Can saving more save us in light of the demographic realities?  New Zealand is rapidly moving to a much higher dependency ratio as the baby boom generation reach retirement age. Improving longevity is accompanied by a loss of younger workers to Australia  and serious population imbalance in the regions. The future demographic picture has activated a new interest in theoretical models that appear to prove that Save As You Go (SAYG) retirement schemes are inherently superior to Pay As You Go (PAYG) schemes and may even solve the demographic problem. In recent years in New Zealand, several theoretical papers have been written that are influential in policy debates. Such papers often point to Australia or Chile as proof of the desirability of a more SAYG approach than is current in New Zealand where there has been a strong reliance on PAYG state pensions. This paper explores the theoretical nature of such enquires, their lack of gender analysis, the lack of a macroeconomic framework, their strong implicit equity assumptions, and the influence of the financial services industry. The central question to answer is whether they have any potential for informing policy reform in New Zealand in positive directions and whether they are a distraction from the task of investing for the economic reality of the ageing population.

Associate Professor Susan St John is the Co-director of the Retirement Policy and Research Centre at the University of Auckland Business School. Her interests are in intergenerational aspects of demographic ageing, family economics and child poverty, social insurance, Accident compensation and tax policy. She is a contributor to Treasury external panels on Long-term fiscal projections and tax reform. Her web page is here.