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New Zealand Superannuation​

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New Zealand Superannuation is a Basic Income paid on request to New Zealand citizens and permanent residents aged over 65 years. It is a non-contributory and non-means-tested payment that is paid to New Zealand citizens or permanent residents aged over 65 on an equal basis provided that they reside in New Zealand.

 

First introduced in 1938, New Zealand Superannuation may be the world's longest-running and most successful Basic Income trial. 

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New Zealand Superannuation has largely eliminated poverty amongst those aged 65 and over in New Zealand.


As the qualifying requirements are limited to age and New Zealand residency the administrational costs for New Zealand Superannuation are very small. 
 

When a Basic Income is introduced for people of working age, New Zealand Superannuation and Kiwi Saver 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 New Zealand Superannuation payments at the same time.

The retirement commissioner reported in January 2020 that there is 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 are preferable to increasing the age of eligibility. 

 

More details regarding some suggested changes to New Zealand Superannuation and the findings of the retirement commissioner are provided below.

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On this Page

 

  • New Zealand Superannuation and Kiwi Saver

  • What will happen to New Zealand Superannuation and Veteran's pensions and Kiwi Saver when a Basic Income is introduced for working-age people?

  • Suggested changes to New Zealand Superannuation

  • History of New Zealand Superannuation

  • How is New Zealand Superannuation funded?

  • Lifting the age of eligibility is not necessary

  • Report of the Office of the Retirement Commissioner

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New Zealand Superannuation and Kiwi Saver

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  • New Zealand Superannuation and Kiwi Saver should be seen as complementary schemes rather than as alternatives.
     

    • ​Introduced in 1938, New Zealand Superannuation is a government scheme that provides a Basic Income for all those aged over 65. It is non-contributory and non-means-tested.

    • Introduced in 2007, Kiwi Saver schemes are government subsidised but privately operated contributary saving schemes that enable working-age people to save money for a deposit on a first home or for retirement.

      • Money invested in a Kiwi Saver fund can only be withdrawn for a first home or after the age of 65.

      • Kiwi Saver was introduced to enable people to save money for a house deposit or to give them additional income in retirement. 
         

  • While New Zealand Superannuation treats everybody equally, Kiwi Saver favours those who have work and those on higher incomes as they are able to make larger contributions during their working life.
     

    • New Zealand Superannuation treats everyone equally and has an equalising impact on incomes, while Kiwi Saver, in contrast, perpetuates income differences into retirement age. 

    • Some people, such as those with physical or mental disabilities, those who cannot work or are unable to find employment, caregivers such as stay home parents and those caring for family members including the elderly, and others who are unable to earn an income or make Kiwi Saver contributions, will not benefit from a Kiwi Saver scheme when they retire so are entirely reliant on New Zealand Superannuation in their later years. 
       

  • ​Because some people are unable to contribute to a Kiwi Saver scheme, it is absolutely imperative that Kiwi Saver is not portrayed as a replacement for New Zealand Superannuation but as a complementary scheme that enables some people to enhance their incomes in retirement. 

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What will happen to New Zealand Superannuation and Veteran's pensions and Kiwi Saver when a Basic Income is introduced for working-age people?

 

New Zealand Superannuation and Veteran's pensions and Kiwi Saver schemes will be retained.
 

  • A Basic Income for people of working age will not replace New Zealand Superannuation or Kiwi Saver schemes.
     

  • 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 at the same time.​ 
     

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

  • The value of New Zealand Superannuation 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 New Zealand Superannuation before you receive it. When you sign up for NZ Superannuation it will replace your working-age Basic Income which will cease.
     

  • Basic Income New Zealand does not support any proposal to reduce New Zealand Superannuation payment rates to the same level as adult Basic Income rates if the adult Basic Income rate is less than the New Zealand superannuation rate.
     

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Suggested changes to New Zealand Superannuation

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  • 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 New Zealand Superannuation is sustainable in the longer term is to require those who sign up for NZ Superannuation payments to accept a proportional or uniform tax on all other income, as is proposed for Basic Income payments for those of working age.
     

    • A proportional tax is a tax that charges taxation in direct proportion to the sum earned at a uniform rate.  Consequently, if your income doubles your tax doubles. 

    • This will better target NZ Superannuation 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.

    • Improving the targeting of the income to those on lower incomes ensures a higher velocity of money and consequently, a higher tax income for the government. This gives the government greater disposable income. 

    • Paying everyone the same fixed amount and then taxing everyone at the same proportional rate is a much fairer system. The present system of paying NZ Superannuation in conjunction with a progressive tax unduly rewards the wealthy.
       

  • Altering New Zealand Superannuation to a basic income scheme with a proportional tax charged at a uniform rate, say 33%, will provide better targeting of NZ Superannuation and could save 10% of the net cost from the upper end of the distribution while leaving the majority of recipients little affected. To read more detail click here.
     

