Superannuation has been a hot topic over the past few years. In 2014, there were 650,000 over-65s in New Zealand, equating to 14.4 per cent of the population. By 2038, the number of over-65s is projected to almost double to 1.29 million and make up almost 23.3 per cent of the population. By 2068, over-65s are forecast to make up 27 per cent of the population. This is going to have a huge impact on New Zealand’s budget going forward. Not only in regards to Superannuation but also health and care providers as well.
There’s currently around five working age people paying for every one pensioner. With demographics heading the way they are, by 2060 there is expected to be just two working age people for every one pensioner.
“Unsustainable” is how Retirement Commissioner Diane Maxwell has described the current approach to funding New Zealand Superannuation during recent interviews, and looking at the figures above, it is easy to agree with her.
“However, population ageing combined with the retirement of the baby boomer population cohort presents a challenge for governments unlike those faced in the past.”
With John Key’s shock announcement of retirement that seemed to take the whole country by surprise, it is all a bit up in the air as to what will happen to NZ Superannuation.
John Key has long said he would resign rather than change the current scheme. Key had earnt the trust of voters by sticking to that. However, times are changing and with him stepping down the fiscal viability of current NZ Superannuation would potentially be more open to debate.
Many in the business community will welcome English taking over as Prime Minister as in many respects he is more ideologically aligned with a more traditional market-led, business perspective.
This may mean there will be more business-friendly policies that Key had originally ruled out that might be brought back to the table – including revising superannuation.
English would not say if he would revise Key’s promise not to change superannuation thresholds. However maybe a change is needed if the predictions are anything to go by. Something will have to give, I just hope whoever makes the decision looks for a solution that will benefit New Zealanders for the long run, not just a quick fix to please voters for upcoming elections.
This is definitely something to keep an eye on as it will affect all of society.
Terry Baucher an Auckland-based tax specialist and head of Baucher Consulting has written a very insightful article about the superannuation scheme that can be read here