Yes, we can redesign pensions without screwing young people

Saturday, 11 July 2026

Experts are confidence New Zealand can retool its pensions system without screwing over the young.

ANALYSIS: It’s like young people have been invited to a meal at an expensive restaurant by their elders, are told what to eat, and then are left to pay a disproportionate share of the bill.

Superannuation expert Andrew Coleman sympathises with young people about pensions, and uses a restaurant analogy to illustrate it.

As the population of over 65s drawing NZ Super mounts, the young are getting the message that it is financially unsustainable, and they will have to save to pay for more of their own retirement.

It’s a transition in which younger and future generations “are being asked to pick up a disproportionate chunk of the bill”, Coleman says. But it doesn’t have to be that way, he says.

New Zealand can design a fairer, more efficient retirement income system, and transition to it in a way in which older and younger folk share the costs fairly.

Young to save more and get less NZ Super

Though the political signals remain mixed, there is a growing public awareness that as the population ages, it is going to get harder to pay for combined costs of NZ Super and state healthcare.

On current projections, the ratio of under 65s to over-65s is set to go from four to one, to as little as two to one by 2060.

Finance Minister Nicola Willis recently launched a broadside at parties which say they won't do anything about NZ Super, saying they were “prepared to rob everyone in this country under the age of 50 for their own political expediency”.

“In the absence of doing anything about our settings for the future, we will be committing a huge act against inter-generational equity,” she insisted on Budget day.

National, which in 2023 campaigned on lifting the age at which people qualify for NZ Super from 65 to 67, has a plan to make KiwiSaver compulsory, and lift contribution rates to match Australia’s.

The subtext of National’s policy and statements is clear: KiwiSaver needs beefing up so people can pay for more of their own retirements, and rely less on NZ Super.

Treasury figures show that leaving NZ Super and health policies unchanged would require the average tax rate on labour income to rise from 21% in 2025 to 32% in 2065, or for GST to rise to 32% by 2065.

That impost on the young would be grossly unfair, advocates for change say.

But ANZ chief executive Antonia Watson told The Post’s Future Proofing NZ that a “rebalancing” of New Zealand’s retirement income policy was possible, and it could be done with “fairness between generations”.

Tax breaks for the young, tax increases for the middle-aged

Coleman set about designing a new retirement system which would keep taxes in check so the young didn’t flee on masse to Australia, which sorted its retirement income system three decades ago.

And he put a lot of thought into a transition to it that was fair.

Coleman’s solution was a beefed up KiwiSaver and a dual retirement age.

People aged 45 or younger would only get NZ Super at age 75, but they would be able to access their KiwiSaver at age 65. Help to build their balances would come through tax breaks paid for predominantly by older people.

Under Coleman’s KiwiSaver 2.1 proposal, the first 10 years of retirement would be largely privately-funded, though many people already work past 65, and so would not have to touch their KiwiSaver immediately.

Those on lower wages, or because of accident, illness, or other mishap failed to save enough by 65, would get “topped up” by the taxpayer.

Coleman’s proposal would solve the NZ Super affordability crisis New Zealand is facing. But he argues it wouldn’t be fair for those over 45 to keep receiving NZ Super without also contribution to help younger people save.

So, in his proposal, young people could be given an income tax reduction paid for by modest income tax increases on older people.

Another way of doing it would be to broaden the tax base in a way that would mean older people paid more, such as increasing GST, or bringing in a land tax.

Some have suggested even changing KiwiSaver fund tax settings, reducing rates for the young to help them grow their balances.

Surveys suggests people would generally back a tax-based fairness mechanism as part of a system designed to future proof retirements, Coleman says.

Coleman is convinced his proposal would harness the power of compounding investment returns to deliver younger people better retirements than their elders, , a point which he thinks needs to be remembered in the fairness debate.

And, they would hopefully get to live their lives in a better, more productive economy fuelled by a huge pool of super money to invest at home, and abroad.

The young get all the KiwiSaver Govt contributions

Reformer Fraser Whineray’s KiwiSaver 2.0 idea is not linked to making changes to NZ Super, but he acknowledges boosting young people’s private retirement saving would make that easier.

