The Super squeeze: who pays, loses, decides

Sunday, 5 October 2025

EXPLAINER: Superannuation is back in the news for the same reason it always is: money. This time though, the headlines are prompted by Treasury’s latest long-term fiscal report, released last month and warning the costs of supporting an ageing population are set to “accelerate” in coming decades.

Currently, New Zealanders aged 65 and over are entitled to Super, a universal pension designed to provide a basic standard of living in retirement. It’s a scheme funded by taxation — today’s workers paying for today’s retirees — but that model is failing. In 1965, there were seven working-age New Zealanders for every retiree; today, there are four. By 2065, there’ll be just two.

Treasury’s sums paint a stark, if not new, picture. Superannuation and healthcare already eat up about half the Government’s Budget, and by mid-century they’re projected to swallow much more. If nothing changes, Treasury predicts, government debt could swell to around 200% of GDP. Longer lifespans, falling birth rates, and a wave of Baby Boomers retiring are all feeding into the crunch, while Super spending alone is expected to rise from just over 5% of GDP today to 8% by 2065.

Treasury’s solution? Gradually increase the age of eligibility, pushing it to 72 by 2065 to help keep costs at a more manageable level. In Parliament though that’s a political hot potato. Only National and ACT are open to lifting the pension age: ACT would raise it by two months every year until it hits 67, while National favours a slower increase to 67 — but not until 2040. NZ First leader Winston Peters favours compulsory Kiwi Saver, minimum rates at 8–10%, and tax cuts to sweeten the deal.

But politics aside, what does all this mean for us? Whether we’re decades from retirement or already planning for it, Super’s future affects how long we’ll work, how much tax we’ll pay while we do, and what kind of public services we’ll get along the way.

And once we’re finally there, it shapes how much money we should have saved beforehand. The bottom line? Our retirement age, take-home pay, and standard of living are all on the table.

Independent economist Cameron Bagrie says the maths is straightforward: if the pension age doesn’t shift, the money will have to come from elsewhere. “One, it’s higher tax, and two, it’s from something which will have to go through shrinkflation: law and order, education, defence - we’d have to strip those sectors.”

Put simply, we’ll either work longer, pay more, or settle for fewer public services. As Bagrie also puts it: “We’d have to basically dismantle the welfare state to keep total welfare spending stable as a share of GDP.”

The debate ultimately comes down to both what kind of society we want and how much weight we place on intergenerational fairness, he says. The trade-offs aren’t just about age because if superannuation costs are kept steady by squeezing other parts of the welfare system, it’ll be the most vulnerable who lose out.

Meanwhile, redirecting money from law and order or education will shift the burden onto younger generations. “If we go down that route, who gets penalised here?”

Bagrie also points to inconsistencies in the way the system is structured. “How on earth can someone in Parliament, clipping an MP’s salary, still be able to get Super? It’s a very simple example of how absurd the system is.

“We means-test some of our health expenditure in regard to aged care, so we’re prepared to means-test one but not the other.”

Infometrics chief executive Brad Olsen says part of the challenge is that the old social contract has shifted. “The reality is that Kiwis are living longer. Whatever the deal once was — X years on NZ Super — people are now getting more years, and that costs a lot.” Raising the age, he believes, simply keeps the balance of how much of our lives are funded in retirement.

But the impacts won’t be felt equally. Māori, on average, die younger which means they receive Super for fewer years. Olsen says while some schools of thought argue this should entitle earlier payments, he doesn’t agree.

“If we have an issue where Māori die earlier in New Zealand — which we do — I feel we should fix the issue rather than pay them out for dying earlier. I think that would be the biggest admission of failure.”

Another group often raised in the debate are manual workers, who may find it harder to keep going past 65. Olsen acknowledges the concern but isn’t convinced it undermines raising the age: “I’m not sure a builder is at 110% at 65 and suddenly useless at 66. If the age is lifted, we’ll need some transitional support, but it’s not a reason to stop change.”

Beyond that, any shift in eligibility will mainly affect younger people still working towards retirement. For them, it means a few more years of saving; far less painful, Olsen argues, than a lifetime of paying higher taxes.

But still the central question both economists keep circling: what do we value more? Keeping Super untouched, or protecting the services and opportunities future generations rely on?

And the last quote goes to Bagrie, because its both a beauty and brutal: “We now spend more on Super than we spend on the entire education system. I’d love to go toe-to-toe with anybody who thinks that passes the common-sense test.”