The New Zealand population is ageing and in danger of declining because of our low fertility rates.
That means New Zealand Superannuation is becoming increasingly unaffordable because there are fewer and fewer workers to support more and more retirees.
Currently, we try to counter those forces by increasing immigration.
But already, New Zealand First is revving up for an anti-immigration election campaign.
The alternative is to increase the age of eligibility for super, but though National favours that, Labour and New Zealand First oppose it.
We are caught in a political stalemate.
These issues formed the core of two sessions at the New Zealand Economic Conference at the University of Waikato in Hamilton yesterday.
Former Labour Minister David Parker said New Zealand should follow Australia and make KiwiSaver compulsory, along with tax concessions for payments into the scheme.
The former National Finance Minister, Stephen Joyce, favoured raising the age of eligibility.
Either way, the problem is stark.
Massey University’s Emeritus Professor of Sociology and long-time demography researcher and commentator, Paul Spoonley, said our fertility rate was 25% below where we need it to be to replace our existing population.
“Last year, our primary school rolls dropped by 4,000,” he said.
“That will occur year on year, and so the Ministry of Education are anticipating that by 2032, there’ll be 30,000 fewer in our education system. We know that’s coming.”
Spoonley said there were only three parts of New Zealand where the population was growing: Auckland, Hamilton and Christchurch.
“We need to be very clear that the future demography of this country is changing quite fundamentally,” he said.
“The demography 20 or 30 years ago is not the demography of 2026, and it certainly won’t be the demography of 2036.
“I think my concern is that there’s a lot of policy inertia. It’s a lot of backwards-looking policy.”
What has changed is the age of the population and the flood of immigrants who have come in over the period Spoonley is talking about.
Blair Turnbull, the Chief Executive of Milford Asset Management, said that by 2030, we’ll have one million people over the age of 65.
“In 1970, you had seven workers to every person over the age of 65,” he said.
“Today, that’s about four workers to every person over the age of 65, and by 2060, it’ll be two workers to every person over the age of 65.
“And the truth is, as hard as we don’t like this, we just cannot afford the superannuation system, because we don’t have the workers.”
He said New Zealand was 27th in a list of 37 OECD countries in terms of productivity.
“And here’s the killer stat that follows that. In terms of our savings as a country, we are 33rd
“So if we have lower productivity, we have lower wages, which, unfortunately, really hurts our ability to save because we literally don’t have the money to save for the future, even though we know we need to save.”
Turnbull said 40% of New Zealand workers arrived at 65 with little to no savings and were fully reliant on income from New Zealand super.
ANZ Bank Chief Economist, Sharon Zollner, argued that the unaffordability was a part of a bigger problem, and its share of GDP had increased from four per cent 20 years ago to just over five per cent now.
“But under current settings it will go to around 8% of of GDP over the next 40 years,” she said.
“That’s obviously a lot of money we’re not spending on something else, but it’s also part of a bigger problem, in particular, the healthcare costs of ageing people are a huge part of the story as well.
“I think superannuation gets particular attention because it’s something we actually could do something about.
“It’s clearly a policy choice, whereas the health needs of old people, you know, it’s pretty difficult to save money there without leading immediately to terrible outcomes.
“So, I think that’s maybe why it gets attention, because it is under the control of the policymakers.”
One obvious answer to this would be to increase immigration.
We have already imported a huge number of immigrants, and with that have come problems of social cohesion.
Spoonley said Auckland was the fourth most diverse city in the world.
“Sixty per cent of Auckland’s population are either immigrants or the children of immigrants,” he said.
The diversity of the immigrants has been accompanied by a big change in the younger population.
“I think there is a demographic earthquake occurring,” hes aid.
“And when you look at the under-15 population or the under-25 population, what you realise is the diversity of it; 17.5 per cent Māori by descent, but if you look at the under-15, it’s more like a third of the future population is Māori.
“And so when I look at the weekend, and I look at our women’s Sevens team, who are doing really well at the moment, but they epitomise the embracing of diversity in everything that they do.
“And we could speculate about why Razor might not be the all-black coach any longer because he didn’t take the Pacific players with him.”
Spoonley argued that with this changing face of New Zealand, we needed better ways to transition immigrants into New Zealand society.
“It’s a huge issue in terms of how we think about diversity and how we help immigrants settle,” he said.
Tahu Kukutai, the Professor of Demography at Te Ngira Institute for Population Research, at the University of Waikato, said we needed a longer-term view of immigration.
“In an election year, it’s so predictable that immigration becomes a really contested issue and we get different discourses which are really internally inconsistent,” she said.
“So on the one hand, we really need skilled migrant labour to fuel our economy, on the other hand, we don’t want migrants, you’re changing our country.
“Those sorts of polarised views on immigration are really unhelpful.”
But even so, superannuation is going to need more than a sustainable immigration stream to sustain it.
“It does feel a bit weird in this day and age that we’re paying an arbitrary retirement amount at an age where most people, well, maybe not most, but increasing numbers of people are still very actively working and contributing to society,” said Joyce.
His old party, National, are going into the election with a commitment to raise the age of eligibility of super gradually from 65 to 67, but Turnbull said that would not be enough..
I find the 65 to 67 discussion quite frustrating, because I think it’s slightly rhetorical, because we can’t afford either,” he said.
“In fact, Treasury are very clear, unless it goes to like 72 or 73, we can’t afford it.
“It’s inevitable that we will have to address the age eligibility, and we’ll also have to address some form of means testing.
“We have to be very thoughtful about it. We’ll have to signal it. But we will have to do that because we are simply borrowing on a credit card if we don’t.
“ I think the bigger picture is, the real bigger crux of this issue is at the heart of the productivity issue and how do we develop as an economy to have better productivity, to pay higher wages, to enable people to save, to develop private savings, not feel like it’s a salary sacrifice when you put into KiwiSaver, but you actually really to enjoy and appreciate the the value of your KiwiSaver and develop your private savings.
“Unfortunately, all the math and the data are highlighting that if we look forward, the ageing population is inevitable.
“We don’t have to have a savings shortfall, but we do really need to start working on it very, very quickly, because as you know, the old quote from Hemingway, it happens very slowly until it doesn’t, and it will happen very quickly. And we do need to address some of these shortfalls.”
Parker was wary about raising the age too far and said that increasing productivity would help make superannuation more affordable.
That productivity increase could be stimulated by changing tax settings to make KiwiSaver more affordable and by making it compulsory.
“I think we would all agree here that we have productivity problems. What else are you going to change to improve productivity?” he said.
“This is the biggest lever.
“And it also provides you with a path to a gradual transition, whatever your age of eligibility is.
“I don’t believe means testing is the answer.”
These debates were happening within the calm and rational confines of the University of Waikato.
But they will soon resurface in the anything-but-calm environment of the election campaign.
