How the young are paying for super - and how superannuitants can give back

Wednesday, 19 February 2025

Dot Stephens and Bob Clarkson had their pensions cut even though they're flatmates, not a couple.

The 50th anniversary of the National Superannuation Schemein 2024 gave economists and social commentators the opportunity to question whether the scheme - the biggest welfare system the country has - is still fit for purpose.

In the main, the consensus was that “tough choices” would eventually need to be made over super’s future. Either the age at which people would get it be raised, or it could be means-tested - and some even suggested both would have to happen.

The burden of paying for super is increasingly falling on current and future generations of young people, both through taxes, and in other ways - for example increased borrowing to cover government contributions, because surpluses that used to fund these contributions have disappeared.

Dr Susan St John is an honorary associate professor in the Pensions and Intergenerational Equity Hub, Economics Policy Centre at the University of Auckland Business School.

Public spendingworks best for older people which could be to the detriment of younger generations, St John told The Post.

“NZ Super is a very good system and we must protect it. However it's extremely expensive and there is an argument that there is not enough to fix our support for younger generations,” she said.

“Should we be paying a full NZ Super payment to everyone that's 65, regardless of whether they're millionaires or still in the workforce full-time?”

Economist and University of Auckland associate professor Susan St John says NZ Super needs reconsideration in order to invest in young people today.

Fixing welfare redistribution

Clawing back some NZ Super funds from wealthy over-65s could start the shift towards better investment into benefits for younger generations, she says. In 2021, St John co-wrote a research report, currently being updated, that suggested the pension could be moved outside the tax system and treated as a basic income.

Those receiving it could then be taxed at a higher rate on their other income, be it wages, interest, dividends or anything else, once their other earnings reached a certain point, they were better off not to claim the pension.

She pointed out many of those claiming Super had built wealth through tax-free capital gains, especially in housing, and may have gained substantially from the 2010 income tax cuts and lower portfolio investment entity rates of tax over the years.

Funding lost could be redirected to do more for the young, she said.

The opposite end of the NZ Super benefit is the Working for Families (WFF) benefit, which has bigger tax clawbacks and can disincentivise people from working due to “harsh” and “discriminatory” penalties for people in paid work, penalties that St John says don’t apply to superannuitants.

Susan St John says welfare spending must be distributed differently to get the best support for young people.

“We do desperately need to consider things like the different rates of NZ Super.”

Ministry of Social Development spending data to the year ending June 2024 shows NZ Super took the lion’s share of welfare spending, taking a $21.6b bite out of the total $35.6b spent on benefit payments last year, up from $19.5b in the previous 12 months.

Although NZ Super beneficiaries earning over $180,000 on the highest tax rate (39%) are paying more tax than those with no other income, St John says all superannuitants essentially receive the same amount and there is no penalty for having other income.

The Social Development Minister wouldn't rule out sanctioning jobseeker beneficiaries who refuse to relocate for employment, as she announced to measures to 'support people off welfare'.

Conversely, those on WFF benefits are paid only to families with a combined income under $42,700, “Every dollar over that threshold means [families] lose their entitlement…they can very quickly get themselves into a poverty trap.”

“The clawback on WFF is extremely harsh. It means that young families face very high effective marginal tax rates. They stand to lose 27% of WFF payments for each extra dollar they've earned,” St John said.

The system also automatically disqualifies a partial $100 payment for children if anyone in a household is accessing any other type of benefit, and taking on other work is also penalised.

“We don't do anything like that for NZ Super. The clawback is so gentle that people don't notice it, but they really notice what's happening with their WFF so there's an intergenerational issue here.”

The choice to invest in young people is a question of priorities, she said. “We've got growing homelessness amongst the young, increasing hunger, and all the negatives happening at the same time because lower-income families don't have enough money.”

Community challenges

The Salvation Army’s 2025 State of the Nation report reveals the number of children living in households reliant on Government support rose to 232,800 last year, up from 225,000 in 2023 and higher than the peak of the pandemic.

Teacher aide and youth mentor Fonua Maka says reading, writing, maths and basic skills are still a challege for high school students.

“This increase is significant because half of all children in material hardship live in benefit households demonstrating that benefit incomes are not adequate to keep families out of poverty,” the report said.

“During 2024, access to hardship grants was reducing as Work and Income tightened eligibility for assistance, at the same time as the number of children living in families needing this assistance was increasing.”

Education in some communities is also suffering. Pillars Ka Pou Whakahou gives mentoring and support to rangatahi with parents in prison. Mentor and high school teacher aide Fonua Maka said working with young people was a “wake up call” as more rangatahi face increasing household financial stress.

“At college, a lot of the kids are working just to help their parents but it impacts their education because they’re not doing what’s required at school,” Maka told The Post. “Numeracy and literacy has seen a massive decline. A lot of our focus at college is on getting kids reading and writing and getting those basic skills.”

Maka worked with rangatahi throughout his career as a tertiary training support worker and in the community. Connecting young people with a community through boxing and potential career opportunities have helped keep his young people stay motivated “regardless of what’s going on at home”.

Through Pillars, Maka has learned the importance of providing young people with connection and belonging to a community. “Not everyone has access to services but there are people who care. There were challenges when I was growing up but I had people that I trusted. It’s about letting them know someone actually cares.”

Former physician Robyn Toomath says she decided to share her superannuation payments before retirement when she learned about the life-long impacts of early childhood adversity.

Another way

For those who want to do something about the disconnect between generous, universal superannuation payouts and less beneficent payments to younger people and families and need, there is another way.

Retired physician Robyn Toomath had an epiphany towards the end of her career that made her commit to foregoing her Super for herself, and directing it to where it was needed more.

“It's unbelievably difficult for people to save for retirement. It blows my mind thinking about how difficult it is with the cost of living and in the recession.

“My kids are employed but they are paying massive amounts in mortgage and childcare costs, and just keeping their heads above water,” she says.

Toomath says times have changed since she first opted into her superannuation scheme as a junior doctor. The former inflation-adjusted pension scheme for Government employees has helped her stay afloat post-retirement.

“I had a long career as a hospital specialist, earning a good salary and contributing to my superannuation scheme over the years, not thinking too much about it. When I got to the end of my working time, I realised I could live comfortably but modestly. Now I give half my pension to Share My Super and half to other causes,” she says.

But she says others in retirement continue to face financial challenges. “The fact that Government superannuation was set up so people could live on it is astonishingly ridiculous. Now, nobody could live on superannuation alone.”

And it seems fewer people than ever are able to enjoy that luxury. The Salvation Army report shows that since 2015, there’s been a 70% uptick in the number of people over 65 in, or actively looking for, paid employment. Almost 50% of those between 65 and 69 continue to work.

“We're going to see a lot of tired older people still having to rock up to work. People are working long beyond the age they should be because of financial constraints now,” Toomath said.