NZ Super - it’s all about choices
Friday, 11 July 2025
There is a crunch coming to government finances as Super recipients balloon - but is this really a crisis, or just a matter of choices? This series takes a closer look.
Anna Purushotam is very nearly 74 but hasn’t retired - she still works 38 hours a week with special needs children.
Her husband is 75 and still works as a kitchen assistant full time. He only recently stopped working two jobs at her insistence.
“We don’t even see each other,” she said.
“I undergo the same life pattern like how I was in my 20s and 30s. Luckily my health is permitting me now. I’m able to do some work now, but how long?”
The couple own their home but need to keep working to afford rates, insurance, groceries, petrol and an ever-increasing number of $25.50 doctor’s appointments.
“God forbid if I get sick two times, three times in a month.”
It’s a Catch-22 for Purushotam: she doesn’t get a Community Services Card for GP visits because she’s working, but she’s working so she can afford to see her GP.
She suggests docking the pension so pensioners get free appointments annually might be a good idea.
But raising the age of superannuation entitlement and means testing are both bad ideas, she said.
“Everybody cannot wait until 67 and some ethnicities die so early.”
Purushotam said Super shouldn’t be means tested because she’s earned it - and needs it even if others are better off.
“Throughout life we suffered and we paid extra taxes. Even now we are working … and we’re paying taxes.”
An enduring and simple system
The NZ Super system came about - as policies often do - in the white heat of partisan disagreement and an election campaign.
The Norman Kirk Labour government had introduced a compulsory superannuation scheme in 1974 that was not dissimilar to KiwiSaver - a 4% co-contribution from employers and employees that would be paid into individual accounts held by the New Zealand Superannuation Corporation. The corporation would invest the funds and pay out on retirement.
Robert Muldoon campaigned on ending this with the famous dancing Cossacks ad that played on TV (it only played twice). A cartoon stated that the scheme would become large enough to buy every asset in New Zealand and implied that it was therefore communist in nature.
Without any sense of irony, Muldoon then proposed NZ Superannuation. Instead of personal accounts that people would contribute to, this would be a pay-as-you-go taxpayer-funded scheme that would literally pay everyone the same amount of money in retirement.
It was essentially a continuation of a system that had been in place since the Social Security Act of 1938, according to the Retirement Commission.
That scheme still more or less holds today. Along with KiwiSaver and the NZ Super Fund it remains a cornerstone of New Zealand’s retirement system.
The system is pretty simple. Current taxpayers pay for current retirees - the taxes collected in any given year pay for NZ Super costs. The exception to this is the NZ Super Fund, which gets taxpayer-funded contributions from the taxpayers of today to smooth the fiscal cost for governments of tomorrow.
There are some residency requirements which were recently extended - you had to have lived and worked in NZ for 20 years.
By 2029, one in every five tax dollars collected each year will be spent on NZ Super (although given the current structural budget deficit some of it is essentially being debt funded at present).
The rates for NZ Super are adjusted based on the Consumers Price Index (CPI) and also include an additional boost linked to the net average wage.
The rate is pegged to average weekly earnings. It currently pays $538.42 per week and 1076.84 per fortnight for a single person living alone, while for a couple where both qualify, the rates are $828.34 weekly and $1656.68 fortnightly. It is administered by the Ministry of Social Development.
It is paid fortnightly on a Tuesday. A person can receive it if they spend less than 26 weeks abroad during the year. The rate is set at 66% of average weekly earnings for a couple and 65% of that for a single person living alone.
There are currently slightly more than 935,000 NZ Super recipients, on the way to being more than a million by the end of the decade - over 20% of the working age population.
That is up from 801,000 recipients only five years ago, in June 2020.
According to the Retirement Commission, 40% of NZ Super recipients rely solely on Super, and another 20% have very modest extra cash to supplement it. The other 40% have Super plus other income.
