New Zealand Superannuation​

New Zealand Superannuation is a Basic Income paid on request to New Zealand citizens aged over 65 years. 
 

When a Basic Income is introduced for people of working age, New Zealand Superannuation will remain unchanged. However, people who receive New Zealand Superannuation will not be eligible for the working-age Basic Income in addition to their Superannuation payments and those receiving a working-age Basic Income payment will not be eligible for Superannuation payments at the same time.

The retirement commissioner reported in January 2020 that there will be no need to increase the age of eligibility for New Zealand Superannuation before 2050 and that there may be no need to do so beyond that. He added that tax changes to improve the targeting of New Zealand Superannuation to those who are most in need will be preferable to increasing the age of eligibility. 

 

More details regarding suggested changes to New Zealand Superannuation are provided below.

What will happen to New Zealand Superannuation and Veteran's pensions?

 

New Zealand Superannuation and Veteran's pensions will be retained.
 
  • A Basic Income for people of working age will not replace New Zealand Superannuation (NZS).
     

  • New Zealand Superannuation is a very efficient Basic Income scheme with almost zero administration costs.
     

  • With the introduction of a Basic Income for those of working age, those over 65 will not be eligible for both the working-age Basic Income payment and the New Zealand Superannuation.​ 
     

  • New Zealand Superannuation (NZS) is a series of Basic Income payments available to those over 65 with different payment rates that include different rates for married (each), single (sharing), and single (living alone). 
     

  • The value of NZS payments is higher than that envisaged for a Basic Income payment for a person of working age.
     

  • New Zealand Superannuation is not compulsory. You must apply for NZS before you receive it. When you sign up for NZS it will replace your working-age Basic Income which will cease.

Suggested changes to NZ Superannuation.
 
  • The office of the Retirement Commissioner confirmed in January 2020 that New Zealand Superannuation is sustainable in the medium term (up to 30 years).
     

  • It has been suggested that a good way to ensure that NZS is sustainable in the longer term is to require that those who sign up for NZS payments must accept a uniform tax on all other income, as is proposed for Basic Income payments for those of working age. This will better target the payments to those with low incomes, lower the total cost of the NZ Superannuation scheme, and remove any perceived need to increase the age of eligibility.
     

  • Altering NZ Super to a basic income scheme with a 33% uniform tax will provide better targeting of NZS and could save 10% of the net cost from the upper end of the distribution while leaving the majority of recipients little affected. Read more.
     

  • The present NZS system tends to discriminate against those who have age-related poor health from their sixties and those who have short life expectancies.
     

    • Those with poor health in their 60s may be forced to retire early but they will not receive NZS until they are 65.

    • Those with short life expectancies will die earlier and consequently will not receive the same total NZS payments as a person a longer life. Those with higher incomes tend to live longer and will receive greater total NZS payments but have less need for the NZS income.

    • If a uniform tax is applied to people receiving NZS it will improve the targeting of the payments and lower the cost of the scheme making increasing the age of illegibility unnecessary.

    • Increasing the age of eligibility will exacerbate the problem of discrimination against those with poor health and short life expectancies.

    • As people of some ethnicities have shorter life expectancies and poor health from an earlier age, it has been suggested that raising the age of eligibility is racist. 
        

  • Another suggestion is that the number of different payment rates for NZS is reduced to simplify the scheme. For instance, paying the same rate for married (each) and single sharing will reduce the different rates from three to two.

    • At present, a couple may be in a relationship but claim that they are two single people sharing accommodation in order to claim higher payment rates. This is very difficult to police.
       

  • A further suggestion is that NZS be paid at a single individual Basic Income rate that is lower than all the existing NZ Superannuation rates, and that it be supplemented with a living allowance that varies with need: married, single, or sharing, to bring the total payment levels up to existing levels.
     

  • Another possibility is to pay those on NZ Superannuation the adult Basic Income rate with supplementary payments to bring the total payments they receive up to current superannuation rates, but it would be simpler to just pay them a higher superannuation rate. 

