How Much Ageing Can We Afford? 15 th November 2007 University of - - PowerPoint PPT Presentation

How Much Ageing Can We Afford?

15th November 2007

University of Waikato Susan St John

Retirement Policy and Research Centre

New Zealand Association of Gerontology Conference

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A presentation from the Retirement Policy & Research Centre

is this a tric k que stion? What is ageing? Can individuals afford it? Can the nation afford it? What better questions can we ask? Do our policies prepare us as well as they could?

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Conte xt: T he ba by boom re tire me nt- from 2010- 2050 Coming re a dy or not.

Stats NZ 2007

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How ma ny ove r 65?

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Me dia n Ag e

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De pe nde nc y ra tios

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Ba ssine ts a nd c offins

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How ma ny 65+ more live a lone ?

Is the housing stock appropriate

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T he re a re more ‘old’ old

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L ife e xpe c ta nc y g a ins in la st five ye a rs a re most a t

• lde r a g e s 1995/ 7 to 2000/ 2

Stats NZ

1.4 years females 1.7 years male

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L ife E xpe c ta nc y a t a g e 65- g a p c lose s

Stats NZ

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85+ How low doe s morta lity g o?

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He a lth e xpe nditure

Dyson 2002

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Re side ntia l c a re 2006

MSD 2007

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Good ne ws for wome n: more me n a t 85

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T he simple e c onomic s of a g e ing

Useful Output from each 5 of working age

2010 2050 1 retired for 5 workers 2 retired for 5 workers

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Will the pie a c tua lly g row?

Useful Output from each 5 of working age

2010 2050 1 retired for 5 workers 2 retired for 5 workers

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Will working into old a g e sa ve the da y?

Census data

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Wha t a bout our polic ie s?

Dearth of holistic planning for ageing Retirement incomes policies facilitate a division of the pie

Should retirement incomes policies also make the pie grow? May be too big an ask

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Dividing the pie We mig ht e xpe c t polic ie s should Prevent old age poverty Allow participation and belonging Facilitate income smoothing Be fair as between

• Workers and retired
• Men and women

Not add to growing wealth and income disparity Be as simple and transparent as possible

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Ha ve polic ie s pre ve nte d pove rty ?

MSD 2007

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NZ Supe r a suc c e ss story

Living standards by age- 2004 (MSD 2006)

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Do our policies a llow pa rtic ipa tion

a nd be long ing

More than poverty prevention Not good at facilitating income smoothing for middle income retirees

• Draw down risks
• Home equity release?
• Few private pensions

Enter

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Are polic ie s fa ir? NZS : Flat rate same for everyone No paid contributions needed

Good for women

Taxable Same age for men and women No hidden tax incentives

• Pro rich
• Pro male
• costly

NZS equaliser of incomes

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T he simple st a nd most c ost e ffe c tive re tire me nt sc he me in the world?

Public provision

New Zealand Superannuation

• New Zealand Superannuation Fund

Private provision

Voluntary unsubsidised

• Saving for retirement taxed

like saving in a bank

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Ne w Ze a la nd Supe r a nnua tion

1974 Compulsory scheme 1976 Universal National Super

80% average wage couple at age 60

1980s surcharge 1991 Budget attack then reprieve 1993 Accord 1997 Compulsion rejected 2000 Universal 65 at 65

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NZS Afforda ble , fa ir a nd e ffe c tive

http://www.retirement.org.nz

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How do we c ompa re

UK system

Tortuously complex Tax breaks for the rich Means tested top ups to low level basic pension Women poorly treated

Australian system

Compulsory private saving Women far less than men Means tested old age pension

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F

• r twe nty ye a rs OE

CD wa xe s lyric a l

The level playing field “After the radical reforms undertaken in the 1980s, the NZ tax system has long been regarded as one of the most efficient within the OECD.” OECD 2007

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F lie s in the ointme nt? Housing ta x a dva nta g e d

• no capital gains tax
• no imputed rental tax
• traders scot-free

Roger did not get the full package

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Wha t ha ve re vie ws sa id?

Hard won consensus Brash Committee 1988 Task Force 1992 Accord 1993 Periodic Report Group 1997 Super Taskforce 2000 McLeod Review 2001 Periodic Report Group 2003 Retirement Commission Review 2007?

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T he T a x Re vie w 2001 No tax incentives justified, but fix housing “There is little evidence that changes to the tax system will induce higher saving other than by redistributing from those who are less likely to save( typically poorer households) to those who are more likely to save ( typically wealthier households)” McLeod Review 2001

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Wha t did T re a sury ha ve to sa y?

Annua l Ho use ho ld F ina nc ia l Sa ving by Inc o me De c ile - 1997- 98

• $2,000
• $1,000

$0 $1,000 $2,000 $3,000 $4,000 $5,000 1 2 3 4 5 6 7 8 9 10

Saving Incentives Paper 2002

• Rich will gain most- effect on saving

negligible

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L a bour a g re e d December Economic and Fiscal Update 2002 “The government is not considering upfront tax incentives. These are likely to have to be very large - with fiscal costs running to many hundreds of millions of dollars a year - before they have any desirable effect on overall

• savings. Their abolition in the mid-1980s

represented sensible tax policy on both equity and efficiency grounds.”

