'NZ can afford to keep the age of entitlement for Super at 65' - Retirement Commissioner

Investing

Commission for Financial Capability stops lobbying the government to raise the age of entitlement for NZ Super, saying keeping the age at 65 won't be as costly as previously thought

29th Jan 20, 6:20am by Jenée Tibshraeny

The Commission for Financial Capability (CFFC) has changed its tune, and is no longer calling for the age of eligibility for New Zealand Superannuation (NZS) to be raised from 65 to 67.

It says that while New Zealand’s ageing population will become increasingly costly, NZS looks affordable on current settings for the next few decades.

The independent government-funded organisation made the call in its three-yearly Review of Retirement Income Policies published on Wednesday.

It said latest Treasury projections show the cost of NZS is expected to be lower than previously thought.

According to Treasury modelling done in 2016, the net cost of NZS as a portion of gross domestic product (GDP) was expected to hit 7.1% by 2060. However modelling done in 2019, put this figure at 6.6%. Treasury expects the net cost of NZS to be the equivalent of 4.10% of GDP in 2020.

The CFFC said it was important to look at the net, rather than the gross cost, which is more commonly used. In other words, subtract tax paid by NZS recipients from the total cost of NZS to the Crown.

In the year to June 2019, the gross cost of NZS was $14.6 billion (4.9% of GDP).

The CFFC said other OECD countries are getting by spending much higher portions of their GDP on pensions than New Zealand is.

However the former Retirement Commissioner, Diane Maxwell, in 2016 told interest.co.nz these countries have had to rush through reforms to cover the costs. At the time, she said 18 OECD countries had raised the age of eligibility, so New Zealand should get prepared by doing so incrementally.

Her predecessor, Diana Crossan, had lobbied the government to do the same thing.

Prime Minister Jacinda Ardern has said she would resign before raising the age of entitlement for NZS. Meanwhile National in August committed to sticking to the position it took under the leadership of Bill English in 2017 to progressively start raising the age to 67 from 2037.

The CFFC’s change of tack has come under the leadership of Peter Cordtz, who became the Interim Retirement Commissioner in December 2018 when Maxwell went on leave pending the outcome of a bullying investigation. Maxwell was cleared in May 2019, before ending her second term in the job in June 2019. Jane Wrightson will begin her three-year term as Retirement Commission in February.

Need for systems change, not technical tinkering

The CFFC further detailed its thinking on NZS in its Review of Retirement Income Policies, stressing the importance of the government reassuring young people NZS will in fact still be there when they retire.

“Tinkering with settings such as the age of eligibility in isolation of other policy areas is like putting the cart before the horse, and will not do enough to improve retirement outcomes for New Zealanders," it said.

“In fact, we think raising the age of eligibility in the medium term would particularly impact unfairly on Māori and Pacific New Zealanders who have not, on average, enjoyed as long a life expectancy as other New Zealanders.

“Pre-retirement preparation in areas of housing affordability, continued ability to work, and building savings remain the most pressing issues. Without addressing these first, future generations of retirees will face far greater challenges (and require far more support) than retirees of today…

“Having said that, if the Government does not agree with our assessment that NZS is affordable in the medium term, there are other options that should be considered in addition to changing the age of eligibility.

“These include changing tax rates, which could, for example, claw back NZS from wealthier recipients, length of residency in New Zealand before becoming eligible for Super, international pension agreements, and exploring options to develop innovation leading to economic growth from the increase in New Zealanders’ longevity.”

Other KiwiSaver tweaks recommended

Looking at its Review of Retirement Income Policies more broadly, the CFFC also made the below recommendations (among others).

- Change KiwiSaver settings for default members so their contributions automatically rise 0.5% (from 3%) every year until they reach 10%. Allow default members to opt out of this ‘Small Steps’ programme, and enable KiwiSaver members who have chosen which fund they’d like to invest in, to opt in.

- Change KiwiSaver settings so that instead of the government paying members who contribute at least $1043 a year, $521, the government contributes $2 for every $1 voluntarily contributed by a member. The incentive would be capped at $2000. The idea would be to incentivise KiwiSaver members who don’t receive employer contributions to contribute to the scheme. See more on this idea here.

- Require employers to make KiwiSaver contributions to their over-65 employees, if these employees also make contributions. Currently over 65s can contribute, but their employers don't have to.

