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THE New Zealand government is ready to set up a massive pension scheme, which should take the country well into this century and perhaps beyond, depending on birth rates and the ages at which people retire.
The fund is expected to peak at a massive $240 billion by 2050.
Finance Minister, Michael Cullen has produced figures which show the Government will be setting aside $25 billion over the next 10 years to help the growing need for State pension funds.
The Government currently needs the support of the smaller parties to set the fund into law but it is expected that it will also be supported by the Act party and also New Zealand First, ensuring that it can go forward to become law. As envisaged, the fund will be financed by taxes and other income received by the Government.
Legislation, which is expected to be introduced shortly, will confirm existing entitlements to state superannuation at age 65 and set the married couple rate at no less than 65 per cent of the average weekly wage. Payments will not be means tests or asset tested, as they are in Australia, at present.
The only retirees whose pension levels will change are gay couples. To meet the Bill of Rights, their entitlement is likely to fall from the single sharing rate of $208.20 a week to the married person rate of $173 a week.
State pensions currently cost $4.25 billion a year, which is less than 5 per cent of New Zealand's gross domestic product. But this is forecast to rise to 9 per cent of GDP by 2050.
After a two-year transition period it is estimated the fund will need an injection of 1.75 per cent of GDP each year - or around $1.8 billion at present levels. This assumes the fund will earn 9 per cent before tax on its investments.
The amount needed would slowly decline to zero by 2025. But it would continue to grow from its investments to reach $240 billion and would than dwindle as more and more was used to pay the baby boomers' pensions.