By Andrew Coleman*
Between 1975 and 1977, New Zealand scrapped the compulsory saving scheme that was introduced in August 1974 and adopted what is now the most unusual retirement income and tax policies in the OECD. It is becoming increasingly obvious that this system has problems. To mark the 50th anniversary of the compulsory saving scheme, this series of articles re-examines whether New Zealand’s retirement income policies could be modified or redesigned to better suit the 21st century.
Pay-as-you-go and save-as-you-go retirement income schemes
The welfare and contributory pensions that most older people in OECD countries receive from governments differ significantly in terms of their philosophy and delivery mechanisms, but both can be organised on either a pay-as-you-go or a save-as-you-go basis. If a country has a welfare-based system organised on a pay-as-you-go basis, the taxes that are collected are immediately paid out as pensions and nothing is saved. This is largely what happens in New Zealand. If the same system were funded on a save-as-you-go basis, the taxes that are collected would be accumulated in a sovereign wealth fund and invested before the pensions are paid out at a subsequent date.
Whether a pension is operated on a pay-as-you-go or save-as-you-go basis is an “under the hood” issue that is often ignored. But just as the engine of a car affects its performance and fuel economy, pension schemes run on a pay-as-you-go basis and pension schemes run on a save-as-you-go-basis have very different consequences. They affect the overall structure of the economy, including the amount of capital people own and the way industry is financed; they affect how much it costs different generations to provide pensions; and they affect the way that the overall costs of a pension scheme are split between different generations. A rule of thumb based on one hundred years’ investment returns is that a pay-as-you-go pension scheme doubles the amount of taxes that people have to pay to get a pension. That is substantial – a bit like the different operating costs of a petrol and an electric car. Most current and future generations of young people would be substantially better off if the government had chosen a save-as-you-go funding system years ago – for instance, in 1977 or 1997, when previous generations voted for New Zealand Superannuation. Young people have inherited a system which is expensive and getting more expensive every year.
In the next three articles I shall examine several differences between save-as-you-go and pay-as-you-go schemes. This article looks at the effect on capital accumulation, while the next one looks at the circumstances where a pay-as-you-go system ends up costing young people much more than a save-as-you-go system. The third one discusses some of the transition difficulties that arise when you attempt to switch from a pay-as-you-go to a save-as-you-go pension scheme. Although this material is not often discussed in New Zealand, it is well established and based on the economic ideas developed in the 1950s and 1960s by four Nobel-prize winning economists, Peter Diamond, Franco Modigliani, Edmund Phelps, and Paul Samuelson. They showed the basic arguments are the same whether a country adopts a welfare-based or a contributory pension scheme, although some details change. Consequently, it is easiest to discuss the case where New Zealand keeps New Zealand Superannuation, but the funding is organised differently.
Save-as-you-go schemes and the 'bathtub' model
A mature government save-as-you-go pension scheme has three parts. The first part is a large government investment fund, like the New Zealand Superannuation Fund, but bigger. The second part is the payments made by young or working-aged people, which are paid into the fund rather than transferred to old people. The third part is the pension payments received by older people in the future. They will still get paid every fortnight, but the pensions are paid from the interest and dividends and profits earned from the investments made by the fund when they paid taxes earlier in their lives, plus some of the capital of the fund.
In some ways the fund can be likened to a big bathtub, with new water pouring in from a “tax-tap” at the top, and old water flowing out from a “pension plughole” at the bottom. A bathtub does two things. It creates a delay between when the water flows in and when it leaves; and it stores a lot of water. The difference with an investment fund is that the “water” in the “bathtub” expands as it earns interest and profits and dividends, increasing the volume in the tub without putting any more “water” in. The earnings of the fund mean less water needs to flow through the tap for any amount flowing out from the plughole.
A pay-as-you-go system is missing the tub – so it is like a pipe. The water coming out of the tax-tap goes straight out through the pension plughole and there is no chance for it to increase in volume. This doesn’t mean there isn’t a return to the people paying the taxes. If young people are born at a time that there are not very many old people, each person only has to pour a little bit of “tax” into the pipe for each older person to get a generous flow. In contrast, if there are lots of old people around each young person will have to turn the tax-tap up to ‘high’ to generate a sufficiently large flow for all the old people to have enough. This, in a nutshell, is the situation New Zealand increasingly finds itself in.
