More on super costs

At midday I blogged about the hysterical nonsense claims that a suspension of contributions to the Super Fund would endanger future superannuation. In fact at worse it means that future taxpayers will pay 92% of future superannuation, instead of 89% – a mere 3% difference.

Now to show how trivial this difference is, look at this answer in the House today:

Peseta Sam Lotu-Iiga: If the Government were to make no contributions to the fund for another 11 years, how would the future cost of pensions compare with that expected when the fund was established?

Hon BILL ENGLISH: Whether there are contributions to the fund, and for how many years they are made, has no effect on the future cost of pensions compared with what was expected. When the fund was established back in 2000, the Government did projections that showed that by 2021 the total cost of New Zealand superannuation plus contributions would be 6.75 percent of GDP. Today’s projections available on Treasury’s website show that the total cost is now 5.43 percent of GDP in 2021. Maintaining New Zealand superannuation has actually become more sustainable because of changes in assumptions relating to demographics and rates of return.

So the cost of future superannuation as a percentage of GDP has dropped in relative terms by 19%. And this suspension of contributions increases the future tax burden by just 3% or so.

Yes one can make a but of a difference around the margins by pre-funding through a Super Fund. But the overall sustainability will be decided by economic growth, and demographics.