NZ Super crisis: Who might be the winners and losers from changing the way we pay for old age

Sunday, 17 May 2026

About 40% of people aged over 65 rely entirely on NZ Superannuation, with an additional 20% only having a “trickle” of other income to supplement it, according to Retirement Commissioner Jane Wrightson.

Yet increasingly it has come to seem like a benefit under siege.

A year ago, Finance Minister Nicola Willis cautioned that the number of working-age people supporting each pensioner had fallen from 6.5 in 2000 to 4.7, and would drop further to only 3.6 workers by 2050.

It is a large and growing burden on the working population. In the year to the end of June, the Government is expected to spend about $23 billion on NZ Super.

The Treasury warned last year that — without policy changes — the proportion of the economy dedicated to funding superannuation would more than double, from 3.9% of GDP in 2006 to 8% by 2065.

The Organisation for Economic Cooperation and Development was the latest to twist the knife.

Health and pension costs were on “an unsustainable path” without reform, it concluded in a report on the New Zealand economy earlier this month.

Yet for all the talk of “unaffordability”, New Zealand still spends much less on pensions than most developed economies.

The OECD estimates public pension spending among member states averaged 9% of GDP in 2025, compared with 5.3% in New Zealand.

Even by 2065, New Zealand’s spending is projected to remain below today’s current OECD average, under existing forecasts and settings.

Wrightson, who stepped down from the Retirement Commission on Friday, has pointed out New Zealand was the OECD’s eighth-lowest public spender on pensions in 2024.

That helps explain why not everyone agrees major changes to NZ Super are either justified or necessary.

New Zealand First leader Winston Peters argues it is economic growth that needs addressing, “not taking safe retirement off our seniors”.

The party could prove an insurmountable obstacle to an overhaul of NZ Super, depending on the outcome of the November election and how far it chose to take any opposition.

“Over multiple elections New Zealand First has stood firm on this issue and in every government, super has been protected,” Peters said.

Part of the explanation for New Zealand’s comparatively low pension spend is demographic.

Although the proportion of elderly people is growing, it remains relatively low here, thanks partly to net immigration replenishing the pool of younger workers and a slightly higher fertility rate.

Kiwis aged over 65 accounted for 17% of the population in 2024, versus an OECD average of 19%.

But the bigger reason is that while many countries have raised their pension eligibility age, they often pay higher state pensions that are linked to recipients’ past earnings.

On average across the OECD, a typical worker on average earnings can expect their mandatory pension to be worth 63% of their former earnings, according to the Paris-based organisation.

With NZ Super paying a flat rate of $555 a week for a single person and $854 for a retired couple, the equivalent the figure here is only 44%. Those figures are net, after tax.

Still, there is little denying that without reform, superannuation costs will continue to escalate, placing a greater burden on the working-age population.

Economist Cameron Bagrie is among those arguing “something has to give”.

“You can’t just give more to one portion of the population without having to give less to another, unless you raise taxes and that’s just taking it out of another cohort.”

Responding to the OECD report, Willis told The Post National would campaign at the next election on changing superannuation settings.

A day later, Prime Minister Christopher Luxon said that would include lifting the age people qualified for NZ Super, but that it is not the only possible reform.

So what are all the options?

Raising the age of eligibility

That is a sacrifice many countries have chosen to make.

The UK and Germany are raising the eligibility age for their state pensions from 66 to 67. In Australia and the United States it’s already 67.

The OECD recommended New Zealand join several member states that have started linking the age of eligibility to average life expectancy, so it would ratchet up as people lived longer, but with a cap at 69.

It described that as a matter of “intergenerational fairness”.

But it also noted a 22 year-old entering the workforce in Denmark today couldn’t expect to claim the pension until they were 74, based on its current settings, linked to life expectancy.

The gross savings from raising the eligibility age are relatively easy to estimate.

Back in 2017, when National proposed raising the pension age to 67 by 2040, then finance minister Steven Joyce told Cabinet that would mean 113,000 fewer people receiving the NZ Super from that date, at a gross annual savings of about $4b a year.

