The Baby Boomer Crisis

As the bulk of Baby Boomers move into retirement, there could be vast social changes in store. Diana Clement looks at what this means to New Zealand.

Baby Boomers are set to change the face of our economy and society as we know it – and the news isn’t good.

Statistics New Zealand estimates that the 65-plus population is already at 746,500, or 15 per cent of our population. That’s expected to grow to 1,340,000, or 21 per cent of the population, by 2028.

With people living longer, we could soon have three generations of one family in retirement all at the same time: at 65, 85 and 105.

It’s a gigantic problem, says economist Cameron Bagrie.

“Steven Joyce’s NZ$11.7 billion fiscal hole is small change compared to the fiscal hole we face from the impact of an ageing population,” says Bagrie.

It’s not just ballooning bills for NZ Superannuation and healthcare that are the problem, he says.

Housing and wealth will also feel the impact.

The irony, says Bagrie, is that government policy views many issues, such as the environment, sustainability, and housing affordability from an inter-generational perspective, but not the ageing population.

Without some levers being pulled, such as increasing the retirement age or hiking tax rates, we face being NZ$2 trillion in debt by 2055, he says.

There are more of us to support

This swelling retired population brings into focus what’s known as ‘the dependency ratio’, says Peter Cordtz, acting Retirement Commissioner. That’s how many workers we have for every person not in the workforce, most of them retirees.

Now the ratio is around 4.4 to 1, so there are 4.4 people working for every retiree. By 2058, the dependency ratio is predicted to be just 2.8 to 1.

Claire Dale, research fellow at the University of Auckland’s Retirement Policy and Research Centre, says this dramatic change in the dependency ratio means NZ Super and health costs will be unsustainable under New Zealand’s current pay-as-you-go funding system.

“We have to change the system, and older people have to share more of their costs,” she says.

NZ Super costs NZ$30 million a day now, says Cordtz. In 20 years, that’s predicted to triple to nearly NZ$100 million a day.

There are some positives. More people in their 50s and 60s are likely to keep working, which will boost the tax take. From 2035-36, the government will start withdrawing money from the NZ Super Fund to help pay for New Zealand Superannuation.

But the cost of the boomer bulge is much larger than both of these.

Will healthcare be rationed?

To keep Baby Boomers healthy, more and more money is being spent on cholesterol medication, blood pressure pills, knee and hip replacements, cataract operations, and more.

On the positive side, medical advancements mean conditions that previous shortened life or reduced mobility may be better controlled.

Work until you drop

As more Boomers need or want to work beyond 65, they’ll likely start competing for jobs with other generations. Cordtz doesn’t see that as a problem though.

He says: “Contrary to the ‘lump of labour fallacy’ that older workers take jobs from younger people, retaining older employees feeds economic growth and creates more jobs for everyone.

“There are significant economic gains to be made in the additional tax that people working longer will pay, the more they are able to spend in the economy, and their reduced reliance on government support.

“Then there is the sheer experience that older workers bring to the table.”

In an Ageing Workforce Business survey conducted by the Commission for Financial Capability in May 2018, more than 80 per cent of respondents didn’t have specific strategies or policies relating to workers aged 50-plus.

With ageism rife in many workplaces and false myths abounding, many older workers may be locked out of the workforce, even though they feed economic growth.

Where to house them all

Housing is also set to become an issue. Swathes of Baby Boomers will downsize, which property pundits predict may result in a glut and relative fall in prices for bigger, traditional family homes.

It’s quite likely that desirable homes for downsizers will rise in relative value, says James Wilson, director valuation and innovation at Valocity.

Already in Auckland, for example, desirable apartments are selling for NZ$1 million or more, reducing the gap between the sale price of a family home and a smaller replacement. And there could still be a mortgage to pay off.

Dale says apartments and retirement villages are great in theory. But body corporate levies and village fees mean owner-occupiers need more money than NZ Super to afford to live there.

Retirement villages boom

Demand is set to grow for retirement villages. Today around 13 per cent of the country’s over-75s live in retirement villages, says the Retirement Villages Association (RVA).

The industry expects it will have to build 1,800 to 2,500 additional units every year for the next 26 years to meet future demand.

John Collyns, executive director of the RVA, believes village living will become more mainstream.

He expects villages will evolve into high-rises and urban villages. Baby Boomers often demand more than their stoic, non-complaining parents, says Collyns.

At the other end of the wealth divide, there could be pressure on social housing, subsidised rentals and boarding houses, says Dale.

We could see more elder poverty, she says. It’s a scary and growing problem.

Of particular concern are women over 65. Their KiwiSaver pots are often smaller than men’s because they generally earn less. Taking time out from work for family reasons can also affect their balance. 

“Without carefully considered changes, the future is bleak for all generations,” says Dale.

Lawmakers have a limited window of opportunity to make changes, in the hope of reducing some of the negative impacts that could come our way.

Published 26 May 2019

This article does not contain any financial advice and has not taken into account any particular person’s circumstances. Before relying on it, we recommend you speak with a financial adviser.  This story reflects the views of the contributor only. Content comes from sources that we consider are accurate, but we do not guarantee that the content is accurate.


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