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Retirement age Q+A

Published: 1:33PM Wednesday June 13, 2012 Source: Breakfast

This morning Breakfast talked to Michael Littlewood from the Retirement Policy and Research Centre about whether the age of eligibility for retirement should go up.

We ran out of time to go through everything, so here's his response to some of the other questions we wanted to put to him.

Should it be made mandatory for people who reach 65, to either retire or, if they want to continue working, forfeit their Super pay out?

No to both of those, in my view. New Zealand Superannuation should not be income-tested or work-tested. The current benefit is the simplest in the developed world and we should treasure that simplicity.

Increasing the retirement age is okay for people who work in offices, but perhaps not for people who work in industries whose bodies may have taken a toll by the time they reach 65. Would adding another two years of working be a big ask?

We have, since 1898, always had a definite pension age. Between 1940 and 1977 there was an income-tested benefit (the 'Old Age pension') payable between 60 and 65 and we could think about having something similar between age 65 and whatever the new state pension age is. However, I think it's better if there is a clear distinction between the age pension and other aspects of social welfare. The Retirement Commissioner recommended a 'transitional' pension to help the younger old as the state pension age goes from 65-67 (as she recommended).

Some would argue it's harder to find employment after reaching 60, that many businesses don't want aged employees, and that they can reduce their wages bill by employing younger workers. What's your response to that?

The international evidence says there is no trade-off between asking older employees to retire and improving employment opportunities for the young. That is a fallacy that economists call the 'lump of labour' - the idea there is a fixed amount of work that is done by either old or young people so that if old people are doing it, young people are shut out. Employers face skill shortages as the baby boomers start retiring and labour markets will eventually acknowledge that.

What about linking retirement money to the amount you have paid in tax in your lifetime? (You have people who immigrate and are entitled very quickly to Super... and you have people who pay an exorbitant amount of money in tax and if 'means tested' are penalised again for hard work and propping up the economy and super. There are many angles to this 'fairness' debate.)

As I say, New Zealand Superannuation is a very elegant benefit and I would not want to see it cluttered by contribution requirements or income/asset tests. We could talk about increasing the residency requirement (from the current ten years) and that issue should be part of a national discussion on the size and shape of NZS.

Why don't we adopt the Canadian model? Over there, if you work beyond 65, your pension is not paid until you retire and you get a larger payment. I am 62 and have just moved from full time to part time so I can sustain it past 65. Should we forget the "mandatory 67 years" and instead give incentives to continue working as long as you can?

The idea of 'buying' extra NZS by deferring the age 65 pension sounds like a good idea but the international evidence suggests when employees are given choices about state pensions (either early reduced amounts or later increased amounts) they tend to make decisions that penalise them. In other words, the state saves money. Again, I prefer the elegant simplicity of NZS.

Where has all the money gone that workers paid towards their retirement many years ago (as it was compulsory to pay)... but it seems that the so-called general fund has sucked that away as well?

Between 1940 and 1964, there used to be an identified 'Social Security contribution' that was paid into a 'Social Security Fund'. However, it was all notional. The annual 'contributions' were never enough to pay for then current benefits, never mind put money away for the future. Rob Muldoon was right to get rid of that fiction.

What are the statistics of the number of people who die before they reach retirement age? The current cost of retirement seems to be based on everyone who is living today qualifying for Super... does the current cost of Super take into account the percentage of people that will not collect it?

The very rough statistics are that, at most ages to age 60, about 80 per cent of all people will make it to age 65. The estimates allow for that.

One man turned 60 last year and since starting work at 16 had joined four super schemes, which have since been dissolved and changed by successive governments... so 10 years ago he decided to do it on his own... is this a good idea?

The government delivers a basic standard of living through NZS and lets people decide what to do about extra savings. There are tax subsidies through KiwiSaver that everyone should maximise. Apart from that, if an employee can join a subsidised scheme, they should otherwise they will miss out on part of their pay. Aside from those, it's up to people to save as suits them - that means doing it yourself.

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