12 Jun 2012

Government rejects OECD pension criticism

9:47 pm on 12 June 2012

The National-led Government has rejected OECD criticism of New Zealand's superannuation policy and says it will not be lifting the eligibility age for the pension.

The Paris-based Organisation for Economic Co-operation and Development has warned New Zealand needs to look at lifting the pension age, and increase personal contribution rates to KiwiSaver, to make superannuation more affordable in the future.

But Finance Minister Bill English disagrees with the OECD's conclusions, saying New Zealand already has in place mechanisms to deal with the long-term costs of superannuation.

"New Zealand has grappled with these issues now for a couple of decades and has thought a lot about the future and has got arrangements in place, like the universal pension, KiwiSaver, the New Zealand Super fund, which are designed to deal with those long-term costs."

Prime Minister John Key has again rejected suggestions the Government should lift the pension age, even though he acknowledges something might have to be done after 2020.

But Labour Party leader David Shearer criticises Mr Key's approach.

"The Prime Minister's boxed himself into a corner. He's closed off options when I think New Zealand wants to have a proper discussion about it and I think people are concerned whether superannuation can actually continue to exist in its current form into the future."

Mr Shearer says Labour would lift the pension age from 65 to 67 and make KiwiSaver compulsory.

Warning super will get more expensive

OECD pension expert Edward Whitehouse says that more than half of member countries are increasing the pension age over the next decade.

Mr Whitehouse told Morning Report on Tuesday that New Zealand's estimated long-term expenditure on pensions is below the OECD average of 11.5% and, although it is affordable, it still represents a marked increase.

The Treasury has estimated the cost of New Zealand Superannuation at 8% of GDP by 2050, but the Financial Services Council, representing the savings industry, says that is much too low and predicts it will be 12% of GDP by the end of the century.

Mr Whitehouse says with the trend to live longer and have a longer retirement period, the whole scheme will inevitably become more expensive.

The OECD says KiwiSaver contribution rates need to be lifted for New Zealanders' retirement income to be in the top half of developed countries.

It says that with 55% KiwiSaver enrolment New Zealand has the highest participation in any non-compulsory superannuation scheme in the OECD, but once national superannuation and KiwiSaver are combined, retirement income as a proportion of retirees final salaries are in the bottom half of OECD countries.

Other laggard countries include Australia, Chile, and Mexico, although it says Australia will be in the top half once compulsory superannuation contributions increase from 9% to 12% in 2019.