Some Treasury staff say the government should get on with developing a plan to meet the rising cost of superannuation, which is expected to increase 50% by 2060.
An analytical note published on Thursday warned New Zealand’s population was ageing due to longer life spans and falling fertility rates.
It said the cost of superannuation and public healthcare would “substantially increase” as the proportion of people over 65 steadily grew over the next 80 years.
In 2020, there were four working age New Zealanders to support each person over 65. That was already well down from the 1960s, when there were seven workers per retiree, but it is projected to get much worse.
By the end of the century, it's forecast there will be less than two working-age people to support each person over 65. That’s 1.75 people aged 15-to-64 per retiree in 2100.
Treasury has previously warned the cost of superannuation will potentially increase 50% as a share of GDP by 2061 and continue to grow thereafter.
The authors of the recent analytical note said the government would have to meet this cost by increasing tax revenue on the proportionally smaller working population, or by decreasing spending on other services.
“Government revenues are not magicked from thin air, but are obtained through taxes and charges for publicly-provided services,” they wrote.
Alternatively, the government could consider changing superannuation settings to reduce the cost of the policy — but this would need to be done sooner rather than later.
“Despite the clear signs pointing towards these shifts, it may be tempting to delay taking action when the full impact might not be felt for decades,” the authors said.
“However, addressing these demographic challenges should begin well in advance because any policy changes affect lifetime savings decisions and capital accumulation, which cannot be adjusted instantaneously.”
Do not dither
To translate: if the government wants to cut universal superannuation in 2060, it needs to warn people born in 1995 today so they know to save enough to survive.
And if it doesn’t want to do that, it needs to come up with a credible plan for covering the costs so that a future government isn’t forced into cutting eligibility with no notice.
The paper’s authors also debunked claims that economic growth or the NZ Super Fund would be able to dig the country out of this hole.
The NZ Super Fund would only cover a quarter of future increases, and superannuation costs would increase in-step with productivity growth because payments are indexed to wages.
“Under current policy settings, there is no easy way to ‘grow’ our way out of these fiscal pressures,” the authors said.
Analytical notes are written by staff members at Treasury but are not considered official advice or an agency-wide view. Rather, they are used to develop policies and advice.
This specific paper was commissioned as part of ongoing work on the four-yearly statement on the long-term fiscal position, due to be published next year.
So, more taxes?
This report supports Labour Leader Chris Hipkins’ recent argument that New Zealanders need to accept the need for higher taxes, or else scrap universal entitlements.
However, a tax increase alone may not be enough to cover the climbing cost of the policy. The government currently collects the equivalent to 32% of GDP in taxes.
Some combination of changes may be needed to cope with this challenge, and there are essentially four levers which could be used:
First, fertility rates could increase. The government cannot and should not control reproduction, but it could make policy choices that encourage people to have more children.
Second, would be to maintain a welcoming migration policy. New Zealand already has a strong multicultural identity and should be able to avoid the backlash seen in Europe.
Third, changes to superannuation settings could be made to make it more targeted and affordable. It could be means-tested, kick in at 67, and be paid at a lower rate, similar to other benefits.
Finally, more tax revenue will need to be raised to cover the cost of pensions and healthcare for the ageing population — even if other government expenditure gets trimmed.
*An earlier version of this story incorrectly reported the cost of superannuation would increase to 50% of GDP by 2061. It has been corrected to say the cost would increase by 50% as a share of GDP.
78 Comments
Well if National hadn't stopped payments into the Cullen fund for nearly a decade, that would have made a massive difference IMO based on how much stocks rose over that time.
They need to income test super now and doing this that won't financially cause hardship. Someone earning 100k + a year doesn't also need super on top of that. Plus remove the free public transport benefits for these people too as they can afford it. That was Nationals reasoning for removing free prescriptions. Also asset test people with say over 5 million in assets per person, and make sure that amount is adjusted for inflation.
Who knew stocks would go up? Any money into a fund would either have meant higher taxes to pay for it or less expenditure. I can think of a few fancy art works paid for by my taxes I'd be happier without.
Super is taxed now. Mine at 17.5% If you earn 100k+ then a third of your Super returns to the govt. You would prefer al of it to be returned but wouldn't these high flyers simply work fewer days or stop work entirely?
