NZ Super's property poverty timebomb

Friday, 10 March 2017

Statistics show you really don't want to be renting while living on NZ Super.

Retirement specialists are concerned that falling home ownership rates will undermine the value of NZ Super.

Prime Minister Bill English has announced plans to raise the age of eligibility for NZ Super from 65 to 67 by 2040, while leaving the value of NZ Super the same.

Academic Philippa Howden-Chapman says higher house prices mean young people have a smaller window for getting a mortgage these days.

But pensions experts are less concerned about people waiting longer for NZ Super, than the impact on old-age poverty levels caused by falling home ownership.

Housing researcher Philippa Howden-Chapman says: 'People are increasingly renting when they are coming up to retirement, and we know that superannuation in New Zealand is predicated on the pattern of you owning your own home, which was the pattern in the 1970s when it was introduced.'

A smiling Bill English telling younger people that unlike him, they would have to wait until age 67 to get NZ Super.

David Boyle from the Commission for Financial Capability says: 'NZ Super is pretty hard to live on... if you are paying rent.'

* NZ superannuation changes: what they mean for you**

'Rates of poverty among retirees who own their home outright are much lower than among those who are still paying a mortgage or rent,' former Retirement Commissioner Diana Crossan warned the government in 2010.

'Unfortunately, housing affordability has declined to the point where now a house costs around five times salary compared to two-and-a-half times during the 1990s, and rates of home ownership are declining,' she said.

Since then, affordability has worsened and home ownership has dropped, though David Boyle from the Commission for Financial Literacy says it remains over 80 per cent for the over 65s.

'Once you have stopped work and you are on a fixed income, the money that comes through NZ Super is pretty hard to live on, and also pay for your accommodation, if you are paying rent,' Boyle says.

Howden-Chapman says high house prices meant young people have an increasingly narrow window to get onto the housing ladder before they no longer had enough time to repay increasingly large mortgages.

When it came to retirement planning, Boyle says: 'Housing has to matter.'

Financial adviser Liz Koh says: 'Statistics show that around 40 per cent of pensioners rely solely on NZ Super for their retirement income, and for a further 20 per cent, NZ Superannuation makes up 80 per cent of their income. The prospect of living on such a low income for a long time is a daunting one.'

WINNERS AND LOSERS FROM NATIONAL'S NZ SUPER POLICY

WINNERS:

PRE-1972 BABIES: Anyone born on or before 30 June 1972, including prime minister Bill English. They still get to draw NZ Super from age 65.
FUTURE WORKERS: The workers of tommorrow will have to pay to support the NZ Super and healthcare costs of the ageing population. National's plan would cut the 2040 cost of NZ Super from around 7.2 per cent of GDP to 6.6 per cent.
BANKS: In the last 20 years the standard mortgage term has gone from 20 to 30 years. With longer working lives, perhaps mortgage lengths can no go out even further.
COMPANIES: The corporate tax rate averaged 34.28 per cent between1981 and 2016, peaking at 48 per cent in 1986. It's now 30 per cent. Reducing future pressure on tax rates will help keep company tax low.
AUSTRALIAN KIWIS: Kiwis returning from Australia to retire won't get caught by National's planned 20-year residency rule for entitlement to NZ Super. They get to return after a working life in Australia and draw NZ Super straight away, while being able to keep their Australian super savings.

LOSERS:

POST 1972 BABES: English's generation did not have to worry about student loans or high house prices. Reducing the NZ Super entitlements for the young is one financial burden for them to shoulder.
POOR, SICK AND OBESE: Some people are more likely to die between 65 and 67, missing out on NZ Super entirely. They include the poor, as well as Maori and Pacific Island New Zealanders.
LATE CAREER JOBLESS: People made redundant and unable to find work between 65 and 67 will still be able to get their KiwiSaver money out. As benefits are means-tested, they will end up depleting their retirement savings.
MIGRANTS: Instead of qualifying for NZ Super after 10 years of residency, migrants will have to be resident for 20 years after the age of 20, including five after age 50, to get it. This could also catch some Kiwis living overseas in countries other than Australia.
SECTION 70 PENSIONERS: Around 70,000 people who have worked overseas get paid less NZ Super than everybody else. Section 70 lets the Ministry for Social Development reduce their NZ Super payments by the value of the overseas pensions they receive, in some cases when they were built up from contributions from their wages. Experts, including Susan St John, called for Section 70 to be ditched, and instead make migrants wait longer before they qualified for NZ Super. National's plan is to make them wait, but not ditch NZ Super.
XENOPHILES: People who marry someone who gets an overseas pension can lose their NZ Super as a result. Retirement Commissioner Diane Maxwell had called for that injustice to end.