July 23, 2010 2:00pm by David Farrar

NZ Herald supports Brash on Super

The way in which the National and Labour parties slapped down a welcome entrance by Don Brash into the vexed issue of superannuation did them absolutely no credit.

The Deputy Prime Minister, Bill English, and Labour’s deputy leader, Annette King, were guilty of burying their heads even further in the sand as they insisted, in effect, that there was no problem.

Both said there was no need to change either the qualifying age or payment levels of NZ Superannuation.

And they are both wrong. The changes don’t need to be made today, but they do need to be made by 2025 (in my opinion) and the earlier we do it, the easier the transition period is.

Now Dr Brash has offered a further alternative. He suggests, as have many others, that the age of entitlement should be raised from 65 to 67. But he would also allow people to retire earlier or later on different superannuation rates.

Under Dr Brash’s scheme, people who chose to take the pension early would be paid at a lower rate over the rest of their lifetimes compared to those who claimed it later.

This would not directly reduce the cost of NZ Superannuation – the amount paid out would be equivalent to drawing the pension at the age of eligibility – but it would encourage people to continue working longer, and to continue paying tax.

Don’s proposal has some interesting aspects to it.

As Maori have lower life expectancy than non-Maori, the option to retire earlier at 60 could be appealing to many Maori. If you are likely to be dead by 70, would you rather than ten years on a pension at a lower rate or five years at a higher rate?

On the other hand, if you are in good health and reckon you will be okay until 80, you might well be happy to not claim superannuation until you are 70, if it means then a higher pension for the rest of your life.

There are challenges with Don’s proposal also. But it is a debate worth having.