In contrast to a pay-as-you-go water-pipe, the inflows and outflows of a save-as-you-go system are not meant to be equal all the time. If there are lots of working-age people, the inflows will be greater than the outflows and the fund – the water level in the bathtub - will increase. If there are a small number of working-age people and lots of old people, the fund will decrease. This is the point: once the system matures, each generation will put in an amount that, combined with the interest and dividends and earnings, pays out the pensions they will receive when they are older many years down the track. The system can become intergenerationally neutral, because the amount each generation takes out reflects how much they put in at an earlier stage. This solves some of the problems that arise when generations are different sizes.
A save-as-you-go pension system accumulates more capital than a pay-as-you-go system – the extra “water” in the tub. When a government introduces or expands a pay-as-you-go system, saving and capital accumulation decline. The government raises taxes and immediately makes additional payments to retired people – just as if it siphoned off some of the water that was going into the bathtub and diverted it into a pipe. The retired people typically spend rather than save these additional pension payments. Since contemporaneous working-aged people are paying more taxes but are also expecting a larger pension in the future, they typically reduce their private savings and maintain their spending. In total saving decreases and spending increases and less capital is accumulated in the economy.
Of course, the working-age people become retirees in subsequent years. Their pensions enable them to spend, because of the taxes levied on new generations of young people who also have less need for private saving. The process is repeated year after year, and each subsequent generation ends up saving less and accumulating fewer assets. At the economy-wide level, the decline in saving means there is less locally-generated capital to invest in firms or infrastructure or in overseas countries. Unless this capital is fully replaced by foreign-sourced capital, this reduces the earnings of businesses and firms. It also reduces wages, as firms are less productive.
Something like this happened in New Zealand in 1977, when National Superannuation was introduced, and all people over 60 became entitled to a larger pension. There was an almost immediate decline in the national saving rate. This decline has not been fully reversed, even though the age of eligibility has subsequently been increased, as people are slower to cut consumption when taxes increase than to increase it when taxes decrease.
If New Zealanders had a pension scheme that was based on save-as-you-go funding, the amount of saving and the size of the capital stock would be larger. This has another implication: it could help in the battle to prevent climate change. We are all conscious of the rapid progress in solar and wind energy technologies in the last decade, and many more transformational technologies will be developed in the next 50 years. Many of these technologies are capital intensive and will only significantly reduce greenhouse gas emissions if they are implemented on a large scale at home and abroad. This will require large scale saving and investment. The pension funds of many countries already are making green energy investments in less developed countries, to help them increase their energy use without so much coal or gas. Greater domestic savings stemming from a save-as-you-go funded pension scheme will enable New Zealand firms to increase the amount they already invest in these types of projects.
If New Zealand changes from pay-as-you-go funded pensions to save-as-you-go funded pensions, New Zealanders will collectively save more, allowing them to finance some of these green investments and help tackle climate changes issues. More generally, greater capital under the save-as-you-go scheme boosts firm productivity, increasing earnings and wages. This sounds attractive. For young people it has another benefit – under many circumstances a save-as-you-go system can cost less, much less, than a pay-as-you-go system. This topic is tackled next week.
*This series and an accompanying paper are based on work I started in 2020 with Jeanne-Marie Bonnet while we were both at the University of Otago. I am very grateful for her assistance and insights. All errors remain my own.
(This article is part 3 in the series. Part 1 is here, and part 2 is here).
**Andrew Coleman is a visiting professor at the Asia School of Business. This article is his personal view of retirement policy in New Zealand, based on academic study.
Coleman is on extended leave from the Reserve Bank of New Zealand, while working overseas. The views expressed in this article do not represent the RBNZ and are unrelated to work conducted at the Bank, which has no responsibility for retirement policy in New Zealand.
71 Comments
It's too late to change the model now. The demographics are all wrong for that.
Recent govts have cranked up immigration in an attempt to mitigate this but its not working due to all the young people leaving and the incoming young people bringing in lots of ill old people in subsequent years.