A part of New Zealand’s traditional mixture of keeping relative low rates of elderly poverty has been home ownership coupled with NZ Super. For those who do not own property and groups such as women, Māori and Pasifika, that has been far more precarious.
There have been concerns about its fiscal sustainability - or at least of governments’ ability to fit it into a reasonable fiscal footprint - for years. Labour Finance Minister Michael Cullen’s creation of the NZ Super Fund (in addition to stopping how Labour colleagues wanted to spend surpluses) was to help smooth the demographic crunch created by the Baby Boomers going through the system.
But now, there are more serious questions arising about Super’s sustainability - mostly due to the extent to which it increasingly vies for and possibly crowds out other spending priorities of this and future governments.
But within the sort of expert retirement space there does seem to be agreement on one thing. Calling the current (or any) system, “unaffordable” or “unsustainable“ is not helpful. State spending on pensions and retirement-related policies is a choice.
However, that distinction will be cold comfort for the current minister of finance looking at thousands of other choices also needing to be made.
New Zealand will go from spending about $16 billion in 2020 to $29b in 2029 - a doubling in nominal dollar terms in less than a decade.
This is all money that has to be found and in an environment where infrastructural spending is expected to be 5% to more than 7% of GDP in the coming years.
The National Party went into the last election promising to lift the age of eligibility and all the signals from Finance Minister Nicola Willis - including raising the KiwiSaver age - suggests that National will again.
Retirement Commissioner Jane Wrightson is a backer of the current scheme. It offers “longevity risk”, which means people’s money won’t run out, income security beyond any other state payment and, unlike other government payments, income stability with no further checks around eligibility.
“It has a real strength to it, which is its simplicity of administration. And you cannot underestimate this,” she says.
She also points out that New Zealand is at the low end of OECD nations in terms of how much of their gross domestic product they spend on pensions.
The Retirement Commission views its role as putting a lot of information into the public domain, while also advocating to target changes.
“What I've noticed in the sector is that there's an awful lot of opinion, not all of it informed, and the best way to deal with that is to say, well, let me tell you some facts - and what you might do do with those facts, of course, is up to you,” Wrightson says.
“I think 65 is the right number for the foreseeable future. I don't really buy the argument it's not affordable, because being not affordable is simply about government spending choices, right?”
While Wrightson says that the she views the current age is right, if she was to argue with herself - and one were to assume that it was all unaffordable - then the system would have to be changed with long lead times and there would have to be some level of political agreement around it.
“So the people that will get hurt with rising from 65 to 67 for instance, are women because of their key time in the workforce and the gender pay gap, which turns into the retirement savings gap. It's real. So women will get affected. They just haven't got enough money in the pot. Māori, Pasifika, same thing. And of course, those in manual occupations, because their bodies wear out, frankly, so if you don't look after them on the way through, then we're not a very good system,” she says.
“I don't really believe it should be means or income tested … but it is one option that needs to be looked at if you're looking at a systemic change, because there is something fundamentally wrong with people earning over $180,000 for instance, who automatically get Super - it doesn't feel right.”
According to the NZ Super Fund, the expected growth in spending on NZ Super will be 5.3% per year, which is above the expected nominal rate of growth of 4% per year. Super spending will continue to outstrip economic growth. In the next four years, it is expected to grow by 25% according to this year’s Budget, from $23.2b to $29b.
The NZ Super Fund is the key smoothing mechanism on all of this. By 2070 - which is a political lifetime away (and half an actual lifetime) - some 21% of the cost will be met by the Super Fund.
Super Fund assets are expected to be $104b by 2028/29, according to the 2025 Budget.
NZ Super is universal and non-means tested, however for people still working it is still considered taxable income so is still subject to secondary income tax. Essentially it is a social security payment - and is classified as such by Government - so is treated the same in a tax sense.
NZ Super is taxed by the Government and so is the NZ Super Fund. Former CTU economist Bill Rosenberg - also quoted by The Post columnist Max Rashbrooke a couple of weeks ago - pointed this out as a way of arguing that the scheme was more fiscally sustainable than at first blush.
