The cost of transition

In an article on the Herald Brian Fallow, with the aid of Andrew Coleman, takes on the unaffordable nature of superannuation at present.

Essentially the argument boils down to two points:

  1. The implied transfer from future generations to current generations is equitable given fair assumptions of technological and population growth.
  2. A save as you go system would be a more efficient way of ensuring that the elderly save the required amount.

If they are saying these things I’ll believe them – especially given the underlying truth that changing population demographics will place a lot of strain on the country given the way institutions are currently structured.

However, there was one thing I felt was underplayed in the article – the transitional costs of changing from a pay-as-you-go system to a save as you go one.

The reason I bring this up is that Gen X and Gen Y have been paying for the generation above them – and in this way they will then have to start paying for themselves without any support from the generation below them.  That implies that a “sudden shift” is equivalent to stating that we think it is fair for a very specific generation to bear the cost of retirement for a much larger group.

No matter what we do with superannuation, someone will have to bear the burden of the shift.  Framing it in those terms, and deciding what we think is equitable as a society, will be an important step when figuring out how to move forward.

  • Hutchison

    It’s true what you say Matt, and Andrew Coleman’s figures show that the transition takes decades. 

    But I think the case can be made that this generation is uniquely well placed to be able to take on the double burden, because they are a generation that is supporting proportionally fewer older people (in terms of number of pensioners/number of workers) than future generations will do. 

    • Andrew kindly sent through his paper – I will have a look over it on the weekend and see if I can blog on it 😉