Plus NZ is not a country where there will be a big windfall. Like in Oz with its mineral boom.
Indeed...there is an element of refighting the last war to this...we can look back (with 20/20 hindsight) and say look at the benefit we could have gained if we had only done x....when the circumstances of the past 40 + years are not the circumstances of the next 40.
We have a different geopolitics, climate change, demographics projections and resource pressures.
Where are the drivers of growth in this future world?
Real forward looking thinking on display here
"So me coming out today and saying we are going to lift the pension from 2020 does absolutely nothing to the national accounts today or tomorrow or the next day or the next day," John Key told TV3's Firstline programme.
https://www.stuff.co.nz/national/7083580/Super-age-rise-ruled-out-again
The universal pension introduced by Robert Muldoon in 1977 was his great contribution to New Zealand, or rather, to New Zealanders. It was the last echo of the cradle-to-the-grave social welfare that the first Labour government tried to introduce between 1935 and 1949. It survives today, diminished, as NZ Superannuation.
Its great flaw is that it is funded by current taxation. Inevitably that must continue. But for NZ Superannuation to succeed in the future, contributions to the NZ Superannuation Fund must be greatly increased. It must become New Zealand's sovereign wealth fund.
There are two changes that ought to be made immediately:
(1) the NZSF must cease paying tax on its earnings. It is absurd that the Government each year puts money into the fund, then takes it out as tax.
(2) The state subsidy of $521 a year payable to people who contribute to their private KiwiSaver funds should cease. This money should be going into the NZSF to benefit everybody equally, in the future. KiwiSaver divides the haves, who have the surplus income to save for their future, and the have-nots, who must spend every dollar simply to survive and cannot save. The state subsidy to private KiwiSaver accounts increases the gulf between haves and have-nots; the same money invested in the NZSF would promise equal disbursement to all in retirement.
These two steps are but the beginning of the increased funding needed for superannuation, for it is not only future superannuation that needs to be funded by way of the NZSF.
The present super rates are manifestly inadequate. When Muldoon introduced his pension fund in 1977, the married rate was 80% of the full-time average wage, and the single rate 60% of that. This proved unaffordable, especially so after 1984 and the reduction in income tax rates. The super payout was reduced and a surcharge imposed on those who had other income. That was abolished in 1998, guaranteeing future unaffordability of superannuation.
The single-person-living-alone rate today is $521.62 a week after tax. The Massey University Financial Education Centure publishes annually an estimate of how much a person in retirement needs to live on. It gives figures for how much a person needs to live on with 'no frills' if they live in the city ('metro'), and in the provinces. It also gives higher figures for retirement 'with choices'. The figures Massey gives for June 2023, when the single-living-alone super rate was $496.37 a week, were $826.26 a week for a 'no-frills' metro existence, and $689.54 a week for a provincial 'no frills' existence.
https://www.massey.ac.nz/documents/1554/new-zealand-retirement-expendit…
In 2024 the $496.37 super rate has become $521.62 a week after tax. Applying the same factor, the Massey figures would now be $868.23 a week for a 'no frills' 'metro' retirement, and $724.57 for the provincial. (Weekly after-tax rates for a full-time worker now are: minimum $785, living $928, median $1034.)
The point I'm laboriously getting to is that NZ Superannuation is not enough to live on, either now or in the future. We need more funds both for the NZSF to provide for the future, but to boost superannuation to an adequate level now. I see headlines that property owners have increased their wealth by $1,500 billion since 1991. It would be unreasonable to increase income tax on wages to boost super now as well as invest in the NZSF for the future. The obvious source to tap is the unearned wealth of property value gains. New Zealand needs to reintroduce inheritance taxes and gift taxes, and it needs to reintroduce land taxes and impose capital gains taxes. Or it could explore the Fair Economic Return tax proposed by Susan St John and Terry Baucher:
https://www.auckland.ac.nz/assets/business/our-research/docs/economic-p…
The other thing that governments must agree to do is to reimpose a form of the surtax on other income that was abolished in 1998. NZ Super as it stands is not enough for those who need it (as the Massey figures above argue), but too much for those who don't need it. If super were to be increased to at least the $727.57-a-week no frills provincial rate from $521.62 for the single person living alone, with other rates increased in proportion, it would be vastly overpaying people who had other incomes as well.
