Will NZ sink under the weight of pension costs?

Sunday, 6 July 2025

Tracy Watkins is editor of The Post and Sunday Star-Times.

OPINION: Today we are launching a series on superannuation and the big thorny issues we’re going to need to confront very soon.

Not everyone will agree we need this series; while many economists and government agencies - including Treasury - believe superannuation costs pose a looming fiscal crisis, others of equal stature believe that is scaremongering.

Personally, I’m on record as believing the retirement age needs to rise.

I wrote about this in a recent editorial and received a number of thoughtful responses, many of them telling me why I was wrong.

That’s what makes it worth debating.

In the first of our series, political and economics editor Luke Malpass dives into the numbers. We also talk to a young worker who is conflicted over the options, but thinks the pension will look very different by the time he retires.

Deja vu.

When I was newly in the workforce, I also believed the pension would be long gone by the time I retired.

That was around the time of various government attempts to rein in the cost of super, both by raising the retirement age and introducing an ill-fated surtax.

The issue dominated the headlines for months on end.

So it seemed inevitable the universal pension would not survive the decades until I reached retirement age.

But I underestimated the potency of the issue as a political football (I also underestimated how fast those decades would pass). Since the surtax, successive governments have found it all but impossible to alter the current settings without setting off a political and public firestorm.

So sensitive is the subject that former PMs John Key, and Jacinda Ardern solemnly promised to resign, rather than tinker with the current settings.

The recent Freshwater Strategy poll for The Post demonstrates why age is so contentious as a mechanism for lowering super costs.

It is not popular with voters, who prefer means-testing the very rich.

The trouble with means-testing is that it probably won’t just be the very rich who are caught in its net; to make a meaningful difference to the Government’s books, it will likely also include those who don’t consider themselves rich at all.

This is what happened in the 90s during the surtax debate. It changed behaviours. Even my father, a rural school teacher - so hardly rich - was so determined the Government wouldn’t get his money that he set up a family trust, for very little benefit.

Among our own commentators there is a divergence of opinion.

The Post writer Max Rashbrooke wrote this week those of us who are advocating change are wrong.

Rashbrooke is a columnist I respect. But on this we are going to have to disagree. All government spending is about choices - and that’s why this is such a contentious issue.

We can of course choose to keep spending more on super - and the bill will keep rising, but only if we accept the tradeoffs. Less money for the escalating healthcare costs of an ageing population, for instance.

We are already seeing the effects of a health system that is under severe pressure. As a result, there are growing inequities between those who can afford health insurance and those who can’t.

It’s already happening and at an alarmingly fast rate. When my mother was diagnosed with cancer in 2018 she had private health insurance, which she had been paying into for years. When we weighed everything up, and compared what she could access in the public health system versus private, there was no great advantage to her opting for private care.

Just five years later, when my partner was diagnosed with cancer, we felt we had no choice but to go private. The state of the art equipment that promised to make a difference to his outcome was only available privately. It was much later before the same equipment was available publicly.

Health is not the only tradeoff of course; what about education, crime, defence? What do we choose to spend less on, in order to spend more on super?

One of the reasons cited for keeping the current settings is the so-called Cullen superfund - now worth $84 billion - and which was designed to smooth the bulge of retiring baby boomers.

But that too involves tradeoffs; that’s $84 billion that will be spent on super, not elsewhere.

I don’t say this lightly, because, like many, I feel unprepared financially for retirement. Unlike younger me, I’m now banking on super still being there when I eventually do retire.

To me, raising the retirement age - including mine - seems like the option involving the least pain.

That’s the debate we need to have - and it’s one that we’ve been avoiding for far too long.

What do you think? Email sundayletters@stuff.co.nz. Please include your full name and address.