` Comments on NZ Superannuation Issues - By Len Bayliss 10/3/04

1 .The "doomsday" view, that the increasing number of superannuitants represent a massive future fiscal burden , should be firmly rejected since it is based on flawed accounting . Rather the growing numbers of superannuitants should be viewed as a valuable and a much underutilised asset. With the adoption of well designed "Ageing Policies " covering education,training ,.health etc superannuitants can make a much increased social and economic contribution as well as greatly improving their own quality of life .

2 It is highly misleading to focus on the large future increase in government expenditure on NZS , and at the same time ignore the major reductions in government expenditures,reflecting nil population growth, on young and middle aged dependents and on housing and related activities .. In addition account should be taken of the substantial increase in tax payments arising from a much higher superannuitant / employment ratio.

3. It is equally misleading to focus on the working age/ superannuitant ratio which gives an inaccurate and distorted impression of future trends . Rather the prime focus should be on the employed /dependent ratio, dependents are all persons not employed ,which is a much more meaningful and balanced policy guide as noted in the OECD report "Reforms for an Ageing Society".

1976 1999 2011 2031

Working age /elderly ratio 61/9 65/12 67/14 60/23

Employed /dependent ratio 43/57 46/54 50/50 48/52

Source OECD and NZ Govt.

4 " Ageing policies" , through encouraging superannuitant employment ,are the key to maintaining high employment/dependent ratios and hence to making a substantial contribution to the rising fiscal cost of NZS .

5.The OECD maintains that with major improvements in the health of superannuitants, there are convincing reasons to encourage ( not force ) superannuitants to seek employment -either full or part time and possibly in a changed occupation .Superannuitants should receive their full pension entitlement and should not be subject to discriminatory taxation ( ie surcharges ) which discourage both saving and employment.

6. NZS should be actuarially calculated for an entitlement age spanning 60 to 70. People with a lifetime of hard physical labour should be able to take a pension at 60 and then take up less arduous full or part time employment.. The OECD is strongly opposed to a fixed age of entitlement as it is both inflexible and denies superannuitants greater freedom of choice .

7 New Zealand is much more favourably placed than most other OECD countries as regards the future affordability of superannuation.These countries face serious future fiscal problems caused by early retirement, deteriorating demographics and over generous( by NZ standards) Government pensions. .However NZ, by contrast, has good demographics, a relatively low cost NZS, improving employment ratios for the 60-70 age group and amongst the best OECD intergenerational accounts .

An informed debate on New Zealand Superannuation requires meaningful and accurate forecasts and assumptions . These include

1. Accurate statistics not only on the future cost of NZS but also of other changes arising from the same demographic projections . For instance with a static or declining population forecast in 40-50 years time there will be major expenditure reductions

- on investment in housing, roading, education buildings, hospitals, power generation,water,sewerage etc etc.

- on education , prisons, police , DPB, maternity services etc etc because of reduced numbers of young and middle aged dependents

2. Market forces and better health will significantly increase the numbers of employed superannuitants and this number would be markedly increased with effective "Ageing policies" . Hence a proportion , probably a significant proportion ,of the increased cost of NZS would be financed by the increased tax take from a much higher numbers of employed superannuitants.

3. Debate should focus on "employed /dependent"ratio which is the critical relationship.Persons or organisations stressing working age /superannuation ratios should be pilloried by the media for deliberately propagating misleading statistics..About a third of the working age population are dependents whilst the number of employed superannuitants will rapidly increase .

4.NZS is not a government" hand out" or welfare payment . NZS is financed by mandatory tax contributions from all persons who become entitled to NZS on reaching the age of 65. NZS is received net after significant tax deductions and is a low cost , PAYG, government administered superannuation scheme. By contrast welfare expenditure whilst financed by all tax payers is only paid to a carefully targeted minority .

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