Ageing pop. will require new policies: Treasury

Ageing population will require new policies: Treasury

by Paul McBeth

July 22 (BusinessDesk) – Future governments will have to address the rising cost of an ageing population by considering a higher retirement age and pension means-testing to rein in unsustainable levels of government spending, according to the Treasury’s newly recruited deputy chief executive, Gabs Mahklouf.

“We have no doubt that adjustments will be required in the years ahead to get the long-term fiscal projections onto a sustainable footing,” said Mahklouf in his first major speech in New Zealand since arriving from the United Kingdom four months ago, where he was director of banking services at the Revenue & Customs department.

Speaking to a one-day conference called by the Office of the Retirement Commissioner and Victoria University’s Institute of Policy Studies, Mahklouf said: “Decisions on how to meet the fiscal challenge will need to take into account the implications for different groups within society – children, young working families and the retired, amongst others.”

In carefully calibrated comments that avoided directly advocating a higher pension eligibility age or means-testing, Mahklouf said more people over 65 will need to stay in work for longer in the future, as the ageing population stifles the country’s long term growth prospects.

During the 2008 election campaign, Prime Minister John Key saying he would resign if the pension age was lifted by his government.

Other ideas floated that will probably be assessed were changing the rules around the indexation of superannuation, and expanding the role for products such as KiwiSaver.

“The hard questions confronting us are the same ones in front of all developed societies - how best to adjust to put government finances onto a sustainable footing over the long term,” he said.

Like other developed nations, New Zealand’s population of so-called dependents, those aged under 15 and under and 65 and over, will outnumber the labour force, leaving the state unable to meet its duty of care to people on low incomes

The Treasury projects participation in the labour market will fall to 63% by 2060 from today’s 63%, including an increase in more pension-age people working later in their lives.

“If we assume, perhaps optimistically, that those older workers undertake paid employment at around the same number of hours as the average of the current workforce, that still won’t be enough to prevent New Zealand’s trend real economic growth rate from easing back from an average of 3% per annum over the next three years, to a bit under 2% from the mid-2020s,” Mahklouf said.

BERL economist Ganesh Nana and PricewaterhouseCoopers partner Suzanne Snively challenged the Treasury’s approach of treating everyone over the age of 65 as a dependent, saying a growing number of people were more willing to stay in the labour market for longer.

Nana said labour market participation in the 65-70 age bracket climbed to 33% in 2006 from 11% 20 years earlier, and painting an Armageddon scenario may cause it to become a self-fulfilling prophecy.

“Treasury’s projections are very informative – we have to change and we’re already starting to,” Nana said.

The government department is expected to take the lead in approaching the superannuation debate, with politicians backing away from the issue.

(BusinessDesk) 17:41:39

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