Monthly Archives: April 2015

RPRC Quarterly Update, Volume 8 Issue 1, March 2015

 The RPRC Quarterly Update and the Leading Article  by RPRC co-director Susan St John – ‘Improving the Affordability of New Zealand  Superannuation’, and its links got submerged within a previous post (2 New Discussion papers).    The link above and the extract below, allow more consideration of this important article.

“This Working Paper focusses on the degree of targeting, and examines a way the tax system could be used to provide an increased claw-back of some or all of the net cost of NZS from high- income recipients. No one wants to copy the Australians with a full income and asset test.

The innovation in the paper is to offer a much simpler approach through the tax system. The first step is to pay NZS to every 65+ year old as a non-taxable grant or basic income. The paper suggests that the single sharing and married rates of NZS are aligned over time, so everyone gets the same basic amount equal to NZS after tax at the primary rate. This amount is unconditional and does not change. As other income is earned it is taxed on a new scale. The paper suggests 17.5% up to $15,000 and 39% above that will deliver worthwhile savings with very little pain.”

 

Migration Effects on NZ Pension Burden

Migration Effects on NZ Pension Burden

I have been looking (without much success) for information that would clarify the effects of Migration on Population Age Structure, Life Expectancy and Pension Burden in NZ.

I have prepared a short discussion document, laying out the assumptions and conclusions that I have come to from first principles and what little literature there is available.   The full document is HERE.   If you have definitive information that confirms, refutes or adds to the discussion please post it at the full document site, and I will put it into the structure.

Essentially I conclude:-

#1  That present and future migration is statistically skewing life expectancy figures upwards

#2  That migrants will Iive longer than NZ born inhabitants

#3  They will therefore survive more years of pensionable age than NZ born superannuitants

#4   Immigrants elderly relatives, from non-reciprocal pension agreement countries, who join their families, will be part of a pension burden whose funding they have not contributed to

Stephen Wealthall

LONGEVITY RISK: SETTING THE LONG TERM MORTALITY IMPROVEMENT RATE

The last post from ‘The Economist’ indicated that demographic factors could have a large influence on ‘the economic burden ‘ of pensions.   The below ‘white paper’ highlights some of the possible demographic changes.

Risk Management Solutions Inc, a UK company that specialises in assessing the effect of demographic changes on economic  futures has produced an exhaustive, but readable, assessment of the factors that may change life expectancy improvement.

It highlights the factors such as a plateauing of prevention of cardiovascular deaths, the failure of expected improvements in cancer survival to materialise and that obesity levels acceleration and economic recession may result in lesser declines in mortality than recently experienced.

I have been concerned, as a Medical Scientist, that the assumption that life expectancy can go on increasing for ever, is scientifically implausible.   This report itemises reasons as to why there may be a change in life expectancy improvement, and looks at seven scenarios which might influence that change.   The report concludes that life expectancy improvements will continue, but not necessarily at historical rates, and gives lots of information as to why an automatic assumption of increased life expectancy should not be assumed.

Well worth reading HERE

Stephen Wealthall

The Age Invaders

Our members Alec Waugh and Hilary Vautier have reviewed the ‘The Economist’ article “The Age Invaders‘.   As well as being an overall review of how aging will affect economies in the future, it raises some interesting questions including:-

“The received wisdom is that a larger proportion of old people means slower growth and, because the old need to draw down their wealth to live, less saving; that leads to higher interest rates and falling asset prices. Some economists are more sanguine, arguing that people will adapt and work longer, rendering moot measures of dependency which assume no one works after the age of 65…

Perhaps most important, better education leads to higher productivity at any age. For all these reasons, a growing group of highly educated older folk could increase productivity, offsetting much of the effect of a smaller workforce.Evidence on both sides of the Atlantic bears this out. A clutch of recent studies suggests that older workers are disproportionately more productive—as you would expect if they are disproportionately better educated…

Demographic trends will shape the future, but they do not render particular outcomes inevitable. The evolution of the economy will depend on the way policymakers respond to the new situation. But those policy reactions will themselves be shaped by the priorities of older people to a greater extent than has previously been the case; they will be a bigger share of the population and in democracies they tend to vote more than younger people do.”

Copyright of ‘The Economist’ acknowledged