The superannuation fix nobody is talking about
Wednesday, 13 May 2026
Henry Cooke is deputy political editor at The Post, and writes a column every Wednesday.
OPINION: Labour’s last attempt to seriously expand the welfare state is dying without either a bang or a whimper.
The party now seems almost embarrassed by the fees-free policy it championed in 2017. Back then it felt it needed to offer younger people something solid from the state, something universal that showed that the austere days of Bill English were ending, and fees-free fit the bill perfectly.
Now as he essentially shrugs his shoulders over the Government removing the policy, Chris Hipkins knows that it is going to be some time before his party can try to really advance social democracy for young people, if it even wants to. The state of the public finances, the mood music from credit rating agencies, and the lack of productivity growth means he just won’t be able to afford to do so. The 2010s and their brief moment of big promises from the New Zealand Left are well and truly gone.
Instead the debate moves to the remaining area where the state really does give its citizens a full and universal ride: Old age.
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There are good reasons for our politicians to look seriously at the long-term affordability of superannuation.
It is by far our largest benefit, and largest single-ticket item, taking up around 16.6% of tax revenue and 5% of GDP. It costs close to five times what we spend on the unemployment benefit or more than our entire educational system. And given we are both living longer and having fewer children it seems set to eat up more and more of the wider budget.
It is notoriously difficult to reform in part because of a widespread belief that people “pay into” superannuation as they pay into their KiwiSavers or old compulsory super schemes. They do not. The taxes of people working today pay for the super of those retired today - and the taxes that they paid as they were working paid for the retirees of their day.
It’s also hard because superannuation has done a phenomenal job at its core purpose: Destroying elderly poverty. According to Treasury just 3% of over 65s are experiencing material or financial hardship. Super has become comparatively more generous over the last 15 years through a combination of tax cuts and indexation. Most people subscribe to the idea that someone too old to work should be allowed some level of comfort and support in their final years.
Labour under Phil Goff and David Cunliffe took a punt on raising the age while in Opposition only to see the attempt batted down by a John Key who had promised voters he would rather resign than touch super. Now the roles are somewhat switched with National indicating it wants to gradually raise the age while Labour argues it should stay at 65 - no ifs or buts. Hipkins responded with interest to the idea of means-testing the benefit, but his office has since made clear this is nowhere near Labour policy.
But it is Winston Peters and NZ First who have done the most to make reform a non-starter for this term and potentially the next, with Peters telling The Post on Monday he would never allow any Government he was a part of either to means-test super or move the age. Given that a left-wing Government led by Labour and supported by the Greens and potentially Te Pāti Māori seems unlikely to touch one of the final bastions of the universal welfare state, and given that National and ACT have no realistic path to power without NZ First, it seems the issue is a bit of a non-starter.
Unless.
One of the reasons superannuation has become such a big-ticket item is the way it is “indexed” - the way that it automatically goes up over time.
All other benefits are indexed to match regular price inflation. So if you’re severely disabled and get a supported living payment, your benefit goes up in track with the price of a basket of goods every year - hopefully meaning you can continue to pay for the necessities in life.
But because superannuation is seen as a special other type of payment whose beneficiaries are more deserving, it is indexed to wage inflation. Wage inflation typically outguns price inflation over time, and this means that people on super don’t just keep up with prices rising, they keep up with wages too.
Treasury had a look at what changing the indexation to regular price inflation would look like recently. It would unsurprisingly save a huge amount of money - reducing the necessary taxes by so much that GDP per person would be $4900 higher per person by 2065. It would also hurt a lot of people’s incomes - including existing pensioners and those close to retirement, and be remarkably regressive, with the rich gaining far more. Indeed, Treasury didn’t think the median earner would be better off under these changes until 2050.
Means-testing would likely be a far fairer way to reduce the costs of super. But it has a terrible reputation and would likely involve assessing not just income but assets, something that will stick very hard in the craw, even if it is the best way to actually work out who has means and who doesn’t.
Changing indexation would allow a politician to go out and tell people that they weren’t cutting anything, even if in real terms they were. Its impact would be felt slowly over time, instead of all at once, spreading the pain across many terms of government - meaning the minister who did it might not be the minister who had to feel the pain. It could even be staged to come in alongside some new KiwiSaver requirement, or a separate benefit for pensioners who aren’t in other work, softening the blow over time.
And is it ruled out? Well, Hipkins and Finance Minister Nicola Willis both refused to really address the idea when asked on Tuesday, leaving the door open to the idea. But Peters? A spokesman told me just as I finished this column that he was ruling this one out forever too. Some things never change, and it seems super might be one of them.