Susan St John, again, has proposed a solution, though the taxation rates would have to be much more severe if the super rate were raised:
https://www.auckland.ac.nz/assets/business/about/our-research/research-…
KiwiSaver divides the haves, who have the surplus income to save for their future, and the have-not
Could you elaborate on this? Given theres a minimum of 3% to put in, I struggle so see why you mention surplus income, although I appreciate that there’s many who choose never to sign up to kiwisaver to their own detriment.
This is true, however across my lifetime thus far the majority of people I've ever met who aren't in kiwisaver or pulled out, is more due to the perceived waste of piling money into something they didn't understand more so than being in genuine need of the 3%. Notwithstanding today may be different with the cost of living eating away at budgets for necessities. I've also spoken to a couple of financial advisors in passing who have reiterated that they are genuinely shocked at the number of people who aren't in kiwisaver, simply from lack of knowledge of it and hence never registering.
I withdraw my kiwsaver as a FHB 6 years ago. Since then i have purchased two IP's and have no plans to ever contribute to kiwisaver in the future. Surplass income goes into savings on an offset mortgage or occasionally to Rat poison, i fully understand that the keys to kiwisaver is held by someone elese, i would much rather the security of holding the keys to my own savings and having it liquid should i wish to use it. Kiwisaver is a risky investment if you intend to retire before 65
It becomes much less risky if you intend to retire before 65, have other investments, and also intend to live beyond 65. Just draw on the other investments first as needed and keep KS for later.
I always recommend making the minimum contribution to KS to max out employer/government contributions as that return cannot be matched elsewhere, and investing anything more than that elsewhere with more freedom.
I'm one of those people that does not do KiwiSaver, and never will. But, then I started young and made my own fund and know how to do it. That is the problem with KiwiSaver, people don't understand it and just think it will let them retire and that the government is giving them money, which is very misleading. The average KiwiSaver balance of 50K or whatever it is now, is going to deliver someone in retirement 50 bucks a week, or if it is 100K then you are looking at 100 bucks a week, which is not much given the promises.
The reality of retirement should be taught in school, and your obligations when you get there should be very clear. The problem I see with KiwiSaver is that it is very expensive, particularly when you get to retirement, and it seems to be that it outweighs any contribution you are getting from an employer or the government contribution.
If my retirement fund that I manage myself was in KiwiSaver, the government contribution I would get would be 500 bucks a year and the amount I would get from my employer would be 8-10K, but the fees on my fund each year would be 20-50K per annum depending on the plan I choose, so in my case I would be losing massively by being in KiwiSaver, and lose almost all control.
KiwiSaver needs to be radically changed, with proper tax incentives for participation. Otherwise it will just remain a top up facility for the pension targeted at people that have difficulty saving or don't understand finance and investment. There has to be a self manage option with zero fees so that people that do know how to manage, can and do, and don't have significant fees drained away from their investments.
Fully agree that an average KS balance is not going to go far and people need to put in way more than the minimum, or even better save elsewhere as well.
I think you're a little out of date with your fees. I pay 0.25% with my Simplicity KS so I'd need 8 million to hit 20k fees. Perhaps you have 8 million saved up, but noone is suggesting you put all of that into KS. You could have your cake and eat it too by contributing the bare minimum to get hold of that 10k from your employer, and the fees will be well under 1k for years. Meanwhile, do whatever you want with the rest of your portfolio outside of KS.
Fees seem to run between .25% and 2.5%. I have not looked for a long long time, but I would assume the better performing funds have higher fees, and the lower performing ones (higher % of cash and things) would be lower. It's kind of irrelevant now, but the fees were higher and the incentives were not there, so I opted out straight away and have never really considered it again.
Most of the research I've seen shows no real link between fees and future performance. Maybe a link to past performance. Pretty tricky to put on 2% p.a. consistently over a simple index fund.
