Commissioner wants to raise retirement age to 67, Goldsmith disagrees

Raising age of eligibility is a no-brainer, says Retirement Commissioner Diane Maxwell.

The Retirement Commissioner says the superannuation age needs to rise from 65 to 67.

Diane Maxwell says the country can’t afford not to make the change, calling it a "no-brainer."

"The number of 65-plus will double in the next 25 years, the cost of super will triple in the next 20 years," she says.

"Our dependency ratio — the number of people of working age to retirees — will go from 4.4 to 2.4 [per working person]. We can't pretend this isn't happening."

But Commerce Minister Paul Goldsmith disagrees, saying economic growth will cover the cost of keeping super eligibility at 65.

Mr Goldsmith says the government currently spends around 5% of GDP on super.

"The projections are in 2045, 30 years from now, that will increase to 7% of GDP. The world's not going to come to an end. We can afford that," he says.

Prime Minister John Key says he would resign before he lifted the retirement age, in part because he says it would be tough on many blue collar workers. A recent survey by the Retirement Commission found two-thirds of Kiwis want it kept at 65.

"I'm hoping to change the voters' minds," says Ms Maxwell. "If I can change the voters' minds, I can change [Mr Key's] mind."

The Retirement Commissioner also says immigrants should not be eligible for super until they have lived in New Zealand for 25 years, in line with the average of  26 years. Currently, the wait is 10 years. But Mr Goldsmith says we’ve always been a generous country.

She says now the government has such a large surplus it should resume payments into the Super Fund.

RAW DATA: Lisa Owen interviews Retirement Commissioner Diane Maxwell and Commerce Minister Paul Goldsmith

Lisa Owen: Well, this is a political hot potato that no party wants to handle – superannuation. But now the Retirement Commissioner, Diane Maxwell, is wading in. Her report on New Zealand’s retirement policy is due shortly, and she joins me now in the studio.

Diane Maxwell: Good morning.

Good morning. What are your key recommendations going to be?

So super as it stands is a fantastic thing. We’re very proud of it, but it’s not sustainable in the long term unless we make some changes. So the changes that we’re looking at, you’ve either got to say how do you work on the eligibility criteria or the absolute amount that people get? So the eligibility criteria would time spent in country, age that you become eligible for super and the absolute amount is about the indexation that occurs every year and what it’s indexed to. So we’re looking at looking at raising the age of eligibility over time and talk more about that.

So to what age? From 65 to what, do you think is the best?

So I want to be really clear that this is a slow change. We’re looking at three scenarios. One of them would impact people who are 55 today. You’d raise it three months a year over a period of 10 years, so it’s a slower change than the last time it went up.


To 67.

To 67.

To 67.

Okay. You mentioned foreigners coming into the country, their eligibility. At the moment you get super — full super — if you’ve been here for 10 years.


What would you do about that?

So you get New Zealand super after 10 years, and the OECD average is 26 years, so we are an outlier. We would look at extending that out, and we’re costing out if we extended it to 25 years — being in New Zealand for 25 years before you get New Zealand super. If you look at the migration figures for the ones that have just come out, in fact, net migration is 70,000 into New Zealand. That’s a net figure. So the actual figure’s 125,000, and actually a quarter of them are New Zealanders coming back, but we do have people coming to New Zealand and we do have parents coming to New Zealand, people who are resident in New Zealand, and we need to think about in the longer term, as is a cost blowout, how we manage that.

Okay, I just want to unpack some of them, because there’s a lot in there. So let’s look at the age first. You say you’ll bring it in incrementally. Well, two-thirds of the people you surveyed most recently don’t want a bar of raising the age.


So why would any political party take a policy…

They won’t.

…that is potentially suicidal?

Look, the problem is — I do want to put these numbers out there very quickly — the number of 65-plus will double in the next 20 years. The cost of super will triple in the next 20 years. As importantly, our dependency ratios, which is the number of people of working age to retirees will go from 4.4 to 2.8— 2.4, sorry. 2.4 people of working age to every one retiree.


So we can’t pretend that this isn’t happening. Now, I have days where I think, actually, it’s going to be fine; I believe in growth and driving productivity. But then we look at how an ageing population is actually going to impact productivity. Our costs are growing faster than our GDP ever could, so part of this is where I’m getting to is people need to understand all that before they can decide what they think, otherwise it’s a very emotional reaction.

But it comes back to the thing you say — the number of 65-year-olds is going to double. That’s double the voting.

