We should deal with some facts. Currently we have 13,000 people retiring each year. That number stays constant out to the end of the century, notwithstanding an aging population.

The reason for this is that politicians shifted the age of retirement from 60 to 65 to save money. That political expedience comes to an end in 2001 when the number retiring abruptly doubles to 27,000. The number retiring each and every year then steadily increases to 43,000 in 2013 (four times the level of today).

While it's true there are a number each year leaving retirement, they are not doing so as quickly as those coming in at the other end joining retirement.

We go from half-a-million retirees to double that in 2035. All these people are alive now. The number in the workforce is harder to forecast (but no-one's predicting it will keep pace with the numbers retired, i.e. double). The Department of Statistics forecast is for a 25 per cent increase over the period.

The cost of looking after the elderly is not just the pension. A huge part of the cost of an aging population is health care.

Fully 42 per cent of the government's health budget is spent on the over 65s. The average cost for health care for someone under 65 is under $860 per year For someone over 65 it's $4,600, i.e. over five times as much.

The total cost of caring for the elderly is now $7.2 billion a year. This is made up of $5 billion in pensions and $2.4 billion in health care. To put this in perspective, the total unemployment benefit expenditure is only $1.3 billion.

The total personal income tax take in New Zealand this year will be around $15.5 billion: nearly half is entirely consumed by the elderly. This fact is not generally recognised.

Put another way, workers pay on average $4,500 to support their parents' generation.

It's for this reason we have no ability to save for our own retirement. This leaves us very vulnerable: when we retire it's going to be harder to sustain our standard of living.

The pay-as-you-go scheme robs present workers not just of the money that goes across to the retired. It also robs us of the interest we could otherwise earn. This proves to be rather a large sum when considered over a person's working life.

For example, $4,500 stashed at age 18 into an account earning five percent real becomes $46,900 at age 65. Over the 47 years the sum is magnified tenfold by the power of compound interest. The 18-year-old worker under the present scheme loses not just the $4,500 but also the $42,000 he would have earned in interest.

He loses this interest every year of his entire working life. The loss is truly astounding. $4,500 each year for 47 years sums to $211,500 but this is just the start. The interest on the amount at 5 per cent is over $638,000 i.e. three times what he puts in. The total fund that the worker would have if he could save it himself would be over $850,000.

What this means in practical terms is that the pay-as-you-go scheme wastes three dollars in every four.

Workers can provide a far better pension and health care for themselves by saving just $1,000 a year instead of giving $4,500+ to the government every year in order to end up as a welfare beneficiary in retirement.

The problem with the pay-as-you-go, hand to mouth scheme is that it is economically unsustainable, politically divisive and removes all dignity in retirement - and it creates the problem of foreign ownership.

Business to expand requires capital to buy machines and factories. Capital is nothing but people's savings.

In the absence of New Zealanders having the ability to save (because of high taxes) or the incentive to save (because of the surcharge and asset testing), the savings of foreigners have to be accessed.

We need savings to grow. If New Zealanders don't have them then we must borrow the savings of foreigners and sell assets and businesses to them. The alternative is to go without foreign savings and hence constrain economic expansion and jobs.

The present scheme will mean New Zealand assets will be increasingly used to pay for the pensions of foreigners who were able to save over their working lives.

Put bluntly. New Zealand assets will be taxed to support our elderly while the profits will be used to support the elderly in Japan.

Under NZ super the old political fault-lines will change dramatically. The true political division is not between left and right, rich and poor, town or country, Maori or Pakeha, the true division is between the young and the old.

Already we have 500,000 retired people, the vast bulk utterly reliant on the State for their pension and health care. Under MMP, 500,000 votes represent thirty seats in Parliament.

We have another 350,000 over fifty but not yet retired and they are agitated about their security in retirement. They represent another twenty seats.

That makes fifty seats for Grey Power and seventy seats for those upon whom the burden will fall.

Each year the balance swings further in favour of Grey Power. Early next century Grey Power and the young will have 60 seats apiece.