The Retirement Commission has recommended raising the retirement age by two months per year from 2020 until it reached 67 in 2033, it said today.
It also recommended a slow reduction in the pension formula to bring its growth closer in line with inflation rather than average weekly earnings growth.
In parallel, a transitional means-tested benefit should be introduced for those aged 65 who are unable to financially support themselves, the Commission said.
Prime Minister John Key was reported immediately by Stuff as saying he would not adopt the recommendation.
Key has previously promised to resign if he every altered the retirement age or retirement pension.
"We're going to continue to pay New Zealand Super at 66 per cent of the average wage for New Zealanders who are 65 and above," Key was quoted as saying.
He disagreed that the age of retirement would have to rise. "For a variety of reasons but in my view, New Zealand super is sustainable at age 65," he was quoted as saying.
A spokeswoman for Labour leader Phil Goff later told interest.co.nz that Labour was also not proposing to extend the retirement age or change the pension.
Here is the response from Goff's spokeswoman:
“Labour would not be prepared to lift the age of eligibility for superannuation or to reduce payments to pensioners.
It would restore pre-funding through the Cullen scheme to ensure the future affordability of superannuation. Labour would also further develop KiwiSaver. It’s important to work now to off-set the costs so the burden is not simply postponed for future generations to deal with.
While the Retirement Commission’s proposals are not necessarily the right proposals as far as Labour is concerned, it is important that we are able to have a full and frank debate about the issue. I invite the Government to come clean, provide all the information available and act on a cross-party basis to look at this issue. We can’t just focus a year ahead to the next election, we must look much further beyond that to ensure a sustainable superannuation scheme for the future.”
Here is the release from the Retirement Commission:
The Retirement Commissioner has recommended changes to New Zealand Superannuation to keep it affordable over the long term and to strengthen the principle of universal individual entitlement.
The recommendations were made in the three-yearly Retirement Income Policy Review, which was tabled in Parliament today.
Ms Crossan said changes were critical to preserve New Zealand Superannuation for the next generation.
“Something will have to change to keep New Zealand Super affordable for the long term. We know that there’s a huge number of baby boomer superannuitants coming, and we can’t keep on ignoring this issue until it’s too late. New Zealand Super is essentially a great scheme and is vital for the wellbeing of older New Zealanders,” she said.
Keeping New Zealand Superannuation affordable
Retirement Commissioner Diana Crossan says the Review’s primary recommendation is a package of two measures starting in 2020 designed to keep New Zealand Superannuation affordable when baby boomers will make up the majority of superannuitants and the costs of New Zealand Superannuation are accelerating.
Raise the age of eligibility
From 2020, begin gradually raising the age of eligibility by 2 months per year, so that it reaches 67 in 2033. In parallel, a transitional means-tested benefit should be introduced for those aged 65 who are unable to financially support themselves.
Adjust the formula used to calculate the annual increase
From 2020, adjust the formula by which New Zealand Superannuation’s annual rate adjustment is calculated. The Review recommends that this formula should change so that, each year, the rate adjustment should be the mid-point between the percentage increases in the CPI and in average weekly earnings. The real purchasing power of New Zealand Superannuation would still be protected by ensuring that the annual adjustment is never less than the increase in the CPI.
Strengthening the principle of universal individual entitlement
The Review also stresses the importance of the underlying principle of universal individual entitlement on which New Zealand Superannuation is based. Three recommendations are made to remove specific areas of unfairness in the current system that are all based on a person’s partnership status:
Remove the non-qualified partner rate
The Review recommends removing the option of income tested New Zealand Superannuation for people aged under 65, or who don’t meet the residency test, whose partners are superannuitants.
Equalise the unpartnered and partnered sharing rates
Currently two different New Zealand Superannuation rates apply for people sharing accommodation – one for those who are partnered and one for those who are unpartnered. The Review recommends that these rates should become the same.
Abolish the deduction of a person’s foreign pension from their partner’s New Zealand Superannuation
The Review recommends an end to the current policy of reducing the value of a person’s New Zealand Superannuation if their partner receives a specific foreign pension that exceeds the value of New Zealand Superannuation.
Ms Crossan said the second set of recommendations was based on the principle of fairness.
“New Zealand Super is the entitlement of every qualifying New Zealander regardless of their income or partnership status. These three recommendations address the areas where that principle is clearly not being applied, and should be addressed,” she said.
The Retirement Commissioner is required by statute to complete a review of retirement income policies every three years.
The full report, which contains 17 recommendations, is available atwww.retirement.org.nz.
(Ipdates with comments from Goff's spokeswoman)
29 Comments
If that's the only solution that these people can come up with to save a few welfare bucks, well quite frankly they are either lazy, thick, or a combination of both. We could start by saving some money by dumping the retirement commission?
People are living longer and longer. So what's going to happen then? Will the retirement commission recommend that the retirement age should be pushed out to 70, then 72, then 75 then 78? 80?
I work to live. I do not live to work, and I'm sure that's a sentiment that many of us share. And as soon as Government and society fully comes to terms with that, the better off we’ll all be.
