Means testing NZ Super fairer than raising age: Commissioner
Tuesday, 13 February 2024
A simple form of means-testing would be preferable to lifting the age at which people would become eligible to collect NZ Super, says Retirement Commissioner Jane Wrightson.
“Income-testing is a fairer way to reduce expenditure on NZ Super compared to raising the age of eligibility, so NZ Super would not be paid to those who continue to earn significant income,” said Wrightson.
“Perhaps twice the median income for a period after 65, or while significant income is being earned,” she suggested.
The suggestion comes in a report published by the Retirement Commission Te Ara Ahunga Ora in advance of a “Super Summit” being held in Wellington on March 21.
Other suggestions are even more radical, with one option being to require wealthy people’s estates to “repay” some of the NZ Super they got during their retirement years.
Wrightson said she favoured the status quo of leaving NZ Super unchanged, calling it a “taonga”, and dismissing claims it was becoming unaffordable as the population ages.
NZ Super was relatively cheap compared to most other countries in the OECD with the exception of Australia, which embarked on forced, subsidised pension saving for residents in 1992.
But while NZ Super is cheaper and simpler than pensions systems overseas, it has long been subject to calls from the political right for it to be made less generous.
ACT went into last October’s general election saying it would lift the age of eligibility to 67, and then index it to life expectancy.
National also wanted to lift the age of eligibility, but said it would not start progressively lifting the age of eligibility until 2044, and that the changes would not affect anyone born before 1979.
The coalition government intends to make no changes to NZ Super during its current term, which is the result of it have to deal with NZ First, which will countenance no change to NZ Super.
The commission’s report said if the age of eligibility for NZ Super was raised, one way of supporting people who could no longer work would be to leave the age at which they could access their KiwiSaver unchanged.
Another possible way to cut NZ Super costs could be to raise the age of eligibility for all but those in ill-health, or in manual occupations where they were unlikely to be able to maintain work after the age of 65.
Many people remain in paid work after the age of 65, with data from Stats NZ showing 66,600 men and 58,900 women aged 65 to 69 remained in paid work, equating to around 52% of men and 43% of women, though some would be working reduced hours.
The ability to work past the age of 65 is not evenly distributed, the Retirement Commissioner said.
It was middle and upper income people who continued to work for longer. People from the lowest income deciles were almost entirely reliant on NZ Super.
Still another possible way to cut the cost of NZ Super would be to lift tax rates for over 65s earning income on top of NZ Super.
NZ Super will become more, not less, important for future generations, and reforming it is unnecessary, retirement experts from the the New Zealand Society of Actuaries said in January.
The blight on young workers’ lives of high rents and property prices limited their ability to save, the actuaries said, meaning NZ Super was likely to be more, not less, important to them than it was to generations for whom home ownership rates were higher.
“We are still of the view that it is not necessary to reform NZ Super,” the actuaries from the society’s Retirement Income Interest Group said in a report on New Zealand’s universal pension.
Every proposed change to make NZ Super more affordable was problematic, said the actuaries, financial experts whose job it is to predict and assess the financial risks and impacts of future events.
“We see means-testing and flexible age of eligibility as particular fails,” the actuaries said.
In the UK, raising the age of eligibility plunged many women into income poverty, the commission’s report said.