Up to you what you do with your money of course. I do think you've argued yourself into a position of turning down thousands of dollars every year, which you could earn by filling in a couple of forms, but you do you.
Actually there is the combination of flat rate fees, account fees and performance fees. What you mention is only one of those. People often cannot clearly see accounts through KS providers so the information on how much they contribute, versus fees, versus fund returns or losses & taxes over time is obfuscated. For those who rely on accurate information and value being informed to what is happening with their money other funds often are far better just on the reporting requirements as well as having lower fees. Sadly too much of the public think their own contributions are the fund returns (because of how limited the information is presented to them), which is pretty sad.
Actually, this is the only fee Simplicity charge. Other providers do obfuscate as you say.
https://simplicity.kiwi/kiwisaver/home
When I log in I can easily see a summary over whatever timeframe I like, showing the various contributions, fund returns, tax, and fees. Since I joined in 2016, I've paid a little under $700 in fees vs 4k from the government and 20k from my employer, plus 11k returns.
So you advocate having a single provider as an option for any major life investment... um mate did you hear about the eggs that were in the one basket before it got trashed. After all it is not like NZ has never seen major financial investment orgs crash and burn before with investors funds lost. Having a single option that is the least bad of some very bad restrictive and limited options is not a good option. It is merely less bad then most of them and if you had to switch or reduce your risk the limitations are very severe and restrictive on doing that.
"The Massey University Financial Education Centre publishes annually an estimate of how much a person in retirement needs to live on. It gives figures for how much a person needs to live on with 'no frills' if they live in the city ('metro'), and in the provinces."
This is a really common misconception. It does not provide estimates of what a person needs to live, but rather information about actual levels of expenditure. Here's what it says on the first page:
"Specifically, the Retirement Expenditure Guidelines provide information about actual levels of expenditure by New Zealanders who have already retired; however, this does not include an evaluation of the sufficiency of NZ Superannuation."
Lets take a look at the 'no frills Metro' details, which are are based on the average expenditure of the second quintile of the HES for retired households. In the breakdown given, housing costs including household utilities (energy bills) are given as $251.97. Take that away from the overall budget, and the person has $574 to live on a week after housing and energy costs. That's not exactly living on the bones of your ass. It includes over $100 a week on transport costs for a person who does not need to go to work and has access to free public transport and lives in a metro area. It includes over $40 a week on restaurant/ready to eat food. In fact the transport costs are eye-opening: the choices 'provincial' budget for one person includes $460 a week in transport costs. I live by myself in the provinces, and I certainly don't feel the need to spend close to $24k a year on transport in order to have a good life.
So what the expenditure guidelines tell us is that current pensioners are, as a group, doing pretty well. Of course there are some in dire straits - those without any savings who rent, for example. But if pensioners in the second quintile for spending - who are by definition less well off than the average pensioner, and are single to boot and not sharing costs - have pretty decent lifestyles, even if they are being describe as 'no frills'.
Thank you. I am corrected.
However, I don't think this affects my argument that the NZ Superannuation Fund needs greater funding, and that this funding ought to come from wealth taxes, not from increased income tax. Nor, I think, does it affect my argument that a surtax needs to be reintroduced on those who sign up for their super while they have other income, so that super, while remaining universally available, will be less attractive to those who don't need it.
I think you have Winston Peters to blame (or thank) for the end of the surtax. Labour and National were agreed that the surtax was vital to keep NZ Super affordable, but as Colin James reported in the Australian Financial Review of 21 July 1997 (Widespread opposition to NZ super scheme):
'Superannuation, pension, whichever word you use gives politicians the shakes. In 1993, New Zealand politicians came up with a smart idea. They signed a cross-party "accord". All except one politician. Winston Peters stayed out and Grey Power loved him for that because the accord kept a hated surtax on state pensioners with substantial incomes and Peters said it should go.'
And in a Stuff retrospective looking at when National under Jim Bolger needed Peters and NZ First to form a government in 1996 (https://www.stuff.co.nz/national/politics/97807416/that-was-then-what-now-the-1996-nz-first--national-deal):
'The "agreed spending parameters" are covered off in Schedule B of the deal which set out the abolition of the superannuation surcharge ($2.1 billion in 1999/2000) and $1b for tax cuts in 1999.'