- Model the impact of allowing KiwiSaver members to withdraw their funds for a first home they don’t intend to live in. Currently eligible members can make first home withdrawals if they live in the house for at least six months.

- Add a ‘sidecar savings facility’ to the KiwiSaver model that members can access in emergencies. This could be done by setting aside an extra 1% employee contribution, so that every member who doesn’t opt out has a ‘rainy day fund’ of up to $3000 available, while their main savings are protected.

- Auto-enrol beneficiaries in KiwiSaver through a 3% government contribution each week. At jobseeker benefit rates of $245 per week, a 3% would be in the order of $382 per year per member, at a total annual cost to the taxpayer of around $114 million.

- Exclude fixed fees from low-balance KiwiSaver accounts. For all balances under $5000, require providers to remove fixed fees.

- Make Prescribed Investor Rates (PIR) tax refundable. This would change PIR status to ‘not a final tax’, and accommodate people who use incorrect tax rates.

The Government is expected to respond in full by the middle of the year.

“The review raises a number of important issues in relation to New Zealanders’ wellbeing and financial independence in retirement, particularly for vulnerable people,” the Minister for Commerce and Consumer Affairs, Kris Faafoi, said.

“It is important to be thinking about how all New Zealanders can best be supported to ensure their wellbeing in retirement.”

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

41 Comments

by Uninterested | 29th Jan 20, 7:55am 1580237733

It was always affordable to continue in its current form.
The previous retirement commissioner had a barrow to push. Her politics of envy.
Although I thought that the ridiculously short time before immigrants get it was already being looked at?

by Lapun | 29th Jan 20, 8:54am 1580241298

Immigrants should make a lump sum contribution to NZ super in their residency application. Aged 54 I was so naive that when asked for $200,000 as part of the point count for residency didn't realise that I got to keep that money! A young immigrant will be a taxpayer for a long period and ought to make no contribution but if older then it ought to be a pro-rata lump sum by age.
I was told the purchase of an inflation linked private pension equivalent to Super for a healthy 65 year old would cost about $400,000; is that correct?

by refactornz | 29th Jan 20, 9:28am 1580243318

Except many immigrants, even at 50 years old, wouldn't be in a position to make a $200,000 lump sum payment into a NZ super fund. Most of their savings will already be tied up in foreign super funds or their house overseas.

In my opinion it would be better to reduce the super benefit instead, unless a lump sum payment is made or 20 years residence as a taxpayer achieved.

by Lapun | 29th Jan 20, 9:37am 1580243859

1. True, mine was tied up in a foreign house I didn't consider selling until I had residency - but I used ownership to prove the $200,000. Since permanent residency is provisional for 2 years if my proposal was followed through then I would have had two years to pay it.
2. Foreign national pensions are deducted from Kiwi Super - so I get a monthly sum from the UK and NZ super then adds almost $200pw to make it up to full NZ Super. It would require a calculation to estimate the cost of NZ Super for my residency - start with the say $400,000 that the NZ Super is worth, deduct so much per year for each anticipated year of work prior to 65 (in my case 11 years) and adjust for anticipated foreign pension - my guess is about $100,000 would be about right.

by Lapun | 29th Jan 20, 9:42am 1580244149

Agree with you 20 years makes more sense than 10. Reducing Super for specific immigrants just means increasing other welfare benefits. If you mean reducing the amount of Super paid to all New Zealanders then despite being in receipt of it I agree; later age for qualification and a little less paid (why does a NZ pensioner need more money than a UK pensioner??). i worry about how the govt would spend its windfall but if it was on a universal child benefit it would get my enthusiastic support.

by HeavyG | 29th Jan 20, 8:50am 1580241039

Who wouldn't be envious of millionaires getting a benefit.

by Lapun | 29th Jan 20, 9:03am 1580241782

Me for one. Excluding my house I am poor but include it and I'm a millionaire. I only earn NZ Super plus a very small pension from the UK. But even if Bill Gates lived in NZ he would be paying immense taxes no his income but his bus pass would be worth just the same as mine.

