Crisis What Crisis? The Aging Problem Needs to Be Tackled Soberly.

Listener 6 September 1997

Keywords: Social Policy;

One of the safest rules of politics is that any claim there is a crisis is really an excuse to justify a policy. There may be a problem but, typically, converting it into a “crisis” distorts the analysis, resulting in a twisted policy prescription. Sadly, but not surprisingly, this is true for the current superannuation debate.

Certainly there is an aging problem. The population is likely to get older, for the average age may rise, as may the proportion in the older age groups. If the population were getting younger, we would also have a problem. As I noted a couple of decades ago, the youth of the New Zealand population was then a drag on economic development, because we were having to invest resources to maintain and educate our young. Since most of this burden was carried by families, there was no rushing around calling it a “crisis”, advocating privatization or whatever. The private problem of the burden of children on the economy could be ignored.

Now those children are working, so that problem has gone away. But one day they will be retired, and will again be an economic burden. This has little to do with whether there is a state provided pension or not. Resources required by the retired will rise as their proportion of the population rises, unless we cut back their relative standard of living. Some of their consumption may be funded from income from their investments. But supposing they drop dead. The investments and the resulting income will still be there. It is the labour income (or lack of it, when retired) which matters. (I hasten to add that nothing said here should discourage the reader from private saving for personal retirement. While such savings will contribute to personal welfare and security, they do not address the aging problem – or “crisis”.)

The reader will have noticed the frequent use above of such terms as “may” and “likely”. That is because we do not know about the future. Half a century ago the population “crisis” was thought to be about a decreasing population. That we got it wrong is a reminder we may get it wrong again. More recently there was the promise that our population would be decimated by HIV-Aids. In Australia the TV ads used the image of the fourteenth century black death which halved the population of the Europe and Asia. Recall the hysteria?

And then there was the futurist who one day told the audience that we had an aging “crisis”, which means there too few workers. The next day the futurist was predicting massive unemployment because of a technological “crisis” which replaced worker by machine. That means too many workers. I dont think the futurist’s lecture fees cancelled out, even if the arguments did.

Fortunately there are islands of sobriety. The interim 1997 Retirement Income Report of the Periodic Report Group (sometimes called the “Todd group” after its chairman) was such an exercise. It avoids mentioning a “crisis”, but provides a lot of useful information, considering the current scheme is sustainable in the light of our present knowledge. Certainly the Todd group has a policy axe to grind, for it was set up on the basis of the 1992 Retirement Accord with its commitment to a system of public provision of an adequate universal retirement income which may (my advice is, “should”) be privately supplemented by voluntary savings, an occupational pension, and owned housing. The group may be right, but I would have preferred a careful review of the main options. There are some more attractive alternatives than the Retirement Savings Scheme we are voting on. The Treasurer mentioned in parliament Labour’s 1975 approach, which involved a compulsory second tier, funded by contributions from earnings, which were invested to give a bonus to the basic flat rate scheme.

Reading the Todd report I was struck how ignorant we are of the technical issues underlying the findings (although balance requires mentioning that the scheme we are voting on is equally devoid of a rigorous underpinning – if not moreso). At issue is the failure to do any research. A political crisis in 1992 led to the Accord. Then the matter was put aside for five years, when a hurried collection of inadequate consultant’s reports was brought together. A major defect of the Todd report is that it does not make a plea for the funding of high quality ongoing research about aging issues so there is a sounder foundation for the next review.

The irony of those who see an aging “crisis”, is not just they are dependent on inadequate information, but the falsity of their claim to expertise about fifty years ahead is exposed by an inability to think even five years ahead.