I have a car and a gold card - every time I use the latter does other road users a service. Who really wants lots of elderly drivers using roads during rush hour?
Increase age as other sensible countries have doen and pay less. I'll eat more lentils and less steak.
Means testing will reward the cheats and employ accountants, tax lawyers and IRD staff. Great idea but will not work.
Change it to a poverty prevention scheme, mostly handed out in goods or services, rather than a lifestyle support scheme. Asset and income test entry (including property wealth).
A guaranteed 1-bed flat or apartment in the regional center nearby that's easily serviced by carers and medical workers. And a govt issued card with enough money to buy food. Society should prevent people falling into absolute poverty, you should never go hungry or without a bed in an economy with such means as ours.
'Treasury staff say the government should get on with developing a plan to meet the rising cost of superannuation, which is expected to increase 50% by 2060.
'The paper’s authors ... debunked claims that economic growth or the NZ Super Fund would be able to dig the country out of this hole. The NZ Super Fund would only cover a quarter of future increases....'
Yet only a few days ago we were told that the tax the NZ Superannuation Fund pays to the state each year will be greater than the $2 billion-a-year contribution the state pays into the fund. We are also reminded that National stopped contributions to the fund in 2009, and those contributions were not resumed till Labour was elected in 2017; that was a disastrous eight-year hiatus.
Here are steps the Government (or rather, 'governments', as it will require National-Labour agreement) can take to grow the NZSF into a sovereign wealth fund to fund superannuation in the future without increasing income tax:
* Stop the NZSF having to pay tax on its earnings; the ACC fund doesn't, neither should the NZSF;
* Take the $1 billion a year state subsidy going at $521 each to private KiwiSaver accounts and add that to the NZSF: the state has no business subsidising private savings;
* Further boost NZFS contributions by bringing back inheritance tax (abolished in 1993) and gift tax (2011), and imposing a capital gains tax on sale of assets including the family home.
NZ Superannuation now is too little for those who need it, and too much for those who don't. The net after-tax rate for an over-65 couple needs to be increased to match the higher of 100% of the after-tax full-time median wage or 80% of the after-tax average wage, with other rates rising in proportion.
To balance that, the surcharge (surtax) on all other income of people signed up for Super, abolished in 1998 thanks to Winston Peters, must be reimposed. Susan St John has proposed a way to do that without discouraging people from working past the age of 65:
https://www.auckland.ac.nz/assets/business/about/our-research/research-…
Lets be honest, government will issue more debt and the RBNZ will buy it... Lets not kid ourselves here. We will follow all the rest like Japan
There's a big difference between Aotearoa and Japan. We have a structural current account deficit instead of a surplus, and a net international investment position instead of the positive net international investment position Japan has. In fact, some say that NIIP that Japan has the potential to unravel the global economy. Essentially Japan's ability to 'produce stuff' is somewhat of an advantage.
Progressively raise the super age to 67, significantly reduce welfare by targeting it only towards people in real need, introduce targeted taxation of parasitic housing speculation, and remove the deductibility of interest payments for such housing speculative investment. Problem solved.
"significantly reduce welfare by targeting it only towards people in real need"... so the super pension benefit, which is our largest unnecessary welfare benefit should be cut completely for those who are getting income over the lower quartile of wages and significantly reduced for those still working on or below the lower quartile of wages. If they have a working partner they should get no pension benefit to be on par with the other benefits being managed. Righto. Next...
I'm retired and try to eke out Super by running an AirBnB with our granny flat. Tke my Super away and we would just move the AirBnB income to my younger working wife. Means testing will not work with NZ's gig economy - it would have worked when 99% of employees worked for big companies paying PAYE.
Savings should be made by increasing retirement age and reducing the benefit. Those in poverty would have accommodation and other benefits to lift them up. It is less admin to help the bottom who are in poverty than it is to measure assets and income for those at the top.
It does. But the UK govt freezes the pension if you live in NZ but matches inflation if you live in France. Better than NZ who withhold the pension if you are overseas except for a couple of Pacific Islands. A friend gets a Californian teachers pension and NZ Super; she is doing well.