(My reading of that is that the surcharge, or surtax, was saving the country $2 billion a year in 1999. Imagine what that saving would be now.)
One more thing that's interesting to note: the after-housing (and energy!) costs expenditure for the second quintile single person metro household in the retirement expenditure guidelines is $29848 annually. For the population as a whole, the equivalised after housing (but NOT after energy) annual disposable income is $26,243. (https://www.stats.govt.nz/information-releases/household-income-and-hou…).
So rather than telling us that pensioners are struggling or that pensions are not enough, what the guidelines tell as is that pensioners are in general (of course there are outliers who struggle) better off than the rest of the population.
"the NZSF must cease paying tax on its earnings"
I read or heard (via youtube) that the new labour govt in the UK is looking for money and pension funds was mentioned. It is likely that any govt, Tory or Labour will sniff around pension funds for more money. I don't see it as any different here. Although I endorse what you say you cannot trust any govt. Nats or Labour or any other political party with any money you put away in a govt or even a private savings/pension fund. At some point they'll come sniffing around, either by reducing incentives to save or raiding in one form or another what you have diligently been putting away for what you hope will be a comfortable retirement without having to watch every cent.
See the box chart towards end of article. NZ Super is $21.6 billion, and growing rapidly.
This box is bigger than all of education.
ALL OF EDUCATION!
Our priorities are wrong.
https://www.rnz.co.nz/news/in-depth/518245/budget-2024-in-charts-what-d…
I think you will find a lot of people are still working over 65 because they cant to live on their miserable pension and still paying a reasonable amount of tax whe working. You need 65k per year to live a reasonable retired life in NZ and you get 41555.00 after tax ,do the math
Here is a thought, you do not need a benefit once you turn 65 at all. A birthday is not a mass disabling event and you are not crippled the second the clock strikes 12. To think you are entitled to a benefit you never needed in the first place for no reason while you are still able to work is extreme compared to those who literally cannot work and cannot receive any income support. Lets see you live on nothing for a few years and see where that gets you. The entitlement of the boomer generation looking out for themselves with the highest benefit costs of all other benefits combined. Lets have it so partners over 65 are denied the benefit and that those over 65 must have sanctions and benefit cuts as well if they are working or have income or savings over a fixed amount, remove the gold card subsidies as well. It is only fair.
Because if it was ever needed there is disability jobseeker benefits they could go on instead and disabled people often have to self fund transport while denied access to PT. Lets see you survive on the jobseeker benefit with cuts if you are so inclined for money benefits from the government. I think you will find the much lower rates with exclusions, cuts and sanctions even harder to stomach. But like everything the rich and able take support away from those who are truly poor and disabled in large ways so the later often die now in NZ before they even see 65.
Means and asset testing. We have a situation today where low paid workers are kindly providing for pensioners living in multi-million dollar homes, so that they don't have to move or draw on their equity and can pass the whole lot onto their already privileged children.
That may be true, but many of these people will be earning 200-300k on passive income in retirement, which will be taxed. So they will be paying 100k is tax and receiving 30k back. That is just a small tax cut and they are Contributing more in retirement than most so during their working life. Seems quite fair t0 me.
Both systems rely upon growth and the wealth fund system additionally relies upon markets....that is not to say the wealth fund model has potential benefits but that it expects that in aggregate (and across time) that correct decisions will be made as to where and who those funds are invested with AND that the fund will not be raided by a future administration for purposes other.
Australia employers contribute 11.5% currently, just saying
We should look seriously at their model starting with compulsory 3% contribution to all employees super funds, not just those in Kiwisaver
Employers must be happy when someone pulls out of kiwisaver as it saves them money - from the employee perspective, and aside from those in genuine financial hardship, I don't understand why you would walk away from the benefits of Kiwisaver
Whilst it may not be a popular opinion, the age of eligibility needs to be increased over time for NZ Super and tied to a % of average life expectancy.
Access to super at the age of 65 up to the age of eligibility could be retained for those with medical certificates proving their inability to work.