The voters, I know. I know.

They’re doubling the voter population.

We need a bipartisan—

How are you going to get parties to do this?

I’ve very pragmatic about this. We need a cross-government agreement. That would be fantastic. By the time it comes in as a change, it will be a no-brainer. I notice in your clip you had retirees as old people on Zimmer frames. Actually, 65- to 70-year-olds are quite a sprightly, fit bunch, you know? They’re not spending a whole lot of time on Zimmer frames, and yet we pull out pictures of really old people, but what we find is that people in their 60s and their late 60s now are really quite an active, healthy bunch. So we’re living for longer, but also we’re healthier for longer; we’re working for much longer.

I want to talk about that a bit more a bit later, but what’s really important is that our current prime minister has vowed that he will resign before he increases the entitlement age for super. Can you change his mind?

Look, it comes down to what the voter thinks. I’m hoping to change the voter’s mind.

And get them to send him the message?

If I can change the voter’s mind, I can change his mind, because that’s the point. You said we’re doing a report; I’m not doing a report. I have said to the government they’re not getting a report, and I know you have my minister on after me.


What they’re going to get, actually, are seven videos within which all our work will be embedded as digital content. The problem with doing a report, and this is what happened last time, is a group of people like me sit in a room and people who know about the stuff talk about the stuff with other people who know about the stuff, and then we peer-review each other’s stuff, and then we go home.

So you want people to watch these videos and know where you’re at?

It’s a circular internal conversation. This has to go out to New Zealand. This has to be understood by New Zealand, by voters, by taxpayers, and to do that we’re got to take the jargon out of it. We’ve got to make it sensible. We’ve got to make it interesting and compelling, and we’ve got to put it out there in ways that make sense. So there’ll be quick videos, interesting, quite funny, I’m hoping, that people can watch, and then within that will be embedded the research, the recommendations which are going to be in the freezer and a few others things. So it’s a very different type of work, and there’s not going to be a report.

Okay. I want to then talk about some of the fairness issues, because you’ve touched on that.


So between generations and between workers, so how is raising the age of super, even if it’s incremental, fair to, say, Maori, who have a lower life expectancy.

Yeah, absolutely.

Or people who are physically clapped out because they’ve had such jobs in their life?

So this is really really important, because actually if you talk to people about this, then their feelings change about raising the age— towards raising the age. So what I’ve learnt this year with all the work that we’ve done, and I’ve been travelling around New Zealand with my listening ears on, is that what we’ve— You know, we talk 65 to 67. That’s a really old conversation. We’ve got to stop talking 65 to 67. We need to talk 50 to 70. That’s where the conversation needs to be, because we engage with people who actually in their early 50s, cannot go too much further in terms of work.

Are they going to have exemptions?

So what we need to do is step back. And so we’ve got two groups here — one who, frankly, could work to 70 without a problem, but for others, 65 isn’t the issue. If they’ve got an issue at 65, they will have had an issue at 55. So if we raise the age today — and I’m not saying we’re going to — we would save 1.6 billion, so you take that 1.6 billion, and you look at where it needs to be invested for people in their early 50s. So is it a career change? Is it retraining? Is it—? What do they need? Do they need a hearing aid? What do people need throughout their 50s to take them into their 60s and their 70s?

So you’re talking about stretching their work life no matter what they do now?

I think for some of them, yes, and for some people, no.

Will there be exceptions?

And I think, you know, it is changing. We’re seeing people much healthier much longer. The other thing to remember is that jobs are changing. Many of those manual jobs that broke people aren’t— are dying out. But we need to say really clearly, take the 1.6 billion, look at the people who simply cannot work and make sure they are looked after. Look at the people who could work but just need retraining and retrain them, and then the people, frankly, who are 65 going strong, fit as a fiddle and working full-time, they don’t need Super.

The thing is, though, you’re going to have more people in the workforce, so what kind of jobs are they going to be competing for, and who are they going to be competing against?

Yeah. I mean, there’s a silly theory, which we should have all moved on from, that a 65-year-old working is taking a job away from an 18-year-old. They’re not. There’s lots of evidence that that simply isn’t the case. We want to grow a productive economy.

So you’re saying nobody’s going to be squeezed out by making a growing percentage of the population—?

I don’t believe so, but what I do believe is that the workforce — and we know this from the month we did Ageing Workforce — the workforce is not ready to employ older New Zealanders. There is huge discrimination and bias against older New Zealanders, so this is critical, because if we say we want people to work for longer, we have to have the workplace ready to accommodate them — not just accommodate them but get the best out of them. There are lots of people in their 60s who are very competent and capable and able-bodied who cannot get a job because of our attitudes towards aging, and we need to address that.