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E nte r KiwiSa ve r - 2005 Budg e t Portable Extends workplace saving options $1,000 “sweetener”

Lump sum Progressive Limited

Cabinet papers 2006

Don’t go there with anything else!

The slippery slide begins as advice ignored

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A presentation from the Retirement Policy & Research Centre

2007 … KiwiSa ve r is be ing e nha nc e d 4% or 8% $20 per week $20 per week per employee 4% (phased in)

Cullen, May 2007

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NZ T re a sury Re port 2 Ma y 2007 “ le a st re g re ts a pproa c h”

Positive action now justified (1+ Billion pa) BUT … fiscal strains .. are likely to appear in the long term as the New Zealand population

• ages. If trends do not change, these strains

could mean that programmes like NZS may have to become less generous in the future (New Zealand Treasury, 2007).

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Whe re to ne xt? Pressure for tax break extensions Problems with wage negotiations Breakdown in political consensus Loss of simplicity Two tier retirement

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Down the Austra lia n pa th we g o “If compulsion was to be introduced we would have to think about income testing New Zealand Super. That was just an awful phase in New Zealand's history." Michael Cullen (NZH, Nov 9th, 2007) “KiwiSaver is likely to become compulsory if the sign-up rate so far is anything to go by,” Peter Dunne (NZH Oct 27th 2007)

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T wo na tions in old a g e ?

The outlines of a dangerous schism are clear, and they are enlarging. Already it is possible to see two nations in old age; greater inequalities in living standards after work than in work; two contrasting social services for distinct groups based on different principles, and operating in isolation of each

• ther as separate, autonomous, social

instruments of change’ (Titmuss 1958, pp. 73–74). .

‘

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Unple a sa nt a rithme tic of ine qua lity

The new gilded age

1000000 2000000 3000000 4000000 5000000 6000000 7000000 7 14 21 28 35 200,000 20,000

Compounding advantage $200,000 @10% $20,000 @ 10%

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Cha ng e s in inc ome ine qua lity in the OE CD, 1982- 2000 (GINI)

Source: OECD

• 3.0
• 1.0

1.0 3.0 5.0 7.0 New Zealand Finland UK Italy Norw ay Japan OECD-15 average US Canada Germany Sw eden Netherlands Denmark Greece France Australia

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Pe rc e nta g e c ha ng e in re a l e quiva lise d a fte r housing c osts inc ome s:

Source: Ministry of Social Development

• 30
• 25
• 20
• 15
• 10
• 5

5 10 15 20 25 1 2 3 4 5 6 7 8 9

MSD 2007

Decile boundaries 1982-2004 ($2004)

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Winners Sam Morgan Fay Richwhite

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Losers Women and children, especially sole parents

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The health and safety of children

shows each country’s performance in relation to the average for the OECD countries

Unicef 207

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High child poverty

1 2 3 4 8 2 8 4 8 6 8 8 9 9 2 9 4 9 6 9 8 1 4 H E S y ea r %

• f popula

tion below thresholds

(Perry 2007) Relative Fixed % children below after housing costs 60% median income poverty line

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“….If we want a prosperous knowledge economy, where is the human capital going to come from? …The fate of the bottom 20% of our children should be at the top of our list of national priorities…… ” Can we afford to age?

Professor Dame Anne Salmond – NZ Snapshot - Community

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In the me a ntime , who ta ke s up KiwiSa ve r

Preliminary evidence

Enrolment rate increases as people near 65 years of age Over half (51 per cent) of people joining KiwiSaver are older than 45. Members under 20 years of age are 8.6 per cent of the total.

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Are the ba by- boome rs the proble m?

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KiwiSa ve r for some re pla c e s ta x c uts for a ll

:

$1000 sweetener- one-off Fees subsidy $40 pa Matching tax credit of $20 a week for member contributions KiwiSaver Matching employer contributions made compulsory (for members) rising to 4% by 2011 Tax credit up to $20 paid to employers Matching employer contributions to 4% tax free PIE tax rate 19.5% or 30% First home buyer subsidy $3-5000

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T ale o f two c o uple s Bob and Anne in their 30s

Just had their first child He earns $35,000 She gets WFF $142

They are only just getting by.. No KS He loses his job WFF falls $60 a week Welfare state is no longer a cushion Will never own their own home

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Joan and Richard

Aged 50 Two houses and a boat and $500,000 invested He earns $200,000 Both join KiwiSaver- tax subsidies Kickstart $2000 one off For 15 years

• Tax credit 2080
• Employer 1040
• Tax free 3120
• PIE 3600
• $9,840 pa

Tax subsidies alone may produce $190,000-247,000 in 15 years Will they also get universal NZS worth another $500,000???