Living the retirement dream - but for how much longer?

Sunday, 22 June 2025

Tracy Watkins is editor of The Post and Sunday Star-Times.

OPINION: Kiwis are deeply invested in the dream of retiring when they’re still young enough to enjoy the life they’ve built for themselves though hard work.

The latest The Post/Freshwater Strategy Poll suggests that won’t change any time soon.

Just 26% of those surveyed agreed the retirement age should gradually be raised by just two years, to the age of 67.

This was after they were asked how the country should respond to the rising cost of New Zealand superannuation and the pressure it put on government finances.

The finding is a political headache, not just for this government, but the next.

That superannuation is unsustainable seems undeniable. There have been repeated warnings that the Government’s finances are on a collision course with our ageing population and shrinking workforce.

New Zealand has the highest basic pension paid out of general taxation, relative to income, in the OECD. We are also unique among developed countries in providing a universal pension as the major form of income in retirement.

Contrast that with Australia, where the state pension is heavily means tested and asset tested (thanks to political foresight and a world leading compulsory savings scheme).

In New Zealand, the state is blind when it comes to other income.

You can have millions in the bank and still collect a pension. You can choose to keep working, and still get the pension.

The politics of dismantling that expectation is fraught, and complex - as demonstrated by another number from the Freshwater Strategy poll.

More than twice the number who support raising the retirement age, 43%, prefer means testing. But there’s a catch. Their support is predicated on means testing being applied to higher income earners or wealthy retirees.

If you ask most New Zealanders, they probably don’t consider themselves wealthy. It’s highly likely, therefore, that those who support means testing believe it won’t apply to them.

That’s where the history of means testing in New Zealand is instructive.

The reality of New Zealand’s pension scheme is that it has probably been unsustainable from the day it was declared a universal benefit.

But attempts to rein it in have almost always been politically disastrous.

In 1985 the fourth Labour government, confronted with a near-bankrupt economy, introduced a taxation surcharge on any other income earned by superannuitants - in effect, a means test.

A report by the Retirement Commission shows that In the first year of the surcharge, about 10% of superannuitants paid the equivalent of their full superannuation back in surcharge payments, and about 13%repaid a partial amount.

And yet it was deeply unpopular with voters; opposition was widespread, even among those who would be largely unaffected.

In 1989, the fourth Labour government again tried to tackle super costs; the rate - set at a generous 80% of gross ordinary time wages - would be lowered to between 65% and 72.5% of net wages. (It also signalled a rise in the age of entitlement though got voted out first.)

A new National government picked up the baton. The age of entitlement was raised from 60 to 65 in short order, and the surcharge increased.

Not surprisingly, public opposition exploded; National was seen as breaking a promise to abolish the surcharge; coupled with that, the pace of change had been too fast.

It forced a rare cross-party political accord in 1993 on the basic parameters of New Zealand’s super scheme.

Since then, the fifth Labour government has introduced KiwiSaver, and the so-called Cullen super fund, or NZ Super Fund (now worth a tidy $83b).

Both could conceivably have smoothed the path to means testing the universal pension - except for successive National Governments tinkering with KiwiSaver by reducing entitlements, and pausing contributions to the Cullen fund.

Trust in politicians keeping to their word on pensions is therefore low.

Somehow, however, a Government - if not this one, then the next - is going to have to confront the problem.

But they will run hard up against public opinion about fairness; means and asset testing will look like they are punishing people for working hard, and making financial sacrifices. They’ll have to answer as to why people who did neither should be supported by the State.

It will also rip open the scab of a generational battle - younger generations, who resent what they see as the unfair “boomer advantage” in life - will rejoice in anything that may balance the scales.

I don’t think we need further acrimony and division right now.

Personally, raising the age of entitlement seems like the least painful option; I don’t know many 60 year olds, including myself, who think they’ll retire at 65.

And then I think about my parents, who both worked till their late 60s. Their retirement was short lived. Both died in their 70s.

If they had known, would that have changed anything?

And that’s the emotive side of this debate.

Which is why it remains one of the hardest conversations we need to have.

Freshwater Strategy interviewed n=1,150 eligible voters in New Zealand, aged 18+ online, between 12-15 June 2025. Margin of Error +/- 3%. Data are weighted to be representative of New Zealand voters.

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