Will pensioners really need to house-share?
The Westpac television advert showing the house-sharing pensioners arguing about their food and chores may not be so funny in a few years' time. The Government has concluded that it can no longer afford a decent standard of living for pensioners. The problem is that there will be too many of them – as people are living longer and into the bargain, there is the baby boom.
There is already increasing pressure on state provision as baby boomers (born between 1945 and 1965) reach pension age. The first of these reached 65 in 2010 – and as people are living longer, the pensions will have to be paid over a longer period. Whereas our grandparents lived for 10 to 20 years after reaching retirement age, today's school-leavers can expect to live for 20 to 30 years.
According to an article in New Zealand Herald (30/03/13), just 7-8% of the population were pensioners in the 1960s. Due to the post-war population boom, 'today the figure is 12 to 13 per cent, and it is projected to reach a quarter of the population in 2051', says senior financial adviser, Jeff Matthews, of Spicers Wealth Management. As the percentage of pensioners grows, there is more pressure on taxation funding and the ratio of working taxpayers to pensioners will fall.
Must save more
The Government's plan is partly to persuade people to save more – and this was their original reason for introducing KiwiSaver. The contributions are also being increased – putting more pressure on budgets for working people and there are many who simply can't afford to save.
Advice that New Zealanders should contribute more than the 3% minimum to their KiwiSaver funds, is not viable for many – especially when living costs are rising faster than wages. Financial advisers are also not interested in these poorer savers as it is not worth their while to advise them.
Not everyone has $5, $10 or $15 extra a week to save. Pushpa Wood, director of the NZ Centre for Personal Financial Education at Massey University, says: "There are people whose need is now and they are focused on meeting their needs now, not 20 years down the track."
Saving for Retirement
In September 2006, the Labour Government created the KiwiSaver to encourage New Zealanders to save more for retirement and to supplement the New Zealand Superannuation (NZS) flat-rate universal pension. At the end of 2005, just before it was introduced, 70% of the active labour force was not covered by any type of superannuation plan.
In March 2007, Finance Minister, Michael Cullen said that New Zealanders have one of the lowest household savings rates in the developed countries. The New Zealand Reserve Bank estimated the 2007 household savings rate at a negative 17.5%. Net household savings has averaged minus 2.25% over the past 25 years. People are being forced to spend more than they can earn.
The latest changes
From 1st April, workers are being forced to make increased pension contributions to KiwiSaver at a time when incomes are stagnating and the cost of living is rising. The move from 2% to 3% contributions for employees represents a 50% increase, which will more than knock out any income gain made from the 25 cent minimum wage increase.
According to the latest income survey from Statistics New Zealand (SNZ), covering the year to June 2012, median incomes from wages and salaries have stagnated, increasing by just 0.7% to $806 per week. ($42,000 pa) The change in median weekly income from wages and salaries is the smallest increase since the June 1999 quarter.
Meanwhile, average weekly income from wages and salaries increased significantly – up 2.7 percent to $922 ($48,000) and aggregate hours worked increased – up 0.9 percent. SNZ explains: “The increases in median and average weekly income from wages and salaries are the result of a change in the distribution of people receiving income from this source. From the June 2011 to the June 2012 quarter: the number of people receiving less than $430 per week decreased, while the number of people receiving more than $1,245 per week increased. It is likely that a lot of the lower paid were losing jobs, while there were more people earning higher incomes.
The pension is supposed to provide a basic living standard and is set at about 65% of the average wage, uprated by inflation, but many pensioners still have problems making ends meet.
The latest increase from 1st April 2013 provides single pensioners (living alone) with a net fortnightly income of $714 (assuming this is their main income and M tax code) – up from $698 the previous year. For a married couple where both qualify, the new figures are respectively, $550 each (up from $536). Surviving on NZS is a real struggle for the 40% of pensioners who have no other savings to fall back on. Ann Martin, chief executive of Age Concern, says NZ Super only covers the basics. "Often what happens then is that the pensioner cuts back on necessities. They don't turn heating on, reduce their grocery spend and may pull back on social activities, medication and doctor visits. "We know some older people are also spending the winter in freezing houses to keep the power bill down, [and] older people continue to tell us that looking after their teeth, eyes and ears can break the bank." (NZ Herald 30/03/13)
Studies show that many of these old people can't afford to eat properly. “Age Concern costed the sample meal plans for older people in the Ministry of Health's Food and Nutrition Guidelines, and found households living on NZ Super alone would have to spend more than a third of their income to eat healthily. "This would put them in food stress," says Martin. "The more likely scenario is they are cutting out fruit and vegetables in order to make ends meet." (NZH 30/03/13)
Yet most of the population seems relatively satisfied. According to the Government's latest Household Economic Survey in the year ended 30 June 2012, nearly three quarters (73%) of people were either satisfied or very satisfied with their material standard of living.
When asked whether their income was adequate, however, people were much more divided.
While 50% reported that their income was enough or more than enough to meet their everyday needs for things such as accommodation, food, and clothing, others were not so lucky. The other half of the population said that their income was just enough or not enough to meet their everyday needs.
The number with barely enough or not enough income for their needs rose to almost three quarters for the 20% of households with lowest incomes. Interestingly, even in households with income in the highest 20 percent of the population, nearly a quarter (24%) of respondents said their income was only just enough or not enough to meet their needs!
While current pensioners may struggle, future pensioners are forecast to have an even worse financial future. A 2003 expert report quoted by Barbara E. Kritzer in Social Security Bulletin, Vol. 67 No. 4, 2007, found that while many current retirees can maintain their standard of living through other sources to supplement NZS, including private savings, and mortgage-free home ownership, “younger workers are likely to have lower standards of living in retirement due to high levels of debt, student loans, having children later and potentially fewer mortgage-free homes” (IBIS 2004).
