One of the political monsters in the room: NZ’s retirement age

No serious political party can go into the next election without a policy that tackles the rising cost of superannuation, Finance Minister Nicola Willis says.

Willis spoke at the Financial Services Council Conference in Auckland on Wednesday. This was followed by a question and answer session with facilitator and TVNZ reporter Jack Tame, during which Willis was asked about KiwiSaver and superannuation.

Tame said with taxes going towards the superannuation of people who are retiring now, the whole tension here is that the country has an ageing population and there are fewer workers for the number of retirees.

“We’re not going to be able to make that work anymore. We’re not going to be able to square that circle compulsion,” Tame said before asking Willis what she thought about this.

Recalling the last election and National Party’s campaigning of increasing the retirement age, Willis said “I think it is one of the political monsters in the room”.

She said her party had campaigned on a policy of what she would call “realism”.

“Making your point, which is this is getting more and more unaffordable in terms of our demographics. Let’s raise our age gradually to 67 and that will make it even more affordable.”

Willis said she was calling for the upcoming election to have a “mature, grown up conversation” about retirement.

When asked about having cross party agreement on KiwiSaver and Superannuation, Willis said although she was cynical, “if we can get a consensus that results in enduring change, that is the most stable thing for everyone involved”.

Asked whether National would go to the next election with a new additional superannuation policy other than raising the retirement age, Willis said: “[I’m] always respectful of my caucus, but able to commit that we will go to the next election with a superannuation and savings policy that we believe addresses the challenges which I’ve outlined to you today.”

“KiwiSaver has to be part of that,” Willis said.

Last weekend, New Zealand First leader Winston Peters announced the party’s proposal to increase both employee and employer contributions to initially 8% and then later to 10%.

This would be a big increase from the 4% default rate announced by the Coalition Government in the budget in May, which won’t be fully implemented until 2028.

Speaking at New Zealand First’s annual general meeting in Palmerston North last weekend, Peters said KiwiSavers and employers would receive tax cuts to cover the increases.

When asked about NZ First’s proposal of 10%, Willis said she saw the ambition and appreciated the idea of increasing contributions to KiwiSaver over time.

People often look to Australia as an example of a great compulsory savings regime, Willis said.

Over there, the current superannuation rate is 12% of your ordinary time earnings and your employer has to pay for you at least four times a year, every quarter.

But Willis said New Zealand First’s proposal of a tax cut would cost roughly $15 billion a year.

When asked if the country could afford $15 billion in tax cuts, Willis said: “The key thing for me is, at the moment, every New Zealander does make a compulsory contribution to their pension. It’s just that we pay it through tax and that’s to fund our universal pension scheme, which Australia doesn’t have.”

Willis said the real question we’re left with was this: “If you’re requiring a compulsory contribution to a private scheme while also requiring legal taxation needed to support a universal scheme, can you do both at once?”

“I’d suggest that ultimately, those of us who have to worry about fiscals would say there probably needs to be a more subtle combination of the two.”

Deputy Prime Minister and Minister for Regulation David Seymour also spoke at the conference.

When asked about healthcare in relation to superannuation, Seymour said “we have this 20th century system that is now coming under huge pressure in the 21st century environment”.

When it came to superannuation age, Seymour said changing the age just had to happen but there needed to be flexibility.

“I think having flexibility around when you can access KiwiSaver could be a really useful mitigation against some of the concern that people will have about raising the age of super which, in my view, is inevitable,” Seymour said.