In retrospect anyone who actually needs welfare support of a benefit could see what it is like trying for jobseeker or supported living under the age of 100. It apparently is enough for the actual poor & disabled to live on. So lets see what a significant cut to half the income for a couple over 65 would be and perhaps some empathy can be learned. Note arthritis & knee joint failure is not enough to get supported living so many will be on jobseeker and many others will be like those currently under 65 and get no income support if they ever have a romantic engagement (even if they do not live with a partner) or a temp job that does not last the year or savings & investment income above a certain limit.
It would be real interesting to see how fast the standard of living for the poor who actually are in need would improve to reduce premature death and enable treatment to return to work would be (whereas currently most cannot afford food or a GP).
Or that tax paid is a measure of your contribution to society.
Everything is proportionate, if the wealthy have such a big problem with the disproportionate amount of tax they pay, then they could always figure out how to draw less income and raise the incomes of the bottom 50% so the tax burden is more evenly distributed.
First, fertility rates could increase. The government cannot and should not control reproduction, but it could make policy choices that encourage people to have more children.
Second, would be to maintain a welcoming migration policy. New Zealand already has a strong multicultural identity and should be able to avoid the backlash seen in Europe.
We probably need to pick one and commit to it. We know we're not smart enough to build enough housing or infrastructure to do both, which means punishing house prices and hugely decreased quality of life for everyone who lives here. We're competing with other countries close by who share our values and languages for our talent, but we act like people born here are going to stay here forever simply because other people want to move here.
Britain had a strong multicultural identity when I lived there. It has changed both for good and for bad. NZ already has more children born with Asian parents than Maori which shows how quickly things can change
In the UK Leicester was being praised as an example of multi-cultural harmony until in late 2022 when ethnic violence broke out over cricket.
To maintain our healthy multi-cultural society NZ needs to cut permanent immigration back quite strongly. Do it now and we can still attract the doctors, nurses, computer programmers, medical technicians, etc that our govt has been unwilling to train. As NZ's birth rate declines it becomes more urgent. It is frustrating to see NZ naively follow the same path as other countries that have been suddenly surprised by ethnic clashes.
“Government revenues are not magicked from thin air, but are obtained through taxes and charges for publicly-provided services,”
Really? This is dogma as far as my MMT mates are concerned. And I think I agree with them (or I cannot disprove what they express) that govts spend into existence.
I am not sure I count as an MMT guy, but it is absolutely facutally correct that Govt spends first (crediting the private sector) and then collects taxes (debiting the private sector). In fact, in NZ, that is easier to prove than in most other places because the wiring is easily visible.
I am not sure I count as an MMT guy, but it is absolutely facutally correct that Govt spends first (crediting the private sector)
Cheers Jfoe. I know that you get it. I have to be agnostic because I cannot see how MMT is wrong, and as you point out, the govt does spend into existence. Therefore, I feel my understanding is more accurate than what the Treasury is expressing here.
"B-b-b-b-b-but we p-p-p-paid taxes all our lives." Ignoring inflation:
- Average life expectancy 82 = 17 years on pension
- $20k p.a. Super x 17 = $340k
- Today's Median Salary = $62k with $10k of PAYE
- 34 years of a Median Salary's entire PAYE funds one pensioner's Super.
Since Super is indexed to wages, these ratios would've existed for a very long time. They paid for their pension AND other core Government services? Maybe that's why the country is so run down.
And vise versa. No WFF, free school lunches, free child care when my children were growing up. It was called overtime or two jobs or go without.
No I am not retired, but after starting work at 15 years old I am looking forward to retiring at 65 and getting Superannuation, not welfare.
Childcare is not free, and family tax rebates have been around for nearly 100 years: https://www.weag.govt.nz/assets/documents/WEAG-report/background-docume…
David also scrapped free lunches, so really what’s your argument?
Think you’ve been caught with a little “back in my day”-ism.
And yes, super is a benefit.
I started work at 15 too (I'm a Millennial). Was spraying weeds/sweeping the yard at PGG Seed after school each day. I had school mates who also worked various part time jobs, it's not a "right of passage" that only happened during your childhood.
It kinda disappeared when youth wages were abolished in 2008. I guess kids were taking jobs away from migrants who had to be paid a full wage.
And so say all of us. If only the Politicians could be trusted to keep their hands OFF which ever system for a Pension was introduced.
When National Super was introduced it was called a Pension NOT a Social welfare benefit. and with eligibility as of right not need. and the work force paid taxes on that basis. Otherwise Muldoon would never have won the Election.