  • At present, the New Zealand Superannuation system discriminates against those with age-related poor health. Health deteriorates with age, but for some, it happens earlier, and some people have shorter life expectancies.
     

    • Those with poor health in their 60s and forced to retire early do not receive New Zealand Superannuation until they are 65. This means that they must rely on other means-tested benefits.

    • Those with short life expectancies die earlier and consequently receive fewer total NZ Superannuation payments over their life time than a person with a longer life expectancy.

    • ​Those with higher incomes are known to live longer on average so they will receive more NZ Superannuation payments during their lifetime.
      • Because people who have had high incomes during their working life are also more likely to have other income sources such as Kiwi Saver, various superannuation plans, and other investments, they have less need of income from NZ Superannuation.

    • If a proportional or uniform tax is applied to people receiving NZ Superannuation on their other income it will improve the targeting of the payments and lower the overall cost of the scheme making increasing the age of eligibility unnecessary.

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

    • As people of some ethnicities have shorter life expectancies on average and develop poor health from an earlier age, advocacy for raising the age of eligibility is often seen as racist. 
       

  • Another proposal is to reduce the number of different payment rates for NZ Superannuation 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 enforce.

    • The reduced rate for those in a relationship is an unnecessary disincentive for people forming a relationship and sharing accommodation.

    • Basic Income advocates usually agree that a Basic Income can be varied with age but not on other grounds.

    • Variations in a Basic Income or New Zealand Superannuation on marital status may be a breach of basic Human Rights.
       

  • A further suggestion is that NZ Superannuation is paid at a single individual Basic Income rate for all superannuitants that is lower than all the existing NZ Superannuation rates, and supplement the payments with a living allowance that varies with need: married, single, or sharing, to bring the total payment levels up to existing levels. However, this is not recommended as it is far simpler and less costly to just combine the payments and make a single superannuation payment as is done at present.
     

  • It is also suggested that people on NZ Superannuation be paid a basic rate and an accommodation supplement that varies with area as is done with Job Seeker Support payments. This is not recommended as it will complicate the system and require additional monitoring.

    • Using a uniform rate, as is done at present, has the advantage of encouraging people to move out of the most expensive areas, such as the major city centres, when they retire to regional centres. This movement boosts regional development and helps reduce housing shortages and accomodation costs in major cities. 
       

  • Another suggestion is to pay those on NZ Superannuation the adult Basic Income rate and from age 65 pay additional supplementary superannuation payments to bring the total payments they receive up to the current superannuation level. Again, it is simpler to just pay people over 65 the higher superannuation rates they receive at present and stop paying them the adult Basic Income rate. 

 

For further discussion on these issues see:

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History of New Zealand Superannuation. 

 

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

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

  • A 1938 act lowered the age of eligibility for the means-tested pension to 60 and made New Zealand the first country to introduce a non-contributory and non-means-tested universal superannuation for those over 65. The first New Zealand Superannuation payments were made in 1940.
     

  • The universal superannuation was taxable and when fully implemented gave the same net value, after-tax value, as the pension.
     

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

  • The means-tested 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. With the changes, the name of the universal scheme was changed from Universal Superannuation to National Superannuation.
     

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

  • In 1993 the name of the scheme was changed from National Superannuation to New Zealand Superannuation.
     

  • In 2001 the New Zealand Super Fund ( https://www.nzsuperfund.nz/ ) was established to help meet future NZ Superannuation payments.
     

  • From 1938, apart from the period between 1985 and 1998 when a surcharge was applied to additional income, New Zealand Superannuation has remained unchanged as a non-contributory and non-means-tested universal payment.

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How is New Zealand Superannuation funded?

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New Zealand Superannuation is paid directly from government funds.
 

  • During their lifetime people do not make specific contributions to a New Zealand Superannuation fund.
     

  • People will however pay income taxes that help fund the New Zealand Superannuation Fund and also help pay for others' superannuation. 
     

  • People pay tax with the expectation that having helped fund the superannuation of others, they will receive superannuation when they reach the age of eligibility.
     

  • The government also operates the New Zealand superannuation fund which receives funding from the government. This fund invests money in New Zealand and internationally and the dividends received are used to part-fund New Zealand superannuation, reducing the direct burden on taxpayers.
     

  • Money paid out as superannuation payments will circulate in the economy and generate tax revenue for the government that can be used to fund future superannuation payments.

    • When a superannuitant receives superannuation payments they spend the money received and the government collects GST on the money as it is spent. Money spent in a supermarket or other business generates business which creates employment and the government collects income and profit tax. Estimates are that the government will collect between 25% and 30% of the money back in the first round of expenditure.

    • The money that remains in circulation after the government collects tax from the first round of expenditure is paid to people as wages or salaries and profits are paid out as dividends or reinvested. The people who receive this money will spend it in the second round of expenditure and when they do the government will again collect between 25% and 30% of that money in taxes.

    • The money that remains after the second round continues to circulate and each time it circulates the government collects back a similar portion in tax. Eventually, the government will have collected almost all the money back.