Inflation means that figure would not be worth as much in today’s dollars, but the savings would still be substantial — enough to reduce the cost of NZ Super by roughly 10%, or about 0.6% of GDP.

The net savings to the taxpayer might be lower. Some people aged between 65 and 67 would instead qualify for Jobseeker support or other benefits if they were unable to continue working.

Life expectancy may be steadily rising, but “job expectancy” perhaps not so much.

It is already a common complaint among older workers that it becomes significantly harder to secure new employment after 50.

According to the UK’s Institute for Fiscal Studies, when Britain upped its pension age to 66, the proportion of 65 year-olds living in poverty jumped from 16% to 38%, many of them women.

On the other hand, if more people worked longer, that should boost tax revenue and increase economic output.

Savings would be reduced if there were exemptions.

The OECD suggested Māori and Pasifika should receive different treatment to prevent unfair outcomes, given lower average life expectancies.

The Retirement Commission has questioned whether manual workers should be exempt from any eligibility-age rise, given the difficulties some may face continuing in physically demanding jobs.

France allows construction workers, miners and some other labourers to claim the pension two years earlier than its normal age of 64 if they have anything more than a minor incapacity.

Germany approaches it a bit differently, but lets people claim the pension two years early if they have worked for 45 years, which tends to advantage blue-collar workers.

Means testing

The Treasury has previously warned any means testing of NZ Super would need to kick in at “a relatively low level” to generate substantial savings, but it would depend on the approach.

Wrightson suggests that if that was introduced, the benefit should still remain universal for people aged over 70.

The OECD advocated for the Government means-testing the top 10% of income earners for NZ Super, alongside increasing the eligibility age, and the savings could be more than chump change.

The Ministry of Social Development reported that 941,511 people were receiving NZ Super as of June last year.

At the last census-based count, 49,368 pensioners had a taxable income exceeding $100,000 a year, including their NZ super payments.

Although it would be a blunter approach than the OECD is suggesting, removing access to NZ Super to people who earned more than $100,000 from other sources could reduce the cost of the scheme by about 4%.

Bagrie would go further, arguing “assets” as well as income should be considered in a means-test, as they are for some other benefits.

“We’re moving away from a model where support is universal.” The new slogan is “timely, temporary, targeted”, he notes.

Fellow economist Shamubeel Eaqub thinks along the same lines and argues the ‘moral hazard’ that means-testing would discourage people funding their retirement “isn’t as big as some people make out”.

“You can either be rich and have a good life, or you can be poor and not have a good life. It’s not like super is going to be so generous you can have a fabulous life on it.”

Linking increases in NZ Super to inflation, not wages

A third strategy sketched out by the Treasury involves indexing annual increases in NZ Super only to inflation.

Currently, payments usually rise by whichever is higher: inflation or the average increase in after-tax wages.

The married rate is designed to equate to at least 66% of the average individual after-tax wage, and not exceed 72.5%.

The Treasury estimates indexing payments only to inflation would be enough to keep superannuation costs broadly stable as a proportion of GDP.

It has also discussed gradually lifting the age of eligibility to 72 by 2065, though it warned the impact would fall heavily on people retiring soon after any change took effect — people now in their forties, for example.

As long as super payments remained indexed to after-tax wages, those already receiving superannuation — or qualifying before any increase in the eligibility age — would become the surprise beneficiaries of reform.

They would get to both keep their benefit and potentially gain from the drop in tax that resulted from having to fund fewer superannuitants in future.

The obvious drawback of inflation-linking is that pensioners most reliant on NZ Super could gradually fall behind the living standards of the wider population.

The Treasury estimates introducing such a change now would slash the total amount of income a low-earner born in the 1970s would have to spend over their lifetime by about 5%. That big hit reflects the reduction in value of their pension and the relatively small benefit they could expect from making lower contributions, through tax, to the pensions of others. It's a prospect that clearly alarms Wrightson.

That would be more than double the hit that population group would experience from lifting the eligibility age to 68 by 2040.

Making KiwiSaver contributions compulsory

Any measures that encouraged or required people to save more for their own retirement could reduce reliance on NZ Super.

But, as the OECD hints, that is easier said than done for people on low incomes.