This would provide some help towards reducing the demand on the pay as you go system and assist a transition to save as you go.
The phasing in or any increase in the super age has to be very gradual in order for people to amass the savings necessary to cover for this timeframe. Due to this delay, the demographics would have improved a bit, so the need to have done it at all will be lessened.
Plus young people will not want to work past 65 if they don't have to!
Nothing will change in NZ while we retain the attitude that the Guvmint will provide.
Yesterday there was an article here that obliquely criticized the Chinese people for not spending their money and saving to much for their old age.
Which is exactly the opposite of what we do here in NZ
Want to live well in retirement then save for it and stop relying on other people to do it for you
I have paid tax to pay for others pensions all my working life and the concept of having it changed so I don’t benefit from it doesn’t sit well. Any transition needs to over a long period of time. I don’t mind the age increasing provided that people who can’t work beyond 65 are catered for. People working while collecting it are not such a problem as they will be paying tax on their income and the pension will be taxed at a higher rate as a result.
I have paid tax to pay for others pensions all my working life and the concept of having it changed so I don’t benefit from it doesn’t sit well.
Unless we see a large die-off in the baby boomer generation, thus decreasing the demand on NZ super then this is an eventuality unless we continue to keep the population level up by immigration settings. If we do nothing, the system will reach breaking point and someone has to fund the pensioners if they wish to keep the system this way. There needs to be change so that the current working population do not have to pay increasingly more and more to fund NZS as it's demand increases daily.
The spend on superannuation in each financial year was:
2016/2017 $13.04 billion
2017/18 $13.7 billion
2018/19 $14.56 billion
2019/20 $15.52 billion
2020/21 $16.57 billion.
2024 Budget: $21.4 Billion
How does it compare to the "cost blowout" of the ferry terminal? Well a billion a year goes to 50k retirees still in work and earning over $100k. But the Government shouldn't look there for savings, it's a loyalty scheme remember? A reward for reaching the age of 65.
Because the New Zealand Super fund is included in Net government debt and we have a target debt to gdp ratio, as the super fund grows the amount of interest bearing debt grows with it. With the income from the super fund ring fenced for pensions the interest on the extra debt would need to come from taxes. This means that the amount of tax required to maintain the same debt to gdp ratio will rise substantially!
Here's an interesting argument by Susan St John about the NZ Superannuation Fund (which directly contradicts my argument in my first comment above, but never mind):
https://www.auckland.ac.nz/assets/business/about/our-research/research-…
National Super will break. It cannot last.
Over 30 years we should replace it with a universal Kiwisaver of large contributions.
We are not a rich country and there is no free lunch.
To those who say they can't afford it, actually you cannot afford not to. Starving in old age is not desirable.
To those who say they will invest themselves, there is nothing stopping you. Do that. Just treat the Kiwisaver you will also have as a backstop.
A universal Kiwisaver is not a standard investment. It's a social protection instrument. So no tax on it at entry, during or exit. None.
Except Kiwisaver requires you to have an income to contribute. Much of NZ population does not. Many don't even have an income to afford food and housing, key factors to survive to 65. But I get it so long as you're alright jack.
Or is it that the maths of 8% of nothing is nothing is too hard for you as it is for many. Your first statement to counter arguments certainly suggests knowledge of how percentages work is beyond you. After all these people do starve before the age of 65 and many have exemptions to income support below the age of 65.
But I get it. Lives & deaths don't matter until they turn 65. Until they come from your generation they are just too lazy & entitled being disabled or ill. They don't deserve income to live on or any support for living needs. Unlike those who have the highest incomes who see the most benefits of investment schemes and get even more benefits from taxpayers to fund their lifestyle.
Retirement?.. Start planning to live with your kids, If you managed to have some. ..Remember that time we thought we didn't need them and imported people instead?
Imagine what we could have done with our existing cities and towns with all the energy we wasted building boomer mansions, suburbs to nowhere and all the transport to and from.
I am sure there is an infinite number of migrants we could import and pay less then the living wage (and in many cases less then the minimums) and house 16 to a 3 bedroom home to provide retirement medical care and support.