We are not, and nor should we be, slaves to the system.
By the way, every person who will be 65 years of age or older by 2075 is already alive. They aren’t adding anymore. On that basis it should be possible to project year by year from 2011 to 2075 a very good approximation of how many people will be 65+ and living in NZ. It should then be possible based on those figures to project the actual cost of New Zealand superannuation for each of those years (in today’s dollars) going forward. I have never seen a table like that from any of our Government departments, or commissions. Why not?
Mr B, those are very fine sentiments about the relationship between life and work and not being slaves to the system, but I am afraid I am not sure whether to take from them that you do or you don't think that it is sensible and right to assume that taxpayers in the future, including the ones who haven't been born yet, will be willing and able to continue to pay all over-65s for being over 65 as the number of over-65s doubles in relation to the number of working-age New Zealanders.
Neither do I know why you haven't seen a chart showing the projected future cost of New Zealand Superannuation. There is one on p111 of the Retirement Commission's report, although it shows the projected cost as a proportion of GDP which I would suggest is more useful, in terms of assessing affordability, than showing it in today's dollars. It shows that the cost as a proportion of GDP will rise from about 4.5% to nearly 8% over the next twenty years - and stay there. And it doesn't really matter whether you or I think that's affordable, since it's not you or I, or John Key for that matter, that will have to afford it.
Before we start increasing the age of pension entitlement we need to reverse the policy of ageism that is entrenched in many businesses especially corporate ones.
I would also remind those younger persons that one day you will wish to retire also. If agesism is still rampant it may be much sooner than you may estimate.
Again as someone who started saving for my current old age in my twenties and often under financial restraints I fail to see why I should be penalised in any way.
@ Ms M
I find it very difficult to see how it's going to stay there (at 8%) once the baby boom demographic bubble starts dying off in 20 years. Or are old people in NZ going to start suddenly appearing miraculously out of thin air at the age of 65 at their local WINZ office?
Who knows what NZ’s GDP will be in 10 years, let alone in 20 years time? How reliable can the assumption be that super will therefore be 8% of GDP in 2030 and stay there?
We have no way of knowing what the population will be in 30-40 years time either, or the demographic mix? Thirty years ago, few would have predicted the massive wave on Asian immigration into NZ that we have had over the last 10 years.
In the last 10 years the number of NZers aged 65-79 as a percentage of the population increased by 0.5%. That’s right 0.5%. And for those aged 80+ the increase was 0.6%. A 1.1% increase in New Zealanders aged 65+ as a proportion of the population. Hardly catastrophic is it! Was that the increase that was projected say 20 years ago? http://www.stats.govt.nz/browse_for_stats/population/estimates_and_projections/NationalPopulationEstimates_HOTPMar10qtr/Commentary
And wasn’t the age of eligibility for National Super raised from 60 to 65 ~20 years ago because of a projected blow out in its cost due to increasing numbers? In light of the hard numbers we now have, was that justified or did the projections turn out to be just a load of hogwash?
How about these for solutions to the superannuation ‘problem’ in New Zealand?:-
1. Growing New Zealand’s wealth and GDP. Let’s have a bigger pie for everybody so as a civilised society we can comfortably pay our retirees to keep them out of poverty. It is after all a fixed and predictable cost is it not? What sort of a society do you want?
2. Grow the work force by retaining more New Zealanders in New Zealand.
After all why should it always be that the only solution to the cost of superannuation is to pay less of it to fewer old people? Is that the only solution that there is and that the retirement commission can come up with? Or are you really suggesting that Kiwis aren’t up to creating a wealthy society but just aren’t prepared to come out and actually say it?
Unfortunately this will not solve the impending bankruptcy of NZ.
We need to increase the retirement age to 70 over 10 year (1 yr increase every 2 yrs), starting to 2011. Then, the age should be linked to the average life expectancy.
NZ is not far off the limit of Government debt without hitting the tipping point of bond market confidence. At this point, either the IMF or Australia will dictate the terms of retirement age.
I don't see any impending bankruptcy of NZ. The crown isn't deeply in debt. Where is it at, about 22% of GDP? Germany, the backbone of Europe is at 72% of GDP. The banks that lend to us are foreign so we won't be bailing them out. The private sector owes debts, but in our own currency, which will adjust because it is free floated and highly liquid... and the lenders then take the currency hit and the default hit... they lose, we win.
That said, I do see a lot of opportunity for increased real GDP growth, and cutting back or phasing out super is one option. Key won't do it because he made a promise, but it is still an option for future PMs. There's plenty of other ways to juice real GDP.
Only 1.1b over 4 months was tax shortfall. Most of the rest of the 4.4b over 4 months (where I presume u got your 275m figure from) was a one-off for the Canterbury quake. So that's 3.3b per year, not 13b per year. Still significant, of course.
Yes the crown needs to get its books in order. It just appears that reporters and commenters are importing panic from Europe and the US, and presuming that panic applies equally to New Zealand, when IMHO it does not.
