Can New Zealand sustain its 119-year-old pension scheme as the population ages?

As the government announces plans to raise the pension age for the first time since Richard Seddon passed old-age pensions in 1898, history curator Kirstie Ross questions whether New Zealand can afford to support its aging population based on historic practices and attitudes.

Historians agree that the 1898 law introducing old-age pensions was one of the major achievements of Prime Minister Richard Seddon (below) and his Liberal government. This law created the template for the state’s subsequent support of the elderly.

New Zealand Cities Wellington. Beehive, 1987, Wellington, by Brian Brake. Gift of Mr Raymond Wai-Man Lau, 2001. Te Papa (CT.031567)

New Zealand Cities Wellington. Beehive, 1987, Wellington, by Brian Brake. Gift of Mr Raymond Wai-Man Lau, 2001. Te Papa (CT.031567)

‘Resolving the tug-of-war’

But it has not been entirely static: changes to pension policy over the last 119 years have reflected the balancing and re-calibration of economic, political, moral, social, and demographic factors, as well as the interplay between perceptions, aspirations and realities.

And, as Margaret McClure observed in her history of social security (welfare) policy:

‘Resolving the tug-of-war between rival needs, and achieving a balance between compassion and caution, are likely to be as difficult in the next century as in the last.’ [1]

1898: The birth of the old-age pension

Late 19th century advocates of an old-age pension believed that it was necessary because:

‘fortune is so capricious, circumstances so various, family history is so extraordinary, [and] calamities sometimes come down up on people nobody knows how.’ [2]

This statement expresses a shift in thinking about who ought to be financially responsible for vulnerable sections of society, especially as New Zealand’s aged population grew.

It also acknowledged poverty in the new colony, and that existing means of support provided by families, communities and charitable organisations were insufficient to care for the respectable aged who had worked hard to settle New Zealand.

Slate, 1800s, by National School Slate Company. Gift of H. Wollerman, 1965. CC BY-NC-ND licence. Te Papa (GH002410)

Slate, 1800s, by National School Slate Company. Gift of H. Wollerman, 1965. CC BY-NC-ND licence. Te Papa (GH002410)

Pounds, shillings, and pence

The first pension payments (£18) were equal to about one third of a working man’s wage, and were paid to men and women. To qualify, pensioners had to prove they were 65 years old and had lived in New Zealand for at least 25 years.

A range of discretionary and character judgements also dictated eligibility. For example, a pension could be withheld if a pensioner was imprisoned, found drunk, or deserted a spouse and family.

A pension was adjusted according to the value of a recipient’s property and any annual income.

Māori were eligible but their communal ownership of land was often used to justify payments at a lower rate or not at all.

Carving, scene, circa 1905, Wellington, by William Gee. Gift of Mrs G. M. Williams, 1965. CC BY-NC-ND licence. Te Papa (GH007416)

Carving, scene, circa 1905, Wellington, by William Gee. Gift of Mrs G. M. Williams, 1965. CC BY-NC-ND licence. Te Papa (GH007416)

Chinese and other ‘Asiatics’ were ineligible for an old-age pension until 1936 even if, like William Gee (who carved the wooden scene above), they met the age and residency criteria.

Gee was born in 1844 and had arrived in New Zealand in 1868, so would have been eligible for a pension in 1909 had he been Pakeha or Māori.

1938: Social security

The next significant development in state old-age pensions occurred in 1938. Embarking on a second term in power that year, the Labour government led by Prime Minister Michael Joseph Savage (below) passed its far-reaching Social Security Act.

A response to the social and economic distress of the Great Depression, this act set up a version of social welfare that was in place for the next 50 years.

M J Savage's autograph, autograph album, 1930s, New Zealand, maker unknown, Benjamin Roberts. Gift of anonymous donors, 2007. Te Papa (GH011638)

M J Savage’s autograph, autograph album, 1930s, New Zealand, maker unknown, Benjamin Roberts. Gift of anonymous donors, 2007. Te Papa (GH011638)

In providing ‘cradle to grave’ social welfare, it provided a means-tested old-age pension for those aged 60 and over, and universal superannuation for all New Zealanders aged 65 years and over. This remained the status quo until the 1970s.

