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Budget didn't bring any changes to the pension, but Christopher Luxon has doubled down in his support for raising the retirement age. Luxon and soon to be Deputy Prime Minister David Seymour are on the same page when it comes to raising the retirement age to sixty seven. Not immediately, of course, I think they're going to take ten years
or so to do it. But Seymour says that Winston Peters is standing in the way of changes, and there are questions about whether it's necessary, whether it's fair or even effective. And Michael Littlewood has spent years studying New Zealand's retirement policy and he is the co director of the Retirement Policy and Research Center. And Michael Littwood is with me now, gooday, good afternoon.
Hi Tim. I'm no longer the co director of the Retirement.
Follow Oh sorry about that.
I am retired, but I still have a deep interest in this issue.
Good on you. Okay, sorry about that. Hey, is raising the retirement age necessary?
The short answer is, we don't know. And when people say it should be raised to sixty seven or sixty eight or even to seventy, as has happened recently in Norway. They we can't make that kind of judgment because we simply don't have good information. And this is not the only area in which we don't have good information. And you mentioned the change to care WESA that was announced
in the budget. I personally would have got rid of the tax and centives altogether, but I think it's really no business of the government to be involved in that kind of thing. So going back to your question about the pension age, and I prefer to call it the pension age rather than the retirement age, because they are. The pension age has been sixty five effectively since the
Old Age pension began. There were interim arrangements between sixteen sixty five back before nineteen seventy three, but then the age went back to sixty when Muldoon wanted to get elected, and then return to six a few years later. So sixty five has been the effect of age. But the reason we don't really have enough information on which to make any kind of an informed decision is because we don't have good information about how people transition from full
time work to full time retirement. And that's changing that people are becoming working much longer than they used to, and so I would pause before making any recommendation as to what the age should be.
I guess how long. I guess. The numbers that I've heard tuted about how much more it's going to be costing over the years are kind of frightening in terms of the percentage of GDP we're spending just on sorry, the percentage of the government's budget we're spending on retirement.
Yeah, the dollars look huge, but you express the cost as a percentage of GDP. New Zealand has one of the lowest costs of the age pension of any developed country, and that cost has actually surprisingly been coming down since the Treasury started first putting data out on this in year two thousand was the first year they did it. At that stage it was and the twenty sixty cost of New Zealand SUBA was expected to be more than nine percent of GDP net.
Yeah, so you don't think money's a problem, then it's affordable.
But of course, as with any government spending, it depends where you want to put your priorities. So I think that's a long roundabout way of saying that we really need to get down to fundamentals and gather data on what matters in this area. And it's not just the age itself, it's issues like home ownership. We've got terrible data on home ownership, so we don't really know what proportion of the old population owns their own home outright, and that's a very important part of the puzzle and
we need to improve that. We need to have clear data about how people are managing. We've got some information on that and on that for example, we know that the old in New Zealand have one of the lowest poverty rates in the OECD. Yeah, so something's working in that area. It's just that we don't have a great handle on what is working. So before we start tinkering, well,
we really need to understand the issues. Unfortunately, the Retirement Commission, which is where you expect that sort of data to come from, isn't given the necessary resources and the necessary brief to look at that sort of issue.
Do you think, I mean, do you think you need to tailor the retirement for sorry, pension age or pension differently depending on people's individual needs. Are you all for means testing or are there other arouse around the one size fits all.
Yeah. I used to be a believer in men's tests. Yeah, and that's income and asset because, said quickly, it doesn't make a lot of sense to pay money to people who don't need it.
Yeah, well, I guess the question of who needs it because the pensions not a hell of a lot of money, is it. I mean most people, most people assume you've got to augment your income with either your savings or you just don't. You don't actually retire.
Surprisingly, for some people who reach pension age, the New Zealand superannuation benefit is actually an improvement in their living standards, you know, and those people clearly need that kind of support. But just going back to your original question, as I say, I used to believe in income and asset tests. But you only need to look across to Australia to understand
what that actually involves. It's a hugely complex system because they test both income and assets and it's the hire of the tests, the the ply to the pension that you get from the state in Australia, which is called the age pension. Financial planners love it because the more complicated you make the system, the more gaps you create and therefore the more opportunities you have you to shelter about assets and income. But also it changes people's behavior.
If you have an income or an asset test, then clearly people will work to those tests. And what we see in Australia, for example, is fewer older people working than in New Zealand.
What do you think, Well, I think it's Australia. Australia is always an unfortunate comparison, doesn't because it always seems to have more money to go around on lots of things.
But it is richer.
Yeah, it's richer, which does make a big difference. I mean, if we're all richer than we wouldn't be so stressed about it, I guess. But how would you what changes would you make? Would you can? What do you think needs to change?
Well, we have I think the best tier one pension in the world, and Tier one is the basic government old age income support. It is the best. It can unvoudedly be made better. There are some aspects of the current rules which do need to be fixed, and we
need to look at all of the things. An actual or real friend and I put a submission into the Retirement Commission's twenty nineteen review, and in that we outlined everything that the Retirement Commission should be looking at but can't because they're not given the brief or the money to do it. We identified fourteen questions which need answers when we make a final decision on what New Zealand soof you should.