After all we have been doing it already. We even had labour hire companies get in on the game and many of the care and support staff have more outside jobs that breach visa conditions as well just to have enough to live on.
The number of applications even for a below part time role (below part time hours min) in retirement care number over 300 with more then 290 just for those wanting to obtain the visa (even if the role cannot support them). Most the qualifications are fraudulent or unrelated. In our current system most workers are underpaid and yet understaffed and in dire need of more workers. But then it is not like we need people who know what wound care means eh or that you should not leave people to fall & then die from injuries sustained, or the importance of regular medication & food with chronic conditions.
If you do not have family to rely on in older age & can live extremely independently till the age of 98, (which very few can do or predict accurately), be very prepared for the staffing of aged care facilities to get much much worse.
Ironically many of the care and support jobs are optimal for youth to work in but unfortunately we made it qualification based, (with most the education around doing a mihi mihi, wanaka, Te Tiriti etc with zero training around medical & elder care, even the basic functions/features of it) and discriminate against NZders in hiring (even though migrants don't need quals for hiring, probably because NZders get uppity about low pay, bad hours, lack of training, unsafe conditions etc). This is another area where Australia is far better then NZ. So plan retirement to Aus is also an option. Medical support basics e.g. wound care, medical checks, safety practices can be taught. But we often fail at the first hurdle when even our medical courses don't have any medical support info for caring for most people, many of whom in need of care will be migrants themselves very soon. In fact we provide very poor access for elder care for people with different Asian ethnicities so there is a market and opportunity to provide more support care that is tailored to major population groups that NZ does not even consider existing in our census recording. Some things, like getting men to hand bath women and vice versa, and being very rough with bathing causing bruising and injuries, breaching medical & cultural boundaries, NZ does very badly.
I remember when working around one of these facilities some staff would leave broken glass on wet floors so when people slipped they would lacerate themselves as well, (not intentionally, just a large lack of common sense and forward thinking and many residents did fall and lacerate themselves and yet no medical support was sought for them). This happened so often some people employed could no longer be trusted in the roles because the failure in training was that bad. Some would feed residents rotten food or food residents were highly allergic to and if some were not able to use utensils they would just be left to starve. The standards actually have gotten worse over time, so inspections have left a lot of concerns. It is no coincidence that NZ has outbreaks of norovirus, contagion or sepsis from lack of care in our medical facilities often. It is not a case of if NZ has poor levels of care. It is that there is no avenue for justice when abuse and neglect occurs and an industry that is literally beyond breaking point.
Hence it is definitely a case of first leave NZ with family, then plan for retirement in that country. No country is perfect but even Australia is 30 years ahead of us in provisions.
Colemans views are always interesting but really. NZ Super is excellent public policy, affordable . Just read the 2024
The recent NZ Actuaries review of NZ Superannuation included “We therefore are still of the view that it is not necessary to reform NZS. Debate usually focuses on the “cost” of NZS, which is often portrayed wrongly as in crisis. Contrary arguments which stress the value and purpose of NZS are strong.
” The Retirement Commissioner says Super is a taonga that protects New Zealanders from poverty in old age. “Claims that NZ Super is unaffordable are not supported by independent, publicly accessible analysis.
The conclusions of the Retirement Commission NZ Super, Issues and Options 2024 say. New Zealand needs to champion the current model, its world class!
- NZ Super is the Government’s primary contribution to financial security for a person’s later life and ensures an adequate standard of living for older New Zealanders.
- The system needs to be fair, stable, and affordable.
- NZ Super is the eighth least expensive pension in the OECD, as a proportion of GDP.
- NZ expenditure would continue to be well below the OECD average in 40 years without any change to the age of eligibility.
- The current age of eligibility for NZ Super is not low relative to other OECD countries: 70% currently have a pension age of 65 or below, reducing to 53% by the 2060s.
- Any change to the age of eligibility would disproportionately disadvantage manual workers, carers, and those they care for, and those with poor health, due to differences in savings and wealth and ability to remain in paid work after the age of 65. Women, Māori, and Pacific Peoples are overrepresented in those groups.
- Extra benefits to support people through to a later age of eligibility would reduce fiscal savings from raising the age.
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