up enough to prepare for a two month delay in eligibility.
What does our Prime Minister instead do? Rules out the changes he easily could have sold as desirable or at least have fobbed off on the Retirement Commissioner.
Speaking on TVNZ's Breakfast programme this morning, Key said raising the age wasn't a straightforward exercise. “If you’re in a desk job, it might be imminently possible that you could work to 66 or 67, and in fact, one in four people do work aged over 65 in some form or another – part time or full time," Key said.And so if he thinks about changing his mind next term, Labour's next leader will hit him for breaking promises (even if it's not quite a promise); if he sticks with stupid policy, those who normally don't like stupid policy will back him up saying it's more important that he not do anything scary or back down on what could have been viewed as an election commitment.
"But actually, if you’re in a manual job, by the time you get to 65, that probably is a very legitimate age to retire. So it’s not quite as straightforward as saying across the board the age is just going up,” he said.
Asked whether National would look at look at these issues if re-elected, Key said he was comfortable with the current policy settings.
I can't tell whether Key's a coward or whether he's deliberately leaving room on the right so that ACT doesn't disappear. If it were the latter, wouldn't we expect that National would have given ACT at least a couple of political concessions this past term?
See also interest.co.nz on other bits of the Retirement Commissioner's recommendations that National's ruled out...
Is keeping the Superannuation age at 65 actually a stupid policy? It sounds more like John Key's actually thought about it, instead of simply pursuing his political agenda. Paul Krugman has written some very cogent arguments saying very similar things, though he breaks it down by income instead of occupations.
ReplyDeletee.g. http://krugman.blogs.nytimes.com/2010/08/13/live-long-and-prosper-2/
I'd be curious whether NZ shows the same trends...
@117363010702828067155 (nice handle, by the way): Shame National didn't then release a written reply to the Commissioner's report to make that case.
ReplyDeleteI don't buy Krugman's case. There's good argument for government superannuation - that people might bank on living to 80 but have insufficient resources to cover themselves up to 85 if they get a lucky draw. Superannuation then isn't supposed to cover all your retirement, which you really ought to be covering out of your own savings over the course of your working life, but rather as insurance against living longer than expected. If mean expectancy increases, then age at eligibility ought also increase.
I'd be very surprised if NZ data didn't show similar regressive patterns in payment - poorer people don't live as long. However, they also contribute a lot less into the system through taxes and, as NZ Super's payments don't vary with the retiree's pre-retirement earnings, whether the system as a whole then is regressive would take more careful work than just looking at the proportion of payments going to folks of each pre-retirement income quintile.
Not sure why it came up with that as my handle instead of my google user name...
ReplyDeleteI'm not sure that I understand your argument that Super is just insurance against living too long. Is super really targeted at people that have spent their savings by 80 and then you go on to live to 85?
I'd have thought that it was targeted more towards people that didn't have much savings for retirement to begin with.
That is, that Super isn't for middle class insurance, but for the working poor because society says that we refuse to allow the elderly to live in destitute poverty.
In which case, if the working poor can't work past 65, but the age of super is 67, what are they supposed to do for 2 years?
@117363010702828067155:
ReplyDeleteThere are two basic models you can set up for why we'd have superannuation. The first, yours, is that society loves poor old people. The model needs to explain somehow why we love old people more than we love little kids or other worthy poor people; if we don't, then we just have transfers to poor people regardless of age. If anything, I like little kids more than I like old people as a greater proportion of the hardships of the former will be due to factors outside of their control, but that's me taking off my economist's hat.
The second basic model, mine, is that the median voter likes superannuation because it provides insurance against savings running out before life does and because it lets people not worry about being hit by a big disposable income shock when and if their parents' savings run out [I think this latter one is a really big part of the reason that superannuation persists, but that nobody wants much to admit wanting to fob off responsibility for their parents and inlaws on the state]. This is consistent with Director's Law that most transfers are really to the benefit of the middle class.
If your model were true, I'd expect much stronger means-testing of old-age benefits with lots of transfers making sure that old folks stay over a poverty line, but not tons over it. Mine predicts transfers to middle-class oldies because they then leave their middle-class kids alone. Right now, super makes sure an old couple make no less than two thirds of net average wages, right? And lots of old folks own their houses free and clear, right? I'm hard pressed to reconcile a system that makes large payments to old people without mortgage obligations with a system targeted at old poor people. Instead, it looks more like middle class middle aged folks making sure that their parents don't sell the house and move in with them.
I suppose that we could build an argument around "giving money to old people" being a normal good and so we want to do more of it as the country gets richer. But it's otherwise hard to get why universal super started at age 65 in the 1930s (with a means-tested benefit for those aged 60-65) but there's not been any adjustment to the age of eligibility in the intervening years other than the abolition of the means-tested phase. Surely if the increase in life expectancy over the interval came not just through extensions in the infirm retirement period but also through increases in the period in which folks can work, we'd have wanted a commensurate pushing back of the eligibility age.
The thing that most surprises me about this is that Key didn't choose to implement a raise in entitlement age, or at least signal the intent to consider it next term. I doubt he'd lose much traction with the voters, he seems even more teflon coated than Helen Clark, and he could easily have made the case that this was a fiscally responsible change in times of unprecedented economic uncertainty. It seems like an easy sell to me. Or, as you say, he could have pointed the finger of blame at the Retirement Commissioner. A reinvigorated NZ First might gain a few votes with the blue rinse brigade by speaking out against such a move, but I doubt Labour would see a lot of wins in opposing the policy. Certainly not enough to be able to form a government. It feels a bit like a lost opportunity to me, but maybe Key wants to be able to govern alone and is not going to do anything to risk having to cosy up to a coalition partner. Personally I think the numbers will tighten a little by election time and that, while we will still get a National led government, they will need a coalition or confidence & supply arrangement with at least one of the minors (Dunne aside).
ReplyDeleteWell now it looks like we're arguing about what's the more powerful or more likely motivator for voting behavior. I suppose my argument against it being that middle aged people think about their parents not wanting to move in with them is: A) There are likely to be a lot more newspaper headlines expressing shock about the state of any poor elderly than about elderly moving in with their children and B) shock over poor elderly is a much more simple idea for people to grasp than Super as insurance for the parents of the middle class. These could be because I'm only 30 and so haven't reached the stage of life where I'm worried my parents might move back in with me though...
ReplyDeleteI think the arguement for why super isn't means tested is that, politically, the across the board nature of Super makes it seem more fair (whether it is or isn’t) and has the added benefit of being much easier and cheaper to administer.
I agree that money spent on Super should be balanced against money spent on elderly, but then I don't think that that is likely to happen as people (and politicians) that support one are probably going to support the other. Politicians in particular then, won't want to set themselves up as being against either of them.
The two are easily reconciled: nobody whose parents are moving in wants to be viewed as thinking them a burden! Couching the argument as general but ensuring the incidence greatly favours the middle class elderly squares it. Totally agree on the ease of administering general over means-tested benefits though.
ReplyDeleteNote that none of the commentary here applies to my situation. NZ's immigration restrictions would make it difficult if not impossible for either my parents or my inlaws to move in with us were their destitution to be motivator: as best I'm aware, it would be very very difficult for poor elderly people to immigrate to New Zealand. My family regularly visits during their winters; the added help with the kids is very very welcome.
ReplyDelete