It is the wealthy and especially the middle class who pay most taxes - why shouldn't they get the same benefits as the rest of us? They travel on the same roads, are treated by the same doctors, their children get the same free education so why not the same Super? Means-testing is the devil as the corrupt and the cunning rort the system, the admin costs are immense and talent is wasted trying to supervise the system which ought to be spent on making the country richer. Universal benefits work for Super (it being over generous is another issue) and it would work for tackling child poverty.

by HeavyG | 29th Jan 20, 10:37am 1580247468

Every other benefit is means tested. The Dole, the DPB, even student allowances.Do you believe these should be universal and paid to all taxpayers?

by Lapun | 29th Jan 20, 11:13am 1580249625

Certainly child benefit should not be means tested. Are the dole, accommodation allowance and student allowances all taxed? Because Super definitely is taxed - so in that way it is partly means tested. I'm a fairly honest person but if Super became seriously means tested then you would be surprised at how fast my home would change ownership to my children and then I could get full Super despite means test plus accommodation allowance. If a benefit or a job can be fiddled it will be fiddled - KISS works for benefits. If you want to save taxpayers money on Super then cut the amount paid and delay age of entitlement - do not start checking which pensioner is living with another or earns cash doing a little gardening for other pensioners.
Means testing Super is the politics of envy and wouldn't work. It would hit the cautious middle class and the really rich will simply move overseas on their big boats - result being saving a few hundred on Super and losing thousands on Income tax.

by HeavyG | 29th Jan 20, 11:31am 1580250708

All benefits are taxed (don't know why that is relevant to you?).

Means testing already applies for aged care and obvious evasion techniques like transferring the family home are scrutinised.

See: https://www.health.govt.nz/our-work/life-stages/health-older-people/lon…

by Lapun | 29th Jan 20, 5:23pm 1580271802

see https://www.studylink.govt.nz/products/a-z-products/accommodation-suppl…
""Accommodation Supplement is a weekly payment that's not taxed, that helps people with their rent, board or the cost of owning a home.""
So a supplement is not a benefit? Note the owning a home.

by RickStrauss | 30th Jan 20, 1:17pm 1580343445

The Accommodation Supplement is essentially a subsidy to property investors/speculators and the banking sector, ultimately. It doesn't benefit people who receive it only as a conduit for it to flow to others. And it penalises other renters and buyers by raising rents and prices.

by HeavyG | 31st Jan 20, 1:17pm 1580429879

The benefit is that the recipient gets to have a house to live in. No supplement = can't afford the rent = living on the street.

In a society trying to eliminate homelessness it is either give the homeless a house to live in or money to pay rent for a house to live in. What's the alternative?

by linklater01 | 30th Jan 20, 2:22pm 1580347366

uninterested,

'Her politics of envy'. On what do you base that slur on her integrity? Even the National Party have come round to the acceptance that the age of eligibility will have to rise despite JK making it a resigning issue.
Of course NZ can 'afford' to just keep paying it to the rapidly increasing cohort of retirees; the number is expected to rise to some 1.10 million by 2050, roughly double the current number and they will be living longer. Some 250,000 will be over 85. Currently, there are 4.40 people of working age to support each pensioner, but this will to 2.40 within 20 years. As Statistics NZ said; "This has direct implications for health expenditure because there is a significant rise in the incidence of disability with age and an increased need for health treatment, care and social services".

by Foxglove. | 29th Jan 20, 7:55am 1580237756

A lot of water yet to come to the bridge on that question. On the face of it National has been prudent and perhaps somewhat responsible to announce a relatively modest gradual adjustment with plenty of notice. Kiwi Saver contributions are of an unknown substance as to how that particular nest egg will actually be “spent” on maturity. Obviously those funds maturing in say 15 years will in most cases have gathered in about double of those that have already matured. Are aware of recent 65 yr arrivals with not enough in Kiwi Saver to make much difference
(say $30,000 TD @ 2.6%) so it has gone on a cruise or such like.

by Lapun | 29th Jan 20, 8:32am 1580239925

It makes sense to spend KiwiSaver in a big splurge. Checkout the criteria for accommodation allowance - own $7,999 in savings and you can recieve $300pw but if some rotter hands you $2 then you get nothing. I'm lucky enough to own my house but many about to retire do not and I'm sure they will spend their KiwiSaver just as fast as I did.

by clone278 | 29th Jan 20, 8:02am 1580238170

Rampant rent and house price inflation will create an increasing divide. Overall, public super will be worth relatively less, but there will be more people without their own home in retirement so they will likely need to keep working or require public housing.
I don't see the model as sustainable unless the population ponzi is allowed to continue.

by powerdownkiwi | 29th Jan 20, 8:06am 1580238419

If you limit the scope of your appraisal, you limit the usefulness of your outputs.