The $275 mio per week is probably mostly the $250 mio p/w that Bill English stated in Parliament some many months ago, that NZ need to borrow on an on-going basis, to keep the country going. I don't think it relates to the $4.4 bio much at all. They are different matters. One is events based; the other structural.
Here's a much better idea and it is so obvious,
Put into law this simple piece of legislation:
'If you own more than 2 properties (freehold and at time of legal retirement age) that ARE or HAVE BEEN subject to capital gains then at 65yrs of age you are entitled to nothing!'
Capital Gains adds nothing to societies over all health or wealth. It's a "parasitic wealth gain" and should never be encouraged. Such a law would solve many of our now and future problems
Comments below please on this concept.
Introducing a land/capital tax would do the same thing - effectively - as the country could then likely afford to continue with some form of welfare benefit for folks without any income or capital. Such a tax would be applied to all capital, whether the asset is gaining or not in value. And the social benefit would not be universal super, rather it would be means tested.
Olds with lots of sunk capital in property could take out reverse mortgages if they didn't want to sell up.
More credence to "The Big Kahuna". Give every one over 18 y.o. $1000 per month (in todays terms) and it works at both ends. If you don't need it at either end, then it relieves your tax burden. If you do, you don't die in the gutter. Adult age then becomes irrelevant.
Justice,
Have you heard of trusts? Bet you that such a provision would net little, an industry would spring up to ensure no one person individually owned more than 2 properties. And it would also just encourage people to build exempt mansions unnecessarily .Nice try but wouln't achieve much.
I am not convinced that most people can work on after 65yrs of age.What on earth has living longer got to do with working longer.Actually I feel very little. Medication usually plays a part in people living longer ..such medications often render a person at risk anywhere near machinery or in some cases driving etc. By reaching the age of 65yrs many people would have worked for 49years and thats enough in most cases .I am trying to think of the people who wouldn't have had enough by 65 years. They must be people that have been in jobs without stress and physical activity. So these people won't have been pilots,policeman,builders,plumbers and the list goes on surely.
So my daughter aged 40 had better start putting aside $2400.00 per year for the next 25yrs so she has $60,000.00 to tide her over the yrs from 65 to 67 if the retirement wiz has her way. What is annoying about this subject of interfering with the traditional 65yrs of entitlement is that NZ surely should have the money to pay for this considering the ability of the Cullen fund to generate large growth in itself providing it is not robbed and the Govt can stop spending millions in bad areas such as finance companies.
What is interesting is why some commentators and others slag the people coming up for retirement in the near future. Why is it their fault they happen to be part of a larger group than has been the case in the past? Prime Minister John KEY is smart in my opinion and will be aware of the strong voting power of the group of people I have mentioned .
People will always have options if the going becomes unfair to them financially.Just make adjustments to fit the criterior.If people for example have worked hard and gone without and not spent wildly on travel and then the goal posts are suddenly shifted and they are means tested for super ,,start travelling the world frantically and give the maximum each year to the kids during the 'lead in" period prior to the introduction of the new legislation.
These are my kids this Retirement Wiz is after and me also on the way through.
I shall just keep watching this topic with interest.
I agree with the working age points made. I know lawyers and engineers who are more productive in their 60s than they were in their 40s, but can't think of too many other professions where that might be the case. There is a real problem with succession at the moment... too many BBs still in senior positions and the fit, young, entreprenurial sorts aren't getting promoted quickly enough. This isn't good.
The retirement age should be lowered to encourage boomers out of the fulltime workforce... as the country and the way it's being run needs a kick in the backside which normally only new blood brings in.
I'm not sure which commentators you have seen "slagging" the people just coming up to retirement, but the Retirement Commission's proposals won't affect that group anyway, since they would not take effect for several years. Nobody now aged 55 or over will be affected by these proposals.
No, it's not the fault of the baby boomers that there are are lot of them - but neither is it the fault of the smaller generation after them, and it's that generation which will have to pay for the increase in NZS costs caused by the increasing number of over-65s.
You're worried about your daughter having to save up to fund her own retirement. income. Well, if she doesn't, then her own children and their contemporaries will have to. Do you think that she's happy with that, or that they will be?
I agree with your comments about means testing, but it's fair to point out that that is not recommended by the Retirement Commission.
talking of vote-grabbers..watch in the next budget for when Govt. makes medical insurance for over 65's tax deductible..great way to relieve pressure on the public system.
with the b/boomers coming through in droves they are going to be such a powerful voting lobby within ten years.. no govt will tangle with 'em.
to old to move , too rich to ignore?
Translation of most of the above posts:
I am greedy and lazy and selfish and I dont want to work. The next generation of workers can support me on ultra high taxes that will be necessary to keep my generation in the manner we have been accustomed. I don't give a monkeys about demographics, I want it all I want it now.
This is a good one, from the Engineering, Printing and Manufacturing Union.
"In a low wage economy such as New Zealand shifting more of the burden of superannuation funding onto working people doesn't make sense," says EPMU national secretary Andrew Little.
So, where exactly does he imagine that the burden of superannuation funding rests at the moment?
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.