Code S: An easy and equitable solution to the NZ super problem, says leading economist
Monday, 22 June 2026
If New Zealand does not address the rising cost of NZ super now, come the next fiscal crisis, the elderly poor will be clobbered, a respected economist says.
But independent economist and historian Brian Easton does have a proposal for “a simple way” to tackle the problem.
The debate over the cost of superannuation roared back into the public arena last month after Finance Minister Nicola Willis highlighted it as a significant burden on the books in her Budget speech.
This weekend the National Party, in electioneering mode, announced they would make KiwiSaver compulsory for workers, in part to help buttress retirement savings for the 10% or so of those employed who do not take part. Some have posited this may ultimately be aimed at reducing the universal NZ Super bill, although Prime Minister Christopher Luxon said they were two separate issues.
On the current trajectory, National superannuation costs will rise sharply to more than $30 billion in 2030 from less than $20b in 2023, and in the next year alone the cost would rise by about $1.8b, she said.
Read more:
The long and short of it: The case for changing NZ Super eligibility
Budget 2026: PM backs Willis as superannuation debate dominates post-Budget mop-up
Her words followed a warning from Treasury that without policy changes, the proportion of the economy dedicated to funding superannuation will more than double, from 3.9% of GDP in 2006 to 8% by 2065.
Since then, it’s become clear that superannuation is set to be a hot topic in this year’s election campaign.
National and ACT want to raise the age of eligibility to 67, while Labour has indicated they might be open to means testing superannuation, and NZ First is fiercely opposed to any changes.
Many experts have voiced their views on the issue and now Easton, who was the economics columnist for The Listener for 37 years, has weighed in on it.
He told The Post there was no perfect way to deal with the rising cost of super, but there was a simple way to approach it which would address the worst of the inequities and threats it generates.
His suggestion was to make use of the tax system and put all superannuitants on a special income tax code, potentially called S.
Code S would have the same rates and conditions as the existing income tax system, except that the two top rates (currently 33% and 39%) would begin at a lower level than for taxpayers who do not receive superannuation.
While it was a kind of income surcharge, it would impact on relatively few, and those at the bottom would be unaffected, he said.
“If we don’t do this now, come the fiscal crisis it will be imposed upon us. No one knows when it will happen. Politicians hope that it will not be while they are in charge, but Treasury officials know it will happen one day.
“Nor do we know what will cause it: it could be a natural hazard catastrophe, a bio-hazard outbreak, or an external financial crisis, such as another GFC or a collapse in our terms of trade.”
But when it happened superannuation would be one of the first spending items to be addressed, he said.
“We don’t know exactly what the measures will be, but past experiences here and elsewhere suggest the options include an abrupt increase in its age of eligibility, cutting its level, and indexing it to prices rather than wages - which we did for benefits, thereby increasing inequality.
“Other support for the elderly, such as on residential care and healthcare, is likely to be cut too. The impact will be greatest on the poor, as happened in 1991.”
But if the Code S measure was introduced before that happened it would moderate the fiscal crisis when it occurred, protecting those at the bottom, he said.
“In effect, the current regime supports the well-off at the expense of the poor.”
When it came to the superannuation eligibility age, Easton said it made no sense to keep it fixed when people were living longer.
If everybody lived to 100, then they would be 35 years on the current super age, about as long as most would have been working, and those numbers just did not add up, he said.
“When in 1993 Ruth Richardson and Michael Cullen courageously agreed to raise the age of eligibility from 60 to 65, a 65-year-old could expect to live on average 16.7 years. It has already risen to 20.5 years.
“The age of eligibility needs to rise with it, steadily, say three months every year, as they did to reach 65, until it gets to the point where life expectation is 16.7 years again. (Currently that’s 69).
“After that keep the age of eligibility rising in line with rising longevity.”
He said that because it was an equity decision some of the fiscal savings should be used to support those from 60 who had health issues that limited their ability to work and had insufficient savings.
More resources also needed to be put into better accommodation and healthcare for the elderly, he said.
“But sitting, as we do, like possums in the middle of the road staring blindly into the future, means one day we will be run over, with the poor elderly the most clobbered.”
Many other countries also face escalating superannuation costs, and a range of measures have been employed to try and manage them.
They include raising the eligibility age, mandating private savings, means testing, and encouraging longer workforce participation.
Easton said his understanding was that NZ super was near unique internationally, so he would be surprised if his Code S suggestion had been implemented anywhere else in the world.
“I observe that our IRD runs different tax codes,” he added.