by printer8 | 29th Jan 20, 9:05am 1580241949

Still a lot of uncertainty there for those planning for retirement and it seems that this is not going to go away.
For someone ten to 15 years - or even 5 years - out from retirement there is no certainty with three-yearly reviews by the commissioner, uncertainty of political parties' changing policies, and changes in governments.
This review is simply about government affordability and does not provide any certainty for the individual. On the one hand the proposals to KiwiSaver encourage personal savings but on the other the possibility of "changing tax rates to claw back NZS from wealthier recipients".

by Lapun | 29th Jan 20, 8:45am 1580240748

I agree. My children are in their thirties and they ought to be giving thoughts to retirement. The rules and the financing will be different when they retire but it is a guess as to how. My sister in the UK qualified for her UK pension later than I did; similar issues with French relatives - not predictable when they started work.

by frazz | 29th Jan 20, 8:46am 1580240818

We all know once the last Boomer is dead and buried the Super age will be quickly cranked up to 70. With an aging population how are we going to afford it - less smashed avocardo?
"Treasury data showed the Government spent $11 billion on New Zealand Superannuation last year (2017). It cost $5b in 2000. Add welfare benefits to that cost, and the Government's spend on it spikes to more than $20b."

by GV 27 | 29th Jan 20, 9:04am 1580241860

The boomers are the population bulge that are causing the headache. I think you'll find the economic circumstances they foisted upon the rest of the world have meant smaller houses, smaller families and higher living costs. Of course NZ seems keen to import as many headaches possible for itself and inflate our way to economic growth, so that may no longer hold true. But if there are bigger families, it will be more and more at the upper and lower ends and less in the middle.

by Lapun | 29th Jan 20, 9:07am 1580242054

Don't wait until I am dead. Do it now because I am 71.

Seriously we ought to copy other countries and move the qualification age up to match increasing life expectancy. Also worthy of note is our Super is more generous than most other developed countries despite NZ being one of the poorest developed countries judged by average hourly income per capita. It is embarassing to get more Super than my unemployed son would get on job seeker allowance.

by printer8 | 29th Jan 20, 9:14am 1580242477

Frazz
"We all know once the last Boomer is dead and buried the Super age will be quickly cranked up to 70"
This is not a rational statement but one purely based on a bitter anti-boomer sentiment. Do you really feel that resentful and hatred towards your parents and grandparents.
I thought that some of the articles in recent weeks that we might be getting over the inter-generation slanging.

by RickStrauss | 29th Jan 20, 9:35am 1580243721

Not dead, per say, but that was Bill English's exact policy. Once the last boomer was through and receiving the policy, put the age up.

It's not ageist to refer to National's earlier proposed policy, is it?

Next it'll be racist to point out someone is of a different race. PC gone mad ;-)

by frazz | 29th Jan 20, 11:19am 1580249945

"This is not a rational statement," says who? PM Bill English has announced the age of eligibility for superannuation will rise to 67 in gradual steps from 2037...why 2037...hmmmm

by printer8 | 29th Jan 20, 3:23pm 1580264630

frazz
You are the one who is making a specifically (anti) boomer statement as though boomers are getting preferential consideration.
The rational was simply related to longer lifespans and increasing numbers of superannuates; the same thing happened in the 1990s when the retirement age was progressively raised from 60 to 65 for the same reason.
It is you, with your prejudice that is specifically making it a "boomer issue"; grow up and get over your biases.

by printer8 | 29th Jan 20, 1:07pm 1580256454

frazz
If you note an earlier posting of mine above, you will see that I am concerned about younger people relating to those 15 years or so off retirement and an inability to plan with certainty.
I am concerned about younger people and see anti-boomer rhetoric such as your as being a one-sided inter-generation war.

by Rob | 31st Jan 20, 5:17pm 1580444223

Once Winston goes, I can see there being changes.

by Sammy D | 29th Jan 20, 8:56am 1580241375

Some good suggestions here but I'm not convinced on the 'affordability' argument. Yes it's theoretically affordable but a 2.5% of GDP increase isn't exactly chump change - it's nominally 7.5% of government spending.