Fraser believes undeniable economic realities mean the country has to move from relying so heavily on the current Paygo (Pay as you go) system in which taxes collected today fund NZ Super payments, to relying more on a Saygo (Save as you go) system where more of our retirement income is pre-funded through savings.

But Fraser’s KiwiSaver 2.0 attempts to bake in intergenerational fairness.

At birth, under his proposal, babies would have KiwiSaver accounts opened automatically for them, unless their parents opted them out.

They’d have $5000 of taxpayer money deposited into a growth fund and, if parents put in $100 each year, the taxpayer would match that.

Fraser Whineray's KiwiSaver 2.0 is a bold attempt to reshape New Zealand's economic future, but will politicians pay it any heed?

Whineray envisages generations growing up to arrive in the workforce more financially astute, and with estimated KiwiSaver balances of $20,000 to $25,000 regardless of the circumstances of their birth.

The funding of the $5000 starting balance would come through the end of the $260-a-year government incentive for workers.

Whineray would see KiwiSaver become partially compulsory. Employers would be required to make contributions starting at 2% and rising by 0.5% each year to reach 12% by 2047. Employee contributions would be voluntary.

As with Coleman’s plan, the end idea is to ease the growing pressure on government finances, build a massive pool of capital to invest in growing a more productive economy, and delivering wealthier retirements.

And, he says, something important is being missed in the fairness debate, which has been leaving young people feeling despondent and exploited.

Already most young workers are saving at a rate of 3.5% employee and 3.5% employer contributions, Whineray says.

Modelling by the Society of Actuaries suggests that matching 5% contributions (10% in total) would give the young enough to retire on decently.

That is not much more, he says. “We are already three-quarters of the way up the mountain.”

Bring in means-testing for NZ Super now

While Coleman says the general public is opposed to means-testing NZ Super, and it is seen by some as disincentivising saving, the idea has its supporters - including independent economist Shamubeel Eaqub, outgoing ANZ chief executive Antonia Watson, and Rupert Carlyon from KiwiSaver provider Kōura.

NZ Super is technically a benefit paid by the Ministry of Social Development like Jobseeker Support, Accommodation Supplement, and Residential Care Support, which are all means-tested.

Carlyon says means testing could be brought in immediately, would cut the cost of NZ Super, and would deliver fairness, because taxpayers wouldn’t be required to stump up to pay forpeople who didn’t need it.

And, he says, it affects 85-year-olds as much as it affects under 25s.

“We already do it for aged care. We already do it for working for families. We already do it for accommodation supplement, so why don’t we do it for NZ Super?” he asks.

What do the young think?

Coleman, Whineray, and Carlyon are all thinking about the retirement futures of the young, but none of them can claim to represent the young voter.

Coleman would like to see younger MPs from every party form a cross-party group to nut out exactly what the young think would be fair.

Tyler Groenewald, spokesperson for Generation Screwed.

Extending his parable of the trip to the restaurant, he says young people should get to choose from the menu, and help work out how to split the bill.

“The transition issue is very much about splitting the bill,” he says.

As Coleman says in the book he hopes to publish soon: “If you are young, you should be asking how you can design a new retirement income system, one that you want.”

There’s a spread of views among the young, says Tyler Groenewald, though there is a widespread belief that young people are “getting the short end of the stick” on super.

Groenewald is the spokesperson for an organisation called Generation Screwed, which is a spin-off from the rightwing Taxpayers’ Union lobby group, which operates under the tag line “Lower Taxes, Less Waste, More Accountability”.

“Young New Zealanders are being asked to pay more into KiwiSaver while politicians refuse to touch the biggest retirement cost in the system,” she says.

“Young workers now face a double burden: compulsion to pay for their own retirement and compulsion to pay for everyone else’s. KiwiSaver reform and superannuation reform cannot be separate conversations.”

She says there must be a middle road, where old and young both pay their share.

But discussion there must be, and Groenewald says that for Labour to pretend there is no need to even talk about NZ Super is “appalling”.