 

For further discussion on these issues see:

History of New Zealand Superannuation. 

 

  • New Zealand introduced a means-tested pension for those over 65 in 1898. 
     

  • The pension was funded from government revenue rather than individual contributions. 
     

  • The age of eligibility for the means-tested pension was lowered to 60 in 1938 and in the same year, New Zealand became the first country to introduce a non-contributory and non-means tested universal superannuation for those over 65.
     

  • The universal superannuation was of similar value to the pension but taxed.
     

  • With a progressive or graduated tax system, those with higher incomes received slightly smaller net incomes from the superannuation than those on lower incomes. 
     

  • The pension was retained for low-income people who were unable to work beyond 60 due to their deteriorating physical condition. 
     

  • In 1977, superannuation payments were increased in value, the age of eligibility was lowered to 60, and the means-tested pension was abolished. 
     

  • Between 1992 and 2001 the age of eligibility for superannuation was progressively lifted to 65.

  • From 1938, apart from a period between 1985 and 1998 when superannuation was means-tested, New Zealand Superannuation has remained non-contributory and non-means tested.

Why do some suggest that the age of eligibility must be raised?

There are a number of reasons for this: 
 

  • Many people are simply repeating the myth that NZS can not be sustained that they have heard and believed.
     

  • Others have based their reasoning on an understanding that the average age of the population is rising and that a smaller portion of working-age persons must pay tax to provide money to pay NZS to a greater proportion of people of retirement age.
     

  • Others have a financial interest in private saving or superannuation schemes such as the government subsidised Kiwi Saver. They, therefore, see it, consciously or non-consciously, as in their personal interest to spread an understanding that NZS will not last into the future in order to promote their own schemes. This leads to fear or apprehension leading people to put more money into private schemes.
     

  • People who have a financial interest in doing so, or people with a belief that private business is always better than government-owned business, will often promote a private scheme over a government scheme and will seek to discredit a government scheme or spread the myth that it is not sustainable whenever possible. All such advice needs to be received with caution.
     

  • For the arguments of the Retirement Commissioner on the sustainability of New Zealand Superannuation see below.

 

Report of the Office of the Retirement Commissioner.

In the 2019 Report of the Office of the Retirement Commissioner, released in January 2020, the retirement commissioner argued as follows:

I do want to set out upfront my overarching view that NZS is delivering good value for New Zealanders under current settings, and moreover will be needed by more New Zealanders in coming years. 

I, therefore, do not think that the best step to ensure the sustainability of NZS is to focus at this point on raising the age of eligibility, or that taking this step would necessarily achieve the intended outcomes, or at least without putting significant costs elsewhere on the system. I am very aware that in suggesting that the age of eligibility may not be the priority right now, I am putting forward a more nuanced point of view from my immediate predecessors. The economic context changes over time – from Treasury’s most recent publicly available projections, NZS looks affordable on current settings for the medium term, even though it did not necessarily look so in earlier years. The outcomes we wish to achieve through policy interventions also need to reflect the priorities of the times. The Government’s focus on applying a wellbeing lens is particularly relevant for retirement outcomes for New Zealanders, and means that fiscal sustainability needs to be considered within a broader view as to what NZS delivers. I wish to stress again though, that even from a fiscal responsibility perspective, NZS is sustainable. From the latest data and projections we have from the Treasury, NZS will cost under 7% (net) of national GDP by 2060. This is a significant rise in proportional cost, from 4.8% today, but is still well under what some other OECD countries already spend on pensions and yet find manageable because of a mix of pre-retirement policy settings, tax settings, private savings and investments, and government-supported pensions offsetting other costs on the taxpayer.

And of course, there is the significant offsetting of the cost of NZS already, from the tax paid by NZ Superannuitants on their NZS and all other income, as well as their contribution through expenditure to the local and national economies. NZS also enables many NZ Superannuitants to undertake unpaid, voluntary work in their community. This is a huge contribution relied on in many communities and which should be accounted for in considering the costs and benefits of NZS.