For comparison that's 80% of total tertiary funding or 150% of police funding... not things I'd like future generations to go without...

by BS | 29th Jan 20, 9:14am 1580242469

There seems to be an assumption that good times will roll on forever. The way entitlements are being built up and locked in, at some point a mild recession in NZ will become an existential crisis. One thing is for sure, high immigration is now a permanent feature, if only because we need it to pay for our gold-plated superannuation scheme.

by Lapun | 29th Jan 20, 9:50am 1580244604

Those immigrants are paying for my Super if they are earning above average wage. Mostly they are not. Our taxes are going into massive infrastructure expenditure and new teachers and new doctors etc none of which would be neded if our population hadn't grown by about a third in a couple of decades. Cut both our our gold-plated superannuation scheme and our 2.1% annual population growth rate and govt finances would be OK and NZ might start investing in businesses instead of houses and roads.

by youngdumbandbroke | 29th Jan 20, 9:42am 1580244139

Moral of the story - don't rely on the powers that be to organise your retirement. Take a pragmatic approach and take responsibility for your own future

by Chris-M | 29th Jan 20, 10:21am 1580246515

Exactly as I have been saying for years, the numbers never supported any imperative to raise the retirement age. It was always just a political beat up to transfer even more wealth away from the average citizen into the pockets of the very wealthy.
In thirty years time we will be living in a very different world. Automation will as it is now reduce demands on workers and there will need to be large readjustments in working hours and the retirement age. These forces are starting to express themselves already and some employers are already reducing the working week. At some time in the future it is entirely possible that we may well be looking to lower the retirement age.

There are however a raft of problems that need sorting out
- like most countries we should only pay general superannuation to people on a pro-rata basis according to how long they have worked here. Not our present very flawed method of topping up their overseas retirement benefit to the NZ level.- Doesn't work if they come from a country low or no superation
- We need to modify Kiwisaver so that at least 12-14% of income up to a minimum level is compulsorily saved; split between the employer and the worker with a tax deductibility encouragement. For the unemployed the benefit needs to be raised and part of it is in the form a Kiwisaver contribution. We need to aim at a system that enables all people to arrive at retirement with an adequate future income. As I write this I can see a problem for non working wives and mothers. We will obviously have to continue a minimum government kiwisaver contribution over this period. With our current system we must be covering this cost somewhere anyway.

by anothervoice | 29th Jan 20, 10:35am 1580247331

would be very interested to know what changed on the modeling side for it to drop the forecast cost to the government. seems to be brushed over everywhere I read about this; 'the experts tell us....' and experts have never been wrong I guess....

by Lapun | 29th Jan 20, 11:19am 1580249980

Envy of boomers. But what were boomers other than a population bounce after a world war. If taxpayers are envious of boomers what will happen to the population bounce we have had over the last two decades (immigration of about one in three) when it starts to retire? Are future Kiwis less or more likely to be envious when this new big cohort qualifying for Super were born abroad?

by Sibrit | 29th Jan 20, 12:23pm 1580253821

My focus for retirement is to buy my own house and pay off the mortgage before I'm 65. Achieving that will allow me to live off just NZS. Any measures introduced to help me reach that goal are welcome. Anything that goes against it are not.

by Lapun | 29th Jan 20, 1:30pm 1580257824

Not a bad focus and I did it myself. Of course an alternative is a big mortgage just before retirement (if you can persuade a bank); then spend until savings are just under $16k for a couple, hide jewelry and any boats but buy the biggest most expensive car you can and then apply for accommodation allowance. You will get up to 70% off a big chunk of those mortgage payments and the rest of the mortgage payments can be made by downsizing your car in regular $15k chunks or taking in up to two lodgers. You can up your Super payment by getting rid of your spouse (he or she can always sneak in the window at night for a little nooky). You will find retirement gives you encouragement to screw the system - if you ever get found out just claim dementia.

by Sibrit | 29th Jan 20, 1:57pm 1580259429

Thank you for the chuckle. Lifted my Wednesday. Who knows how many other "tricks of the trade" I can learn by 65?

by Lapun | 29th Jan 20, 5:29pm 1580272173

By far the best trick and totally legal is one I use myself: a younger working wife. The only drawback is when she returns home and says "what have you been doing all day?". It may explain why in previous comments I've suggested Super may be too generous and child benefits too stingy.

by middleman1 | 29th Jan 20, 1:23pm 1580257397

I'm pleased to see some perspective being offered on the important difference between the gross and net tax deducted cost of NZS, (presumably excluding GST). Too often the gross number is bandied about as if that's the actual cost to taxpayers. One other aspect is NZ's very high labour force participation rate of NZS recipients, many of whom would bail if their NZ's became means tested. 100K immigration in no time at all.