The capitalists would like to set different generations of workers against each other. In a controversial book, “Selfish Generations: How Welfare States Grow Old” , David Thomson argued that: ‘… the big winners … have been … those born between about 1920 and 1945. Throughout their lives they will make contributions which cover only a fraction of the benefits. For their successors the reverse is true.’ (p.3)
Economist Brian Easton says: “That the transfers to the elderly are large is hardly to be contested. But Thomson has a stronger thesis . . that the older generations (the 'Earlys) are benefiting more from the welfare state than younger generations (the Lates).”
Easton criticises Thomson's failure to base his arguments on economic studies and says: “Much of the book is a rambling attempt to justify this accusation, based on anecdotal rather than systematic argument.”
He goes on: “Overall, Thomson argues that the Earlys put less into society than they take out, and the Lates put in more. Unfortunately, the data is built upon many peculiar and unreliable assumptions while the forecasts crucial to the analysis are not convincing.”
(A fuller critique of the book taken from the New Zealand Journal of Sociology, May 1992, can be found here: http://www.eastonbh.ac.nz/1992/05/iselfish_generationsi_by_david_thomson/)
Counting the cost
NZS is already the government's largest single budget item, at a current net cost of 3.4% of gross domestic product (GDP), which is expected to rise to 6.9% of GDP by 2050 due to the ageing population (NZSF 2006). NZS cost $9.6bn in 2011/12 and is expected to cost $10.2bn in 2012/13 or 47% of Government social welfare spending.
NZ Institute of Economic Research Inc (NZIER) has produced a paper on the Superannuation Dilemma (see: http://nzier.org.nz/publications/superannuation-dilemma). It forecasts that the number of people aged 65 and over will grow from 610,000 in 2012 to over 1.1 million in 2031. “The cost of New Zealand Superannuation will balloon from 9 billion dollars a year to 20 billion dollars a year in today’s terms. That is $7,800 per person in the labour force, nearly twice the current bill.”
A bigger superannuation bill is not a problem in itself. It may even be affordable. But NZIER goes on to say, it does mean we need to find savings elsewhere to balance the budget. The obvious area for savings, because it is the single biggest ticket item, would be healthcare. On past trends, health expenditure is projected to grow by 12 billion dollars or more (in today’s money) by 2031.
NZIER argues the need to control the cost of superannuation and potentially use means testing, though this would mean sacrificing “the simplicity of its universal system”. Another option, raising the age of eligibility from 65 to 67, if introduced in 10 years, in 2022, “would reduce the number of eligible people by over 100,000 a year. This is equivalent to 2 billion dollars a year.” However, it concludes that this would only delay the problem for a few years as it does not change the rate of growth.
“A more meaningful change would be to limit the growth in the amount people get paid. Currently the rate of New Zealand Superannuation cannot fall below 65% of the average wage. But this floor could be lowered to a more affordable level.
NZS has also been linked in the past to the Consumer Price Index (CPI) to maintain purchasing power.
“But relative purchasing power would not be. New Zealand Superannuation would provide a safety net, rather than a way to share in (or tax) the productivity gains of future generations.”
NZIER says that linking the rate to the CPI would reduce the superannuation bill by about 4 billion dollars per year, or 20%, from what it would otherwise be in 20 years’ time. This is a much bigger impact than changing the age of eligibility. Longer term it would have an even more profound impact. Doing both policies would save the government 6 billion dollars in 2031, or over $2,000 per person in the labour force.
In his above article for the Dominion Post newspaper, Jean-Pierre de Raad, Chief Executive of NZIER, argues that maintaining pensions income means sacrificing other areas of government spending like healthcare and education. He says: “New Zealand Superannuation cannot be treated as a holy cow. . . There is no free lunch.”
As the percentage of pensioners grows, there is more pressure on taxation funding and the ratio of working taxpayers to pensioners will fall. Increased life expectancy further increases the pressure – and there is already talk of increasing the retirement age to 67, which will save the Government some money.
The Government's solution is to make people pay more now and work longer – with pensions later. That is not much comfort for the many whose jobs are physically or mentally draining and will be likely to develop health problems making for a short or uncomfortable retirement -particularly if it is also delayed.
Labour Party position
Labour is not offering people any more hope either. When Labour first raised the idea of a higher pension age during the 2011 election campaign, this proved so unpopular that it was the final nail in the coffin causing the party to lose the election. It signalled to workers that the party implicitly supported the capitalist system and helped ensure that workers did not vote, thus producing the lowest election turnout since 1878.
This unpopular pledge, which was never voted into party policy, is in its 2011 Election Manifesto,saying that it would: 'gradually lift the age of NZ Super eligibility from 65 to 67 starting in 1 April 2020 and taking 12 years to phase in.'
What should the solution be
Under socialism, an increased lifespan would be a real benefit – allowing people to see their grandchildren grow up, develop new interests and contribute fully to society – but at their leisure.
Capitalism can't afford this and sees improved life expectancy as a problem, despite the fact that New Zealand is one of the richest countries in the world (ranked 30th for GDP per capita in 2011 by the World Bank).
In order to shore up the lifestyles of the rich, there has been a thirty-year trend to increase the share of national income going to profits – with a consequent reduction in the proportion going to wages. Many working people are consequently unable to save enough to provide adequately for their old age. However, the profits produced from the working population are more than enough to fund a decent standard of living for all.
We have already seen that increased contributions to KiwiSaver are no guarantee of a happy retirement. In fact the only real guarantee would be a society organised under socialism, where resources are shared and the economy planned and managed by workers to produce plenty for all.