All right. I want to move on to KiwiSaver. Let’s take a look at some of the figures there — 131% jump in money taken out for first homes in the past year; hardship withdrawals up 52%; a number of people signed up but not paying in grew to 1.1 million — that’s heading towards the halfway mark —and growth in membership halved since the Government nixed its start-up contribution. So if this is about numbers, give us your number for KiwiSaver. How’s it doing, 1 to 10, 10 being the best?

I’d put it at an 8, actually. Look there are people who aren’t putting enough money in. As you said, half of KiwiSaver members didn’t get the full-member tax credit, and then half of that group, about 580,000, didn’t put anything in at all, so those are big numbers for not contributing. However, what I see when I travel up and down the country, and this is where you’ve got to step away from the spreadsheets, get out of Wellington and talk to people, I see people with savings they would never have otherwise had. You know, they’re people who have never had savings in the family. They have a history of never having had savings, and they have savings.

But there is room for improvement, so the Government said—

There’s huge room for improvement.

The Government said when it was fiscally prudent, it would auto-enrol people into KiwiSaver. Is the time right now? Should we be going for it?

Oh, look, I don’t know what— I’m not sure what that would achieve, cos people could still opt out, and about 75% of the workforce— sorry, the people eligible in that workforce are in.

So you’re on the fence on that one?

What I said the other day I stand by, which is what I’d love to see support for is that group who are joining the workforce for the first time. So their first job is their first time they’ve got an income, and basically it’s a conversation with them that says, ‘You know what? This is what an income looks like. You’re on a salary. This is your first opportunity to save and to start a savings habit.’ So that’s where I would say give them the $1000 kick-start as a first-jobber if they didn’t get it already. Make sure they’re on KiwiSaver, but give them that moment, that flush moment, where they go, ‘$1000. This is a savings vehicle. I’m working now, the beginning of my working career. I’m going to take this seriously.’

There’s a couple of things I want to run through before we get out of time. So the Super Fund, the Government stopped paying into that in 2009. Again, it said when the books were in the black, they would start paying again. We are – 1.8-billion surplus. Is it time to start repayments into that?

I would say yes, it is. Yes, quite definitely.

Right now spend the surplus on that?

Depends. You know, previously, I think it was 1% to 2% GDP that went in before it stopped, so question is — is that the right amount? But, you know, the pre-funding, which is what’s going to kick in in 20 years’ time to try and alleviate some of the pressure point, is critical. There’s no way around it.

So Super Fund also gets taxed on its earnings. Should—? I mean, that was, what, $250 million last year.

I know. They were one of our biggest taxpayers one year.

So should those returns be taxed?

So last time I did this report, I said, ‘If you can’t start contributing to the fund, for goodness sake, stop taxing the thing,’ as a midpoint. See, to me, if you contribute, then tax; if you don’t contribute, don’t tax.

We’ve got to go, but I just want to ask you quickly — is the Government going to listen to you?

Are New Zealanders going to listen to me is a bigger question, because if New Zealanders listen to me, the Government will listen to me.

Okay. Thanks for joining us this morning. Much appreciated.

Lisa Owen: Welcome back. Well, before the break we heard from the Retirement Commissioner, Diane Maxwell, about changes she says we need to make to superannuation. But even she admits the changes are a vote loser, so will the government listen? Well, joining me now in the studio is the commerce minister, Paul Goldsmith. Good morning to you.

Paul Goldsmith: Good morning. How are ya?

You would have heard the Commissioner say there that she thinks retirement age should go up to 67, change it over 10 to 15 years. Sound like a good idea? Are you going to do it?

No. I mean, I think... Look, I agree with a lot of what the Retirement Commissioner says around— Her focus is around trying to encourage New Zealanders to save for their retirement and think about their retirement over the long term. I don't agree with her assessment that the current regime is unsustainable. I don't think the facts back that up. If you look at what the Treasury says, we basically spend about 5% of GDP at the moment looking after our older citizens, and that's absolutely right. They should have a decent standard of living and comfort when they're old. The projections are that by 2045, so 30 years from now, that will have increased to 7% of GDP. Now, the world's not going to come to an end. We can afford that and it's important that we do.

Well, she says you can't. In 2057 that's $104 billion a year with a rising, ageing population. And even you have said that we can afford it, and I'm quoting you here, as long as we keep control of other government spending.