Rosenberg wrote that in 2017, when the English government announced lifting the retirement age from 65 to 67, fully effective by 2037. That change was reversed.
Rosenberg’s point was accurate, but both the tax received from both NZ Super and the NZ Super Fund are built into the forecast of future government accounts. If NZ Super was paid net of tax it would be cheaper, but the Government also wouldn't book the tax revenue.
There have been several proposals worked out around means testing the current scenario, floated by the Retirement Commission, the New Zealand Society of Actuaries and others such as Susan St John at the University of Auckland Business School.
The Society of Actuaries actually said even with KiwiSaver, younger Kiwis are more likely to need NZ Super than older generations.
“Although younger people will be able to be in KiwiSaver for longer, they may have less potential to both own a home and save,” a January 2024 paper from the society said.
In a detailed paper, it concluded that changes weren’t necessary and that looking at KiwiSaver was a better place to start.
If means testing is to happen, there are various models - with various emphasis around equity - but at heart most revolve around some sort of higher tax rate or charge or different model with tax-free and taxable retirement income.
A superannuation surcharge last ran in New Zealand between 1985 and 1998, when it was abolished (in the meantime, the National government elected in 1990 had campaigned on abolishing it and welched on the promise, contributing to a near election loss in 1993). St John estimates that charge covered about 10% of the cost of Super.
It seems unlikely that there is any more political appetite for means testing, certainly not under the current Government, which doesn’t want to touch anything that has a whiff of tax hike about it and which wants to drive government spending down as a share of the economy. And any government including NZ First will be unlikely to entertain either that or the increase in age.
The ACT Party is in favour of raising the age. At the last election it proposed lifting it by two months per year to the age of 67, which it said at the time would save $16.2b over the coming 12 years. It is also open to means testing.
The advantages of means testing are that changes can happen relatively quickly and start to cover costs of demographic ageing in short order.
The downside is reducing trust in the system and that it affects superannuitants and voters now. Whereas raising the retirement age from 65 to 67 would affect no current superannuitants if it were to happen on the policy National took to the last election - which was to gradually start raising the age to 67 from 2044.
MMP elections are close and at 20% of the working age population, NZ Super recipients are a powerful voting bloc - one that will only grow.
But one thing is clear both in work by the Treasury and the research such as St John’s. There are going to be very many pressures on the government purse for years.
Health in particular is expected to be a huge drive of cost pressures as the population ages.
And, as the previous Labour government found and this Government is finding, there is just massive catch-up to do with New Zealand’s built infrastructure. Plus defence in a more geo-strategically uncertain world. And the rest.
As ever, there are limitless calls on the public purse, and the NZ Super system is unlikely to be immune from that.
Meet GIoria
Gloria Howe, 79, dreads going to the dentist.
“The teeth. Oh, I just dread it when something goes wrong with the teeth.”
She’s already lost three teeth but Howe has decided she won’t be able to afford dentures so learns to make do when another falls out.
Howe lives on superannuation and a small monthly payment from a Canadian retirement scheme and counts herself lucky that the rent on her Auckland council flat is subsidised.
But even so she doesn’t have much wiggle room left for surprise dentist bills or other unexpected expenses, like if you need to get an electric bed or if something goes wrong with the mobility scooter she shares with a neighbour. The call-out fee is $120 and a new battery can cost $900.
“Certainly any time you spend some dollars you look at whether you’ll be OK to the next payments.”
Howe takes advantage of free games nights at the local church or seminars and counselling offered by Age Concern Auckland.
Howe had to quit her job as a carer at 64 because it became too physically demanding, and said those deciding the pension age should increase usually worked in offices so didn’t think about manual labourers.
And the older you get, the harder it becomes to get good, comfortable jobs - often the only ones left are physical ones.
Howe was much more in favour of means testing.
“If they don’t need that pension why are they getting that?”