Pension plans: Politicians and policy wonks propose changes to NZ Super

Saturday, 30 May 2020

Young people shouldn't fear NZ Super will disappear before they retire, but they may have to wait longer for it than the current generation of retirees did.

ANALYSIS: New Zealand Superannuation is the envy of the Western world, acknowledged for its relative cheapness and track record in keeping retired people out of poverty, but it's hard to find anybody who wants to leave it unchanged.

Even before Covid-19 knocked the country onto a new, and unknown economic trajectory, the population was ageing, and the costs of NZ Super projected to rise, prompting those with relative degrees of power to propose cost-cutting measures.

But academics from the Retirement Policy Research Centre, the country's only dedicated pensions research centre, lament that pensions policy proposals are tainted by narrow short-term politics.

'Policy development and implementation requires a long-term perspective not a three-year election cycle which encourages a short-term bias where vote-maximising politicians have strong incentives to discount the future,' the centre's Susan St John and Clare Dale said.

* Call to link NZ Super age to 'health expectancy' could mean working until 70

The country needed a research-led debate into the future of NZ Super, not a narrow focus on pushing up the age of eligibility for NZ Super from 65 to 67, said the centre's Michael Littlewood, editor of Pension Reforms.

'I hope that National does not just return to its previous notion of increasing the state pension age between 2037 and 2040 and think that’s it,' said Littlewood.

Policy proposals on the table from the political parties range from simply increasing the age of eligibility, to lifting tax rates for people claiming NZ Super who also had significant income from other sources, to increasing the length of time people have to live in New Zealand before they qualified for full NZ Super payments.

Deputy Prime Minister Winston Peters and Prime Minister Jacinda Ardern have an agreement that under the current government the age of eligibility of NZ Super will not move.

The September general election will decide who has the power to make the changes they propose.

LABOUR STANDS BY AGE 65

The current coalition agreement with NZ First means Labour is committed to leaving the age at which people qualify for NZ Super at 65.

Despite that, it has changes planned.

New Zealand First candidate Mark Patterson says 10 years is too short a time for migrants to qualify for NZ Super in.

A bill before Parliament, if passed into law, would remove one of the key unfairnesses of NZ Super.

Some people currently have their NZ Super payments reduced by the amount they get as a result of having made voluntary contributions to overseas pensions schemes run by overseas governments.

New National Party leader Todd Muller has committed to lifting the age of eligibility for NZ Super to 67.

NZ FIRST TO MAKE MIGRANTS WAIT

The party that's the NZ Super power behind the throne opposes any move to end universal NZ Super at age 65, but NZ First MP Mark Patterson has private member's bill before Parliament that would require people to live in New Zealand for 20 years before they were entitled to full NZ Super payments.

'Globally, 10 years is an unusually short time for full entitlement to a universal, non-means tested pension at age 65,' Patterson said.

While National supports the bill, Labour has not committed to it.

ACT Party Leader David Seymour is for lifting the age of eligibility, and doing it soon.

NATIONAL WOULD LIFT AGE TO 67

New National leader Todd Muller has committed to taking the party's plan of increasing the age of entitlement from 65 to 67 starting in 2037, with incremental moves until the policy is in place by 2040.

It would also change qualifying periods for people moving to New Zealand, just as NZ First proposes.

GREEN PARTY FOR STATUS QUO

The Greens are largely for the status quo, but the party was interested in exploring ways to allow flexibility in the age a person may receive New Zealand Superannuation.

ACT WOULD LIFT TO 67 FAST

New Zealand's most liberal parliamentary party was the first political party to advocate lifting the age of eligibility, calling the current settings unsustainable.

Many people are still fit, healthy and working at age 65, 66 and 67, but critics of lifting the age of eligibility t0 67, or even 70, say it would only increase inequality.

ACT would start immediately, lifting the age of entitlement to Super from 65 to 67 at a rate of two months per year finishing in 2032.

NEW CONSERVATIVES WOULD GO TO 70

Susan St John from the Retirement Policy Research Centre is one of the few independent academics who researches the pensions system in New Zealand.

The little-known New Conservatives party would slowly raise the age of eligibility to 70 in one year increments per decade, starting in 2030 and completing in 2070.

Immigrants would have to wait up to 25 years to get full NZ Super payments.

It proposes that KiwiSaver contributions would no longer be taxed, but instead, when people withdrew money, they would pay a levy of up to 20 per cent of their nest eggs into the NZ Super Fund to help pay for NZ Super.

NEW ZEALAND INITIATIVE

The economics-led think-tank says NZ Super Fund won't make NZ Super more affordable, only economic growth will.

NZ Super age should be linked to 'health expectancy'- the length of time people remain healthy enough to work.

RETIREMENT POLICY RESEARCH CENTRE

The centre's academics are united in their call for a research-led approach to New Zealand's pension system, and especially NZ Super, though some have made specific proposals for reform.

St John and Dale have proposed charging wealth people with large private incomes higher taxes to claw-back a proportion of NZ Super to reduce the cost of the scheme in a way that did not cause suffering among the poorest retirees.

Lifting the age of eligibility could cause problems due to ageism, and differing levels of health expectancy from poorer parts of society, they said.

'If raising taxes is ruled out, and raising the age of eligibility is likely to be particularly problematic in a rapidly changing jobs market, then there are only two other levers capable of raising significant revenue: lowering the rate of NZ Super, and income-testing,' they said in a 2019 paper.

COMMISSION FOR FINANCIAL CAPABILITY

The taxpayer-funded body exists to deliver three-yearly pensions advice to the government, and it's 2019 recommendations included leaving the age of eligibility at 65, and for politicians to unite in assuring younger New Zealanders that the scheme would remain largely unchanged.

'Younger New Zealanders, as well as their parents and grandparents, are feeling very concerned that NZ Super will not be made available to future retirees, or at adequate levels,' it told MPs.

'This uncertainty is causing unnecessary stress, and we think should be put to bed so New Zealanders can have certainty that NZ Super will provide a stable level of state support for them to plan around.

It suggested Parliament consider higher tax rates to claw back NZ Super from wealthier recipients.