Therefore instead of repeating the call from the last two reviews to lift the age of eligibility as the priority action resulting from this review, I instead recommend a more deliberate focus across the Government’s major pre-retirement policy areas as the priority near-term action by the Government. This is to ensure all New Zealanders
have the best opportunity to prepare for retirement.

Summary of Recommendations.
 

Value and ensure the ongoing provision of NZ Superannuation at its current settings.

We believe it is clear from the evidence that NZ Super (NZS) is working effectively to support New Zealanders in maintaining a foundational standard of living, is affordable in the medium term and should be secured for future generations.

  • We estimate that 15-20% of those retiring experience significant levels of material deprivation prior to receiving NZS. NZS helps to improve their material standards of living, and also their mental and social wellbeing. NZS is, in ​
    effect, the backstop intervention that addresses inequalities experienced and accumulated during New Zealanders’ lives. We should recognise and celebrate the very significant and positive impact of NZS, particularly for vulnerable New Zealanders.

     

  • We are concerned that the percentage of New Zealanders who are vulnerable to poorer outcomes in their future retirement is growing. The profile of today’s NZ Superannuitants should not be assumed to set the template for how future retirees will look even in the near term.
     

  • We, therefore, do not think that the best step in terms of addressing vulnerability and improving retirement outcomes for more New Zealanders is to focus at this point in time on raising the age of eligibility, nor that taking this step would necessarily achieve the intended outcomes or at least not without putting significant costs elsewhere on the system.
     

  • In addition, we believe raising the age of eligibility in the next two to three decades could significantly risk heightening equity issues for those groups of New Zealanders whose lower life expectancies mean they are not able to enjoy the benefits NZS delivers for comparable periods for New Zealanders generally. This includes Māori and Pacific New Zealanders, for whom life expectancy rates are still significantly lower than the national average. While, from current demographic trends, rates for both look likely to gradually catch up over the coming twenty years, we believe that it would not be consistent with the Treaty and general principles of equity and fairness, nor fair or efficient by other measures, to raise the age of eligibility for NZS just as more Māori and Pacific New Zealanders start to be able to access and benefit from it for longer periods.
     

  • The focus in the near to medium terms should first be on lifting retirement outcomes through improved impact from the pre-retirement system, and particularly through ensuring adequate employment and incomes to enable savings and asset accumulation, and housing support that CFFC 2019 Review of Retirement Income Policies 5 SUMMARY OF RECOMMENDATIONS provides New Zealanders with options for where they live throughout their lives.
     

  • While expensive, NZS delivers good value for money, is affordable on current settings and projections at least for the medium term (through to mid-century), and should be secured for future generations. The Government should make clear that NZS is valued and will be protected to continue to provide for New Zealanders in future, on current settings.
     

  • We state this as it was apparent from submissions and focus groups that younger New Zealanders, as well as their parents and grandparents, are feeling very concerned that NZS will not be made available to future retirees, or at adequate levels. We received a lot of comments to the effect that ‘NZS won’t be there for us’.
     

  • This uncertainty is causing unnecessary stress, and we think should be put to bed so New Zealanders can have certainty that NZS will provide a stable level of state support for them to plan around. It is enough for younger New Zealanders to have to worry about where they will live and how they will earn enough to support their and their families’ current and future wellbeing, without having to face additional uncertainty as to whether they will lose an 
    effective government backstop. 
     

  • If the Government does not agree with this assessment as to affordability of NZS in the medium term, then there are other options that should be considered as well as changes to the age of eligibility. These include changing tax rates for all or some New Zealanders, for example to claw back more NZS from wealthier recipients, length of residency for eligibility, international pension agreements, and exploring options to develop innovation leading to economic growth from the increase in longevity. 
     

  • In the meantime, a purpose statement for New Zealand’s retirement income system should be developed, so that we all have certainty as to what the system is aimed at achieving, and who within government is responsible for each part of it, as well as for the whole.

Revised 9 March 2020

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