In 1976, there were about eight working-age New Zealanders for every person over 65. Today, the ratio is roughly four to one. By 2051, Treasury projects it will fall to about two to one.
When eight workers supported one retiree, the system worked. With four, it is buckling. With two, it fails.
The Government is running a deficit of about $14 billion. Superannuation costs roughly $25b a year and is a major pressure on the Crown accounts.
We are borrowing to fund current consumption and sending the bill to our grandchildren.
We have known for half a century that a universal, tax-funded pension would collide with demographics. That collision has arrived. Borrowing is not a strategy. It merely postpones the reckoning.
Yesterday’s solutions will not solve today’s problem.
The closest we came was the Norman Kirk-funded superannuation scheme, later dismantled. Had super been properly funded decades ago, we would not face today’s squeeze.
But we need a solution for now, not in 20 years’ time.
Treasury’s orthodox response is to lift the retirement age and trim entitlements. At a recent conference, one leading fund manager suggested eligibility would need to rise to 72 to stabilise the system.
Superannuation is only half the demographic time-bomb. Treasury estimates an ageing population will significantly increase health spending, doubling it over the next 30 years. That is a topic for another column.
Simply raising the age and cutting payments risks condemning many to poverty. Not everyone can continue physical labour into their seventies. For some, work is not a choice but a physical limit.
Here is my proposal: A two-tier system, drawing on the logic of the original old-age pension.
First, an old-age pension available at 65 for those who cannot continue working. It would be a modest safety net, broadly aligned with the JobSeeker rate, including supplements for housing, dependants and disability. The obligation to seek work would be removed.
Second, universal superannuation paid at 72, indexed to inflation rather than wages.
From age 65 to 72, individuals could elect to take the lower old-age pension. But once chosen, that decision would be permanent.
Why would anyone defer? Because the universal super at 72 would be materially higher in lifetime value.
JobSeeker is about $361 a week after tax for a single adult. NZ Super for a single person living alone is roughly $540 to $550 a week after tax. The gap is substantial.
Allowing people to defer super until 72, in return for higher payments later, would provide a real incentive to remain in work where possible.
This restores intergenerational fairness. Treasury’s long-term models assume most New Zealanders retire in their mid-60s. My proposal changes that assumption.
Those who can continue working are rewarded for doing so. The gain is double: Fewer years drawing super and more years paying tax. That improves the Crown’s position and strengthens the economy.
The fiscal impact would be significant. Each person who delays universal super reduces lifetime cost by tens of thousands of dollars.
If large numbers defer, aggregate savings run into billions – resources that could fund healthcare and other essential services.
The original old-age pension was income-tested. Means testing is complex and politically unpopular. I would begin without one, relying on incentives. If insufficient numbers defer, a modest means test could be applied.
There is no painless path to sustainable retirement. Fair reform must be shared across generations.
Increasing KiwiSaver contributions – as Christopher Luxon proposes – will improve private retirement incomes but does nothing to reduce the Crown’s immediate burden. The benefits would take decades to appear.
Our choice is stark: Continue borrowing until markets impose discipline, or act now while we still have control.
Chris Hipkins, in his state of the nation speech, did not mention the superannuation crisis.
National edges cautiously toward higher eligibility ages.
Winston Peters vetoes any change.
The Greens argue “the rich can pay”, as if the tax base were unlimited.
Demographics are indifferent to slogans.
Sir Roger Douglas founded the Act Party to advocate savings-based superannuation.
Thirty years ago, it was the right answer. Greater saving remains the surest way to protect living standards in retirement.
But we cannot fund today’s superannuation with a solution that will take 20 years. We need practical reform now – fair between generations, growth-enhancing and fiscally sustainable.
Delay will not make the arithmetic disappear.
The crisis is not coming. It is already here.
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