How big will my pension be?

The following extremely simple table is taken from Library of Economics and Liberty, and shows the projected aging of the US population out to 2030 in the context of the US healthcare debate. Numbers are in millions.



Data drawn from US Census bureau, which happens to store international data as well.

My first thought was “impressive dataset, I do like data”. My second thought was “how does New Zealand compare, extrapolated out to 2040, and how will this affect my pension”?



This projected rise in >64 population from 552k in 2010 to 1.1m in 2040 is an increase of over 105%. This level of retiree growth in itself is not necessarily a concern, as New Zealand is incredibly sparsely populated and might be able to handle a doubled population. However this 105% growth in retirees is not matched by a rise in working age population – the 20-64 population only rises by 13% over the same period.

To put it another way: in 2010 there are 23 retirees (age >64) for each 100 workers (age 20-64). By 2040, this ratio has near-doubled to 43 retirees for each 100 workers.

Either
a) taxes on a relatively dwindling number of workers must increase to maintain pensions at historic levels, or
b) pensions must be slashed. The first of these is less politically workable, so slashing of pensions it is.
As at 2010 the NZ state pension for a married couple (my personal circumstances in 2040 all going to plan, logic holds for individual pensions) is NZD360 per week after tax in 2010 dollars.
If we assume the ratios above of 23/100 retirees/workers in 2010 sliding to 43/100 in 2040 prove accurate, and that tax rates on workers are held constant, and that any other factors are held constant, then in 2040 the state pension for a married couple must fall to NZD190 per week after tax in 2010 dollars (360 x 23/43).

Why 2040? I will be 62, so theoretically nearing retirement age. Welcome to the jungle…

Caveats of the above:
Yes I know 65 is potentially low as a retirement age, due to rising life expectancy. However projected (male and female combined) life expectancy only rises from 80.5 years in 2010 to 83.0 years in 2040, so this impact here is minor. Interestingly female life expectancy growth continues to outpace male life expectancy growth, so by 2040 females’ life expectancy of 85.7 years will be 5 years higher than males. Bring on the panthers.
Yes I know 20-64 is an arbitrary span for workers, due to university students etc not entering the labour force until their mid-twenties.