No that was John Key who said it was affordable, contradicting treasury who have always said it was unaffordable.
Couldn't have trivial issues like superannuation being 50% of GDP in the future distracting from the desperate need for tax cuts right now.
https://www.infometrics.co.nz/article/2013-06-getting-past-john-keys-eg…
Govt spends about $140bn and taxes back about the same each year. This level of spending and taxation enables Govt to consume about 25% of our resources (measured using final consumption expenditure).
if Govt needed to spend $170bn a year because we were at war, or (even worse) we had too many pensioners to pay and support, what would happen? Govt would need to spend $170bn and tax back about the same. What would the impact of this be?
From a net debt perspective - nothing has changed. Impact on net debt is zero whether Govt spends and taxes $140bn or $170bn.
Where would the revenue come from to enable $170bn a year of Govt spending? From the $170bn Govt spent of course. Govt spending creates the cash that is then used to pay taxes. This isn't contentious - it's just how it works.
So, what would change? Well if Govt ramps up its spending and taxation from $140bn to $170bn, the damn state would end up consuming quite a bit more than 25% of our available resources. That would need to be done carefully to stop the state competing for resources with the private sector - bidding up prices and creating inflation. That's why in war time, Govts sell war bonds and intervene in markets to prevent profiteering.
In NZ, the bigger state would mean fewer staff in retail and more in healthcare, less imported oil and EVs and more electrified public transport. Sounds terrible. How would we cope?
The sooner we see caring for an ageing population as a real resources question, the sooner we can get on with investing now in the things we will need in the future. If you were designing a country for older people, would you 'spend' all your construction resources building roads or hospitals? What productivity investments shoudl we make to enable the economy to meet the needs of more non-working people with less effort and energy?
Oh definitely Simeon Brown is spot on that the priority right now is to spend 10% of the countries entire 25 year infrastructure budget on upgrading the road from Wellsford to Whangerei.
The 10K vehicle movements north of wellsford desperately need the entire country to put them first. (for comparison this is half the volume that SH1 at clarkville north out of christchurch sees, so absolutely justifies Cantabrians making the sacrifice)
What good are hospitals without superhighways so that northlanders can escape their crumbling health services and use Aucklands? oh wait...
Treasury has previously warned superannuation will become unaffordable long before we get to that point. It could absorb 50% of gross domestic product by 2061 and still be growing.
the government could consider changing superannuation settings to reduce the cost of the policy
if both of these predictions are true, regardless how retirement monies being paid, be that from government or private savings, it still does not change the fact 50% of the GDP will be spent on aging retirees. all the real goods and services will be from the working population.
simply put, saving today's $$ to consume tomorrow will only increase tomorrow's inflation, hence the retirement problem is not going to be solved.
the only way out is: A, a better economy with stronger output per capita. or B, making more babies now. or C, imports. or D, all of the above.
But but but, these authors think they know more than Sir John Key?
There is no need to increase the eligibility age for NZ Superannuation as the scheme is affordable into the future, Prime Minister John Key told and audience of business people this morning in Wellington.
https://www.nzherald.co.nz/business/no-need-to-raise-nz-super-age-key/3…
Kiwisaver should be compulsory.
A graduated increase on saving as you get older. Maybe 2% increase for each decade. 2% when under 20, 4% under 30 etc.
It should also be the method the Reserve Bank stems inflation.
Presently new homeowners pay higher interest rates at a time when they have very little extra cash. Higher interest rates rewards people with cash to invest, who then spend it, which compounds the inflation problems.
An increase in compulsory Kiwisaver contributions stems spending for all people and puts it aside for their use later in life.
" New Zealand already has a strong multicultural identity and should be able to avoid the backlash seen in Europe." Really! How is NZ so superior in building social cohesion and integrating immigrants from greatly different culture than say Sweden, Germany, France, England, Italy, Greece, etc. What is this magic trick that we have and they don't? I don't see saluting the flag or conscription. Or even enforcing mixing in state housing as per Singapore. So what is this 'strong multicultural identity'? Is it just as usual NZ being a few years behind other countries. Their race riots and attacks on migrant hotels in the past and the present will become our future. Maybe this continual Maori -v- Pakeha argument about bi-culturalism is a clever plot to derail multi-culturalism.