    • As the money comes back to the government, the government pays it out again as part of the next superannuation payment. As a consequence, after an initial short period, NZ Superannuation becomes largely self-funding. The tax that is generated from the superannuation payments will eventually become very close to the value of the payments and any additional money required for the scheme is minimal.

    • This means that the government needs only to find the money to start the scheme.

    • For each additional person who becomes eligible for New Zealand Superannuation, funding equivalent to about three years of payments is required. This funding is spread over the first ten years. After that time their superannuation is more than 99.9% self-funding. 

    • The time required for superannuation to become self-funding and the amount of money required before superannuation becomes self-funding depends on how fast money is circulating. The speed of circulation is known as the velocity of money. If the velocity of money increases, both the amount required to make superannuation 99.9% self-funding and the time required to achieve this will reduce.

    • Targeting money toward those on lower incomes by linking superannuation payments to a uniform or proportional tax, or a suitable two stage tax will give ensure that the velocity of money is enhanced.
       

  • This means that for each additional person receiving New Zealand Superannuation, the government only needs to find funding for the first three years with this funding requirement spread over ten years.
     

  • The New Zealand Superannuation fund may have sufficient funds to meet this funding requirement.
     

  • If the population is stabilised so that there is no population growth, there will be no additional people in the scheme each year and the extra funding needed will be zero and New Zealand Superannuation will be entirely self-funding.
     

  • Because New Zealand Superannuation has been in existence since 1938 it is now largely self-funding and the only funding needed is to meet population growth and minimal administration costs.

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Lifting the age of eligibility is not necessary

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Understanding how a Basic Income is funded indicates that it can be sustained indefinitely without lifting the age of eligibility or introducing any form of means-testing.

 

Lifting the age of eligibility is also an unpopular option. The Retirement Commission reports in 2023 that a University of Otago study found that: Raising the age of eligibility to 67 was ranked by 61% of respondents as the worst policy (of the seven options), making it the option ranked worst by the largest number of people. The unpopularity of this policy has increased relative to 2014.

If lifting the age of eligibility is not necessary, why do some suggest that it is?

 

There are a number of reasons for this: 
 

  • Many people are simply repeating the myth they have heard and believed that NZ Super can not be sustained. They have not done the sums themselves or understood exactly how the system works.
     

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

    • This is unduly simplistic. People who believe this generally believe that saving a dollar on superannuation expenditure will free up a dollar to allow for tax cuts or for expenditure on other worthwhile activities. This is wrong - it is not as simple as that.

    • Cutting expenditure on New Zealand Superannuation will reduce the incomes of those eligible for superannuation and consequently reduce their expenditure and reduce tax revenue from GST. It will also reduce employment generated by their expenditure, reduce employment and the resulting income taxes, reduce profits and profit taxes, and reduce taxes on dividends. The economy will contract. 

    • If superannuation expenditure is reduced by a dollar, tax revenue will also fall by a similar amount, so there is no free money to spend elsewhere and no free money to allow tax cuts.

    • Reducing superannuation expenditure by raising the age of eligibility will reduce employment, reduce business activity and profits, and inevitably move some people over 65 into poverty while increasing the wealth difference between rich and poor.​

    • In contrast, reducing superannuation expenditure by introducing a proportional tax on other income to better target the net superannuation expenditure to those with the lowest levels of additional income will maintain employment and business profitability, help keep those over 65 out of poverty, counter growing wealth inequality, and enhance the velocity of money and government tax revenues.  
       

  • Many who promote superannuation cuts have a financial interest in private savings or retirement schemes such as the government subsidised Kiwi Saver. Consequently, it is in their personal financial interest to promote fear that NZ Super will not last into the future in order to promote investment in their own schemes. This may be done consciously and deliberately or unconsciously. Some promoters of alternative schemes may well believe the propaganda that New Zealand Super will fail without understanding the economics, checking it for themselves, or thinking it through correctly.
     

  • 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 private saving schemes over government schemes and will seek to discredit a government scheme or spread the myth that it is not sustainable whenever or wherever possible. All such advice needs to be received with a significant degree of caution.
     

  • The retirement commission has provided a list of myths promoted by poorly informed and unscrupulous politicians, kiwisaver salesmen, and others. This includes the myth that raising the age of eligibility will be nessesary.
    See:     An introduction to New Zealand Superannuation, POLICY PAPERS 2021 | 03, page 2. 
     

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

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Report of the Office of the Retirement Commissioner.

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

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I do want to set out upfront my overarching view that New Zealand Superannuation (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.

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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.

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  • 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 the 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 the government is responsible for each part of it, as well as for the whole.​

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The latest information from the retirement commissioner is available here. 

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See also our page on the NZ election 2013 for the policies of political parties on New Zealand Sperannuation. 

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Revised 11 April 2020, 3 Sep 2021. 16-18 May 2022, 11 Oct 2023

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