Look like, and can give us a couple of highlights of those questions.
The age, what is the appropriate age? What is the appropriate amount? We've never had an evidence led public discussion on the size all the shape of New Zealand Super We've got there by accident. It happens by accident to be the best scheme in the world in my view.
But we do have an idea about how many more people we're going to have it retirement aged. Oh, we've lost them there. I think we've just accidently accidently had Michael cut off there. I might just see if we can get them back. We'll take your feedback on this as well, because yeah, I'm keen to dig in on that as well. You can, by the way, you can
text your feedback on that. And just while we're getting Michael back on the line, which we are doing right now, let's have a look at a couple of the texts. What have we got here. It's difficult to quickly do that in real time, but I think we've got Michael Littleward back now. Sorry, we just lost you there, Michael.
Not sure what Sorry you were saying. Yeah, the age, the amount. One key thing that needs to be really fixed is the way in which we calculate the amount payable to single people living alone. Yeah, it's higher than for single people sharing accommodation, and that creates some distortions and difficulties with the application of the payment. So that
should be simplified. Whether there should be an income test, which is the question we were talking about earlier, and separately, whether there should be an asset test the rules that apply to people who lead New Zealand after the state pension age. So there's a whole bunch of stuff that we should be talking about, and until we resolve those issues, we cannot really say for certain that we know exactly what's going on.
No, I guess there are things you talk about the evidence. We can work out a few things in advance in terms of projections of how many people are going to be living longer and how much the cost is going to be to our I mean, what's your view on the age? Do you think it needs to go up? Because logically, just from a lay point of view, I think, well, we're all living longer we've been living. I mean, sixty is the new fifty. We're living on average, far longer.
The cost of the government is clearly a lot more I would have assumed, and so to me, it just seems like a matter of time before we shove the age up.
Yeah before. I mean, personally, I think it could go up, but I wouldn't make that decision unless I had all this information that I've been talking about.
So is that where that's gone wrong? Is that Luxon has said that he's you know that he thinks it's irresistible, we're going to stick it up, and Winston's resisting. I mean, I think everyone's argument for political reasons. You're coming out at it from just let's just work it out as a sensible solution, regardless of whether you're left or right.
Indeed, and one of the things that I have discovered over the decades that I've been involved in this discussion is that leading these decisions to the political process is the worst way of doing things.
So who should well, who should make the decision?
A good question. Well, I participated in something which was almost sort of slightly magical in nineteen ninety one and nineteen ninety two. I was a member of the first Todd Task Force. Yeah, and I went into that process thinking that New Zealanders should be forced to say for retirement, but we needed to give them tax breaks in order to help them do that, that New Zealand super should the income and asset tested. And I was put on
that commission, I think because I thought those things. But the fifteen months or so that we spent on that work convinced me that I was wrong on all of those things. And of course I've been the lasting me boring about it ever since.
What okay, let's just get on In the end, I mean, these are but you can't help. But it be a political political question that because that lifeless politics, I guess we have.
To have a consensus.
And the only way, well, you're never going to get that away.
It's like we had it in nineteen ninety two. It didn't survive the referendum, as you as you as you observe. But the thing about further, and it applies to both public and private provision. Once you've got the data, the answers are normally reasonably apparent, even to the political opposition. You're very optimistic, and I am optimistic oness because I am convinced that if we had all the information that
we needed, the decisions would be relatively obvious. And what you would then say to the system, if you like, is we will have a constant review of these things so that if the data changes, we test that against the system to make sure that it still fits the surface, so nothing is locked in stain. And the trouble with politics is that the moment it becomes political, people's positions get hardened up.
I guess the reason I'm cynical about that optimism you have is because we can have two different parties looking at the amount we're spending in our deficits and how long how long it's going to be for surpluses, and one party will say let's tax and spend them more on the other will say, we know we need to we need to be conservative, and we have completely different views. Why would the pension ase be any different.
Well, that goes back to another issue about superannuation. When you're designing a superinnuation scheme. It doesn't matter whether it's public or private. You put to one side the cost issue, you say, what is the best scheme that we can have. Then you look at the cost, and if the cost is unacceptable, then you've got to trim the benefits in order to fit in with the envelope. So cost is
the last thing we should be talking about. And when people start panicking about the number of people who are going to be reaching state pension age and the huge amounts of billions of dollars that we're going to be spending and the extra billions that we're going to be spending next year and the year after, that's the wrong that's the wrong end of the stick.
Do you think we can get the public on board with the change if it had to be made?
I think so. One of the things that I would love to see happen is that we should get rid of the New Zealand Superannuation Fund. Now, all of a sudden, that changes. One of the puzzles for me on the government's finances is that the money that's in that fund is not actually regarded as an asset. Okay, So if we got rid of that fund, repaid debt. All of a sudden, our debt situation looks a lot better.
I had not. I don't know how many other people can consider that, but hey, thanks for your time, Michael. I really really appreciate your time. That's Michael well Littlewood. He is a former co director of the Retirement Policy and Research Center. I think I've got that right. I really really appreciate your time than Michael thinks so much.
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