Pension tension: the sacred cow eating the Budget

Sunday, 28 September 2025

Andrea Vance is National Affairs Editor for The Post and Sunday Star-Times.

OPINION: Superannuation is eating the Budget alive.

Treasury dropped its latest long-term fiscal outlook mid-week, a document that is both entirely predictable and genuinely terrifying.

While eyes might glaze over at “structural operating deficit” the maths is horribly simple.

In 1965, there were seven working-age people for every retiree. Today there are four. By 2065, there will be two.

Superannuation and healthcare already hoover up half the Budget. By mid-century, they’ll consume far more. Treasury projects that if nothing changes, government debt will balloon to 200% of GDP.

Life expectancy is climbing (nearly 90 for women by 2065), fertility has tanked (1.6 births per woman), and the Baby Boomers are not so much retiring as digging in.

When Treasury added it all up, it calculated superannuation spending will rise from just over 5% of GDP now to 8% by 2065.

Health spending will balloon too, from 7% to 10% of GDP (or 11% if things get really bad). That’s before factoring in an army of over-85s, who cost five times as much to treat as someone in their early 60s.

Yes, older people are working longer: labour market participation among 65–69-year-olds is almost 50%, one of the highest in the OECD. But they work fewer hours (about 28 a week). So, grandma stacking supermarket shelves isn’t about to save the tax base.

The scenarios painted by Treasury’s doom-mongers are, well, doomy.

The country, of course, saves for future pensions in two main ways. KiwiSaver is the voluntary retirement savings scheme funded by employees and employers. The Super Fund, a Crown investment vehicle, was set up to ease the future tax burden of the universal public pension.

But Treasury’s boffins reckon the backbone of the plan to fund retirement is on the verge of snapping under demographic strain.

To keep super costs stable, we’d have to lift the age to 72, index payments to inflation, or means-test so harshly it bites into middle-class retirees.

The tax alternative is uglier: average income tax jumping from 21% to 32%, or GST soaring to the same level.

None of it is electorally palatable and some of it risks open generational warfare.

But before we start blaming greedy Boomers, here’s the rub: many older New Zealanders are already struggling.

The Retirement Commissioner reported last month that 40% of pensioners live on super alone, with another 20% surviving on just a little more.

Rising grocery bills, rates and power prices mean even retirees with mortgage-free homes are scraping by.

Jane Wrightson put it bluntly: “NZ Super is predicated on you either having a mortgage-free home or affordable social housing - and both those models are under considerable stress.”

So Treasury’s breezy suggestions to “raise the age to 72” might look clean in a fiscal model but would be brutal in real life.

Wrightson warned women and minority groups would be hit hardest. Thanks to the gender pay gap and patchy lifetime earnings, they save less for retirement, so are more reliant on super.

Parliament can’t just wave away the fact that a big chunk of today’s over-65s are already in discomfort.

Of course, not all retirees are struggling. Many older people have accumulated wealth in recent decades, thanks largely to rising asset prices. But that wealth is unevenly distributed.

And, as more people enter retirement, those without significant assets will rely primarily on public pensions which are already under strain.

This isn’t just a Kiwi problem. Across the developed world, ageing populations are reshaping government budgets, labour markets, and economies.

Japan is the cautionary tale: a “super-aged” society where nearly 30% of Japan's population is 65 or older and the old-age dependency ratio is creeping toward one retiree for every working-age person by 2060.

China and South Korea aren’t far behind. By 2035, China will have 420 million people over 65, and in South Korea there will be three people over 65 for every four of working age. Unlike Japan, China’s state pension system is minimal, leaving many older citizens below the poverty line.

Countries with strong pension protections are struggling. In the UK, the government’s “triple lock” (guaranteeing pensions rise with inflation, average earnings, or 2.5%, whichever is highest) is raising uncomfortable questions about long-term sustainability.

Here in New Zealand, superannuation seems to be untouchable, a great big sacred cow grazing on Parliament’s paddock.

National pledged to lift the retirement age but backed away once it had to reckon with its coalition with NZ First.

In May, Nicola Willis halved the Government’s KiwiSaver contributions, raised default rates, and hinted National was still toying with bigger changes. Her goal is dragging debt below 40% of GDP.

Winston Peters didn’t waste the opening. By August, he was on stage at NZ First’s convention with a splashy counter-plan: compulsory KiwiSaver, minimum rates at 8–10%, and tax cuts to sweeten the deal. It sounded bold but mostly played to his base.

The plan disproportionately benefits higher earners and those with uninterrupted careers, leaving the bulk of retirees - those relying on NZ Super - untouched.

Peters can claim he’s tackling the retirement timebomb without ever touching the hallowed universal pension.

(And just while we’re poking the bear, Peters’ SuperGold Card, now 17 years old, is costing the government a back-of-the-envelope $77 million a year. Not exactly a fiscal black hole, but another reminder that even well-intentioned perks for OAPs add up in a system already groaning under the weight of an ageing population.)

Labour, for its part, has largely signalled it won’t touch NZ Super. It supports gradual KiwiSaver increases, per the Retirement Commissioner’s advice, but without Peters’ tax-offset gimmick.

On paper, New Zealand’s retirement crisis should be a top election issue next year. But the parties don’t want to risk alienating tens of thousands of reliable, vocal retirees.

For younger voters, the consequences of debt, deficits, and demographic pressures are abstract and decades away.

So the retirement timebomb keeps ticking, ignored by those who likely won’t be around when it blows.

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