1977: Rob Muldoon: Super Star

However, the mode and level of state support for the elderly became a political hot potato after the Royal Commission of Inquiry into Social Security reported its findings in 1972. (The Commission had reviewed existing social security policy and whether or not it was meeting the needs of existing, as well as newer, categories of beneficiaries.)

The Labour and National political parties subsequently promoted a different model of support for the old.

The two rival approaches came to a head in an election promise made by the leader of the leader of the National Party opposition, Robert Muldoon, in 1975 (see below).

National Party leader Rob Muldoon at party conference. Dominion post (Newspaper) :Photographic negatives and prints of the Evening Post and Dominion newspapers. Ref: EP/1975/3056/5-F. Alexander Turnbull Library, Wellington, New Zealand. http://natlib.govt.nz/records/22898560

National Party leader Rob Muldoon at party conference. Dominion post (Newspaper) :Photographic negatives and prints of the Evening Post and Dominion newspapers. Ref: EP/1975/3056/5-F. Alexander Turnbull Library, Wellington, New Zealand. http://natlib.govt.nz/records/22898560

With very little consultation with party members or experts, Muldoon promised to replace the Labour government’s compulsory contributory superannuation scheme with an extremely generous one funded by taxes.

‘National Superannuation’, as it was known, was a universal pension paid to everyone aged 60 and over who had been resident in New Zealand for ten years. It was set at 80% of an average wage.

Recipients’ assets and incomes would not be assessed; in fact pensioners could still work if they wished. It’s not surprising that the National Party become the government in 1975, with commentators singling out the ‘super’ scheme as an irresistible bribe for voters.

Toby jug (Robert Muldoon), circa 1980, New Zealand, by Robert Wallace. Purchased 2012. Te Papa (GH023163)

Toby jug (Robert Muldoon), circa 1980, New Zealand, by Robert Wallace. Purchased 2012. Te Papa (GH023163)

But the cost of this promise proved to be enormous at a time when government’s cup did not runneth over. By 1978-1979, National Super was already costing the country 6.9% of its GDP.

There were also others, such as single parent families and the unemployed, competing for state financial support.

As Neo-Liberal economic policies came to dominate post-1984 governments and as the sizable cohort of ‘baby boomers’ (the post-WWII generation born between 1945 and 1965) edged closer and closer to their 60th birthdays, the task of reining in the cost of this support became more and more urgent.

In 1992, the age of superannuation eligibility was raised to 61, gradually increasing to 65 between 1993-2001.

2020: Predicting the future

However, the over age group 65 has nearly doubled since 1981. Based on figures from the 2013 Census, the expected number of this age group in 2038 is expected to be 1,285,000.

Conversely the proportion of those aged 15-64 is dropping. This has implications for tax revenue, how much and where future government’s focus their social policy spending.

Moreover, life expectancy is increasing. In fact, more than 10 percent of those born today can expect to celebrate a 100th birthday.

It’s no surprise really, that the National government has responded to this encroaching demographic and economic disaster by proposing to raise the age of eligibility for a pension, in 2020, from 65 to 67.

But it’s also no surprise that this proposal also challenges some long-held beliefs New Zealanders have about themselves and their country.

Sign, ’Polling Booth’, 1969, New Zealand, by Ministry of Justice. Gift of Chief Electoral Office, Ministry of Justice, 2007. CC BY-NC-ND licence. Te Papa (GH011741)

ign, ’Polling Booth’, 1969, New Zealand, by Ministry of Justice. Gift of Chief Electoral Office, Ministry of Justice, 2007. CC BY-NC-ND licence. Te Papa (GH011741)

Only time will tell whether this issue will affect voting in the 2017 election to the extent that it did in 1975. As Margaret McClure reminds us that:

‘Throughout social security [welfare] history the old have gained the most. The community has assumed that the old, more than any other group, suffer hardship, and are worthy, deserving people.’ [3]

But can this assumption about the deservedness of the elderly over and above others be sustained? Can the country afford to support its aging population according to historic practices and attitudes that are out of kilter with current and future needs?

References

[1] Margaret McClure, A Civilised Community: A History of Social Security in New Zealand 1898-1998, Auckland University Press, Auckland, 1998, p. 262.

[2] W. C. Walker, New Zealand Parliamentary Debates, vol.100, 1897, p. 698 cited in McClure, p. 16.

[3] McClure, p. 260.

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