That's right.

So, what are you going to cut to afford it?

Well, you don't have to cut anything. I mean, what you've seen— Look, we've talked about going from 5% to 7% over the next 30 years in terms of spending on superannuation. Let's just remember that in the last six years, this government has taken total government spending from nearly 35% of GDP down to just under 30% now. So we've managed to drop government spending by 5% of GDP in six years without closing things down. We've actually continued to invest heavily in social programmes. We've increased benefits. We've done all sorts of things so...

We'll have an item on later this morning which is about health where the budget is, arguably— a tight rein is kept on the health budget, and if you look at some of the figures, they say, decreasing against population — health funding, so you are keeping a tight rein. You're going to be spending money on building new prison beds. So does this mean tax cuts will be off to afford superannuation?

No. I just think you need to continue on in a stable, sort of sensible, pragmatic government like we've had. And if you keep good sound control of the finances, then there's no reason to think that New Zealanders can't afford to look after their older people in their retirement. The point that I focus on as commerce minister, is around encouraging people to save through KiwiSaver. And I think one of the things— You know, the challenge that we've got is that there is a tendency for people to sign up when they start a new job and then not think about it for the next 10 years. And so the thing that worries me is that we wouldn't want a generation of New Zealanders to get to retirement, having been in KiwiSaver for 30 or 40 years—

So why not auto-enrol them, then?

Well, they are auto-enrolled. You can opt out if you need to, but at the moment when you start a new job, you're auto-enrolled.

Yes. When you start a new job.

Yeah. Sure.

Super is for our vulnerable to make sure that when people retire, there is something to sustain them. And you talk about people paying into KiwiSaver. I suppose the issue is, we've seen this year that there's plenty of working poor who can't afford a roof over their head or a hot meal. How do you suggest they save for their retirement?

Well, that comes back to the government doing everything it can to create an environment where the economy grows. And, boy, we've got a pretty good story on that front. I mean, the economy's grown 3½%, we're creating new jobs — 300,000 new jobs in New Zealand since the bottom of the global recession, and average wages are rising faster than inflation, so that's all good stuff and I think we've got every reason to be optimistic about New Zealand's future. Sure, we've got challenges but the best way to deal with people who are struggling is to have a good, strong economy where people can get jobs. But the thing about KiwiSaver is that it's not there to replace super, and so the problem I have with the narrative is that when people say, 'The current system is unsustainable and you're not going to have super when you retire,' I don't think that's the right message to send to people at all.

The Commissioner is not saying that. She's saying you'll just get  super later. You should get super later cos we can't afford to give it to you at 65.

Like I'm saying, I think what we have got is sustainable. But the KiwiSaver regime is to supplement that, not to replace it. And that's why I think it is important that we encourage— I mean, there's every incentive for New Zealanders to save—

But not everyone can afford KiwiSaver.

Well, you know, we've got 2½ million New Zealanders who are in KiwiSaver at the moment.

1.1 million are not paying a single cent in.

Yeah. Yeah.

They've signed up but they're not paying... they're not saving.

Yeah. Quite a number of them will be kids who have been signed up under the age of 18.

52% increase in the number of people withdrawing money from KiwiSaver due to hardship. That is evidence people cannot afford it.

And that's about 100,000 out of the 2.5 million, so it's a pretty small group. And we have a bit of flexibility in KiwiSaver so that if you do have real issues, you can take the money out, and also so people can take it out and buy their first home. So you've got to have a bit of flexibility in the system. But the point remains, and where I focus as a minister, is to make sure people have got the opportunity to engage with KiwiSaver. And I pay a lot of attention to things such as ensuring people think about what kind of fund they're in, whether they're in a growth fund or a defensive one, and also paying attention to the fees they pay. And that's something that I've been working on as well, because what you don't want is people to wake up after 30 years and realise that they were in the wrong fund. They were paying high fees and the result is not as good as it could be.

The other point that the Commissioner raised there was new New Zealanders who are collecting super after 10 years in the country, and she's saying that the OECD average is 26 years you have to be in the country before you can collect super. Should you change that, do you think?

Well, look, I think we're a generous country and we have been always. I think— Like I say, the overall system is sustainable, but, ultimately, that's a matter for the Minister of Finance or Immigration to deal with. It's not my area directly, but I think the broader point is that you do have a robust, sustainable system.

All right. Thanks for joining me this morning. Much appreciated.


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