SHANE TAURIMA INTERVIEWS PETER NEILSON
Mr Neilson, thank you for joining us this morning.
PETER NEILSON - Financial Services Council Chief Executive
SHANE So, in a nutshell, you say the retirement age can stay the same at 65 as long as we save, the government super age over time will need to go up.
PETER Yes, what we've done is we've looked at the international evidence about what's happening to longevity - how long we live after we're 65.
SHANE So we're living longer.
PETER Yeah. Our grandparents lived for 15 to 20 years after they retired. Our grandchildren are going to be living probably 30 to 40 years. So, in other words, we're not only having a large number of people move into retirement from the baby boomers; we're also going to live a lot longer, so therefore it's going to cost more.
SHANE So the current system is unsustainable?
PETER In the long term. But here we're talking about 2050 outwards. We're not talking about immediately tomorrow. This is about what's going to happen to the people who are under 40 and what their future is for retirement.
SHANE Did you say 2050? A lot of people are saying 2020 is more the year.
PETER Um, in 2020 things start increasing, but what we're saying is the debate we're talking about is how do we make sure the people who are currently 20 and 30, under 40, where's their retirement security going to come from? And what we've said is it is possible for people to still retire at 65 on the equivalent income of New Zealand super. But you'll actually pay for that from your own savings until you're eligible for New Zealand super.
SHANE And you want them to save quite a bit. You say those under 40 need to be saving at least 10% of their income.
SHANE That's a lot of money. Out of reach, probably for a lot of people.
PETER Well, what we're proposing is first of all that we don't start this process until we're actually out of the recession and incomes start increasing. We're saying we step it up by 1% a year, and we split that between the employer and the employee. 1% a year is roughly what real wages increase by.
SHANE Up to 10%?
PETER Up to 10%. So we do it over a decade. But we're saying we don't start it until we're out of the recession. And also we're not asking social security beneficiaries, we're not probably asking people in very low incomes to do this. Only people who want to be in KiwiSaver is what we're proposing.
SHANE But you're saying we need to do this to be able to retire at 65.
PETER If you want to retire at 65. But the other side of it is when we surveyed New Zealanders and said, 'Could you live comfortably on the current benefit of $349 a week?' They said, 'No. We need about $300 more.'
SHANE So just to clarify this for our viewers at home, you're saying you can retire at 65 as long as you save. Over time, the government super age will go up. So you could retire at 65 as long as you've got the savings there to service your needs until, say, if the age at that time is 67, and that's when the government super would kick in.
PETER Yes. You use your KiwiSaver account to purchase a fixed-term pension to cover you up to the point when New Zealand super is available as a right. But also your savings would be sufficient to virtually double the income you get in retirement.
SHANE Do we need to have compulsory super?
PETER Well, that's a debate we want to have for the public. We haven't proposed either way.
SHANE You don't have a position either way?
PETER No. In the paper, we discussed the options. But, clearly, in most countries in the world, if you're on an income and in employment, you are required to put some money aside. But because of that, most people in other countries of a similar income to ours are living on retirement on much better incomes. If we don't do something about this, the future is we're still going to be working at 70, and we're going to be picking up the bags of people who are grey-haired tourists from countries where they have put money aside.
SHANE I'm interested to know whether it should be means tested.
PETER Ok. Um, we haven't actually discussed that. We haven't proposed any changes in terms of how New Zealand super is provided, other than suggesting that the age of eligibility will have to move out. What we're saying is it's much more positive to say if people are able to increase their savings, they can-
SHANE Is it just too hard to go there, the means-testing issue?
PETER No. It's quite a complex issue. For example, we had in the past proposals, and we had a surcharge. It was incredibly politically unpopular, despite the fact that it probably only affected about 10% or 15% of the population. And we know if we do those sorts of things, people try and find other ways of getting round those restrictions.
SHANE Very quickly, because we have to start wrapping up, but you're one of many groups now that say things must change and that we need to take action now.
SHANE What happens if we stick to the John Key line and don't act?
PETER If we don't act, what will happen is we'll steadily have an increase in taxation costs. So it's not a matter of do you want to spend more on saving; it's whether you want to spend more on saving and put it in your own account, or do you want to pay more taxes steadily increasing until tax rates have to increase-
SHANE But we could simplify that even further, though, couldn't we? Judging by your report, if we don't act now, you're saying that we won't be able to retire at 65 and there won't be any super.
PETER Well, what will happen is if we don't get an honest discussion about what we can provide, you will be probably working until you're 70 if you're currently a 30 or 20-year-old.
SHANE So John Key has to budge.
PETER Uh, not necessarily this year. What will happen is we have to have a conversation about when we are going to move the age of eligibility. We're not talking about what happens next year; we're talking about what happens over the next 40 years.
SHANE And we have to leave it there. Thank you very much for joining us.
PETER Thank you.