"By the end of the century, it's forecast there will be less than two working-age people to support each person over 65. That’s 1.75 people aged 15-to-64 per retiree in 2100."
Stop and consider if these projections are correct, tax is not the issue.
It matters not how much revenue the Gov has nor how large anybody's Kiwisaver balance is if there are simply not enough bodies available to provide services for the retired nor almost anything else.
(I know it was a joke but on a taking it serious note) AI has been trialed in decades previously with much simpler tasks and the issues that arose are not even being targeted for development with modern AI. The core elements of the design also ignored the issues of operating machinery around variable human bodies without direct human monitoring (all trials actually increased the need for direct human supervision & sensory checks).
Nowadays they just leave a guy with a cardboard bottle & a bed pan or nappy & soiled for a few hours in our current hospitals. Which is both a negation of humans and AI being added into most the events. Adding AI in just increases the need of both those resources (with the AI development & subscription contracts being the most expensive, followed by the human resources and then the fabric ones), for what is seen as minimal gains. Don't ask what they do for women. It is best just to have your own enema and dehydrate yourself for long stretches of time. Either way you have to learn to be used to the smell, pain, chances of infection and the lack of normal bathing procedures.
If you ever have a choice opt for setting your support options early. Too late and you could be stuck without the necessary time to experiment and pick support staff who handle your private info.
It's fine for some over paid, rich, pricks in Treasury etc to tell the mid to poor income earners that it's gunna cost you guys more to retire !
The solution is to tax the rich more on thier.assets and also make super pay more to the poor who have paid tax all their life and nothing to the wealthy who can retire off their own wealth... Aye Winston !
Also, less super for people who have been on a benefit and or have a free SW house.
It annoys me that many young are leaving school , having kids, both on the benefit, and living in a free house until they retire. Then they get super
They have taken taken and taken from the public tit and for what?. To rinse and repeat ..
You do realize that more then half the population on the super have not "worked" for it, many never worked a day in their lives to fund it yet they also were not on a benefit under 65. They also got supported housing grants, free education, work programs and investment benefits and then on top chose not to work for most their lives. These are not the people you target for hatred & abuse and yet they make up most of those who require the most pension benefit support. Most of those in social housing ARE THE ELDERLY who had other options.
While most of those on the other benefits are disabled and never got the opportunity for equitable education and never had the opportunity for employment or housing ownership. In fact many were denied any education, were beaten and raped regularly as children because, like you, other people saw them as less then human and worthy of appalling abuse and hatred.
But thats ok to you. You are one of the permanently entitled lazy who can choose not to work while able to and sit on a pension benefit for more years then you have actually been contributing to society. Expecting society to carry your lazy ass on a pension benefit while those who have been severely medically harmed and denied employment are left to beg for minimal human rights and the barest sliver of opportunities that you had.
You know looking at it lets just cut you from NZ instead of those who we have a moral and legal responsibility for given the abuse we have already committed against them. After all you don't plan to be very productive while collecting a pension benefit and certainly don't need the welfare.
Just don’t pay superannuation to people who are still working, on a board, collecting honorariums, rental income on their mortgage free rental, etc where their annual income across all sources (yes, including payments from the tax dodge family trusts) is above $100k or some such.
plenty of entitled boomers in that situation who keep earning until they’re 80 and decide to spend time in the garden after which they promptly pop their clogs. That’s a good 15 years of savings.
NZ makes all other beneficiaries rely on their earned income to not get support from the state. Super should be the same. There is absolutely no reason why Super should not be altered. Free study, family tax benefit, first home grants, state advances, all taken away by successive governments and it is absolutely farcical and stupid that NZ continues to be so mindless as to never touch superannuation. The country needs to grow up or get a pair.
I think it is important that NZ Super remain a universally available social welfare benefit at 65.
Nevertheless, now it is too little for those who need it, and too much for those who don't. The net after-tax rate for an over-65 couple needs to be increased to match the higher of 100% of the after-tax full-time median wage or 80% of the after-tax average wage, with other rates rising in proportion.
To balance that, the surcharge (surtax) on all other income of people signed up for Super, abolished in 1998 thanks to Winston Peters, must be reimposed. Susan St John has proposed a way to do that without discouraging people from working past the age of 65:
https://www.auckland.ac.nz/assets/business/about/our-research/research-…
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