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Short term pain, long term gains

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Frank Jasper, Chief Investment Officer

Short term pain, long term gains

“Kicking the can down the road.” “Never put off for tomorrow, what you can do today.” “You may delay but time will not.” “When there is a hill to climb, don’t think that waiting will make it smaller.” And my new favourite. “Stop talking. Start walking.”

Short term pain, long term gains

A quick google on procrastination will bring up hundreds of quotes imploring us to deal with the hard things today and stop putting them off. The aging of the New Zealand population and our ability, as a nation, to afford New Zealand Superannuation is one of those hard things. And it is hard. It is requires difficult trade-offs that affect people’s lives but just because it’s hard it doesn’t mean we can put off thinking about it.

Unfortunately putting off thinking about it seems to the policy that has been universally adopted by our politicians. The recent election gave us the chance to reassess each party’s position on superannuation.

Labour and New Zealand First support the status quo — no change to the entitlement age for New Zealand Superannuation. This means that New Zealand Superannuation, as a per cent of Gross Domestic Product (GDP), will rise from 4.8% in 2016 to a projected 8.4% of GDP by 2060. To put this in context we currently spend about 6.2% of GDP on healthcare. When you factor in that over the same timeframe we’ll be moving from four tax payers for every superannuitant to two tax payers for every superannuitant, more tax or reduced services are on their way. There’s only so many ways you can cut the cake!

National’s policy is similarly anaemic with the age of New Zealand Superannuation entitlement beginning to slowly lift from 2037. This reduces the scale of the problem but is hardly a transformational solution.

The problem with not dealing with the looming superannuation challenge is that it is unsustainable for the New Zealand economy. And the problem with unsustainable things is that they are unsustainable. One day the rules on New Zealand Superannuation will be changed. The longer it’s left in limbo the more disruptive that change will be for us all.

What can we do as Kiwis, tax payers and voters? Unfortunately, there are only two things we can do. Firstly, we can, and should, talk about superannuation and engage in the political process to ensure our voice is heard.

Ultimately, though, it’s the decisions each of us take today with our own savings that will determine the quality of life we will have as we get older. By regularly saving into our KiwiSaver accounts or other managed funds we can be much better prepared should there be changes to New Zealand Superannuation. The politicians may procrastinate. We don’t have to. “Stop talking. Start walking.”

 

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