Eaqub believes strengthening KiwiSaver is a necessary first step to lowering the political temperature around NZ Super reform itself.

“There is this weird expectation in New Zealand that we must make changes through one big, sweeping reform,” he says.

“The political narrative is that when we make change, we have to get everything perfect all in one go. We’ve never done that.”

As of March last year, 30% of working-age people who had signed up to KiwiSaver weren’t making voluntary contributions, up from 20% in 2010, according to the Financial Markets Authority.

Markets director John Horner assumed that reflected “general economic conditions” — though the Government halving its maximum annual contribution to members’ accounts to $521 in 2012, and halving it again to $261 last year, may not have helped.

At the same time as reducing that incentive, Willis chose to phase in an increase to default KiwiSaver contributions from 3% of salary and wages to 4% over three years.

OECD director Luiz de Mello made clear he would like more of the same, and Luxon said on Wednesday that National intended to lift contributions further, to 6% each for employers and employees, if re-elected.

De Mello also called for more a favourable tax treatment of KiwiSaver.

But any measures encouraging higher private savings inevitably come at a cost either to the Government’s finances or to workers’ disposable incomes.

And the OECD has stopped short of advocating compulsory KiwiSaver contributions, cautioning that could simply displace other forms of saving while “imposing financial hardship on low-income households”.

The political roadblock

This is hardly the first time NZ Super has been under the gun.

But there does not appear to be any obvious path to major reform without at least two of National, Labour and NZ First reaching some form of accommodation.

“Everyone can read where the polls are. New Zealand First is essential to form the next government, so on that basis, things probably won’t change in the short term,” says Infometrics principal economist Brad Olsen.

Labour leader Chris Hipkins says it is opposed to increasing the age of eligibility for superannuation or means testing.

“For a lot of working New Zealanders, they get to the age of 65 and it's unfair to ask them to keep working for longer when they’re physically worn out.”

But he also indicated there might be room for “longer term discussions about superannuation” outside an election year.

“We’re clearly not going to have that conversation in an election campaign in a bipartisan way. Bipartisan politics in an election campaign is very, very hard, near impossible.”

Eaqub agrees “impasse” is the word, while Bagrie says he doesn’t feel the debate on NZ super feels different this time around.

“We keep on kicking this can down the road. The only way you're going to see change is we get the ‘red and the blue camp’ working together on the issue.”

But a spokesperson for Peters makes clear NZ First would not support either party reaching across the benches, above its head.

“No government we are involved with will be changing super in any way. Both the ACT and the National Party campaigned on changes to super last election. Super hasn’t been touched in this government. That will not change in any future government. There are no lines to read between,” he says.

“As Winston has already stated ‘this is not a bottom line, this is a top line’. No increase to age of eligibility. No means testing. No indexing.”

Are we asking the right questions?

The root cause of rising NZ Super costs is straightforward.

There are a growing number of elderly people and, thanks largely to advances in healthcare, many are living longer after they either choose or become unable to continue working.

Altering the proportion of retirement income that comes in the form of superannuation payments funded via taxation, versus KiwiSaver or private savings, won’t change that — only how much of any bill is left to individuals as opposed to being “socialised”.

Wrightson agrees it would be unfortunate if, in attempting to improve intergeneration fairness, superannuation changes ended up exacerbating economic inequalities, including those that are gender-based.

“The retirement savings-gap for women is about 25% and that starts in your twenties, so that’s why it’s all interconnected, right?”

As of the last Census, 44% of people aged 65 to 69 and 25% of 70 to 74 year-olds were still in at least part-time work.

But if more people could continue supporting themselves through paid work after 65, that could help expand the overall economic pie.

If the problem is, as Willis described it, a demographic one at heart, should public policy prioritise removing barriers to workforce participation among older people, over recalibrating the balance between public support and private savings?

Olsen’s response illustrates why the debate over NZ Super remains so politically charged.

“New Zealand super was not supposed to be a payment for you to live your entire life after retirement. There’s a question of what level of lifestyle should be supported by the state,” he says.

“We keep talking about the ‘social contract’ that no one’s actually ever got or signed or knows what we’re talking about any more.”