Means testing super: Why it's more complicated than you think
Sunday, 14 June 2026
Means testing wealthy older people is being touted as a solution to the looming superannuation time bomb, but it could be a mistake to go down that path, experts are warning.
Challenging economic times, this year’s Budget and the looming election have led to a focus on the fiscal pressures New Zealand is facing. Within that, superannuation has emerged as a flashpoint.
That’s because it’s a large and growing burden on the working population, with the Government expected to spend about $23 billion on NZ Super in the year to the end of June. By 2028/29, it is expected to cost $29b.
And Treasury has warned that without policy changes, the proportion of the economy dedicated to funding superannuation will more than double, from 3.9% of GDP in 2006 to 8% by 2065.
Read more:
Most people agree that something needs to be done to address this, and Labour Party leader Chris Hipkins has indicated the party might be open to means testing superannuation.
It's an idea that seems popular with Kiwis. Last year a Freshwater Strategy/The Post poll found that 43% of respondents preferred a means-testing approach, compared to 26% who wanted to raise the age.
But would means testing super actually be a good idea in practice?
The Sunday Star-Times asked five financial experts with an interest in superannuation for their take, and it turns out the reality is far more complex than most people think.
Here’s what they said.
Dr Susan St John, Associate Professor at the University of Auckland Business School.
People tend to look to Australia for an example of a means testing superannuation. But we have to understand the difference between the Australian way of doing things and what we do here.
They have a highly subsidised, compulsory private savings scheme, so people end up with much higher private savings than we do in New Zealand. We don’t have that. KiwiSaver is not the same, and won’t be for many years.
What we have is a basic universal income that you get at 65, no questions asked, and then we tax it - so we are already clawing back a sizeable amount in tax.
In Australia, both income and assets are means tested from quite a low threshold to determine pension eligibility, and whichever produces the lowest pension is the one used.
But it’s a complicated system, and people have to regularly declare any changes in their situation - if they inherit some money or sell a property for example.
Australia also uses a joint means test, so there’s a joint pension between a wife and a husband. New Zealand women wouldn't want a bar of that because they get super in their own right.
Most New Zealanders wouldn’t accept the Australia system if they realised what it meant. The reason the Australians put up with it is that their savings scheme delivers significant income.
In New Zealand super does go to people who are still working in well-paid jobs, and don’t need it. So we should restructure the system to provide a universal, non-taxable weekly grant set at the current net amount for pensioners with no other income.
All those in the 65-plus age bracket could apply for it, but all other income they receive would be taxed on a separate tax schedule designed to gradually claw back the grant from the top-end. It’s likely to mean high-income earners won’t bother to apply for the grant, but the option would be there if they need it.
It would be relatively straightforward to introduce, and based on our modelling it wouldn't be hard to generate $3b. That would be a useful amount to redistribute within the social security budget to fix some problems immediately, including for older people.
But it could be complicated for older people to get their heads around, especially as New Zealand had a National Superannuitant Surcharge on income between 1985 and 1998, and it was very unpopular. But it is doable.
Dr Oliver Hartwich, executive director of the think-tank, The New Zealand Initiative.
Means-testing superannuation is best understood as a lifetime tax increase on the people who already pay the most income tax. People would object loudly if the top rate of income tax rose, yet many see nothing wrong with achieving the same result through a means test.
Incidentally, NZ Super is also already lightly means-tested. The payment is taxed at the recipient's marginal rate, so a high earner over 65 already returns 39% of it through income tax.
Stacking a surtax on top would lift effective marginal rates to punitive levels, and a scheme does not become more sustainable by nudging over-65s to work less or retire early.
Also, what are we signalling to people by introducing means testing? Essentially, the signal is that it's not worth saving for retirement because there's a maximum you can save or otherwise super will be taken away. That doesn’t make sense.
The Australian system is different because everybody's forced into saving in their super scheme. That counters the negative incentives a bit because everybody does build up a bit of a savings pot. But that’s not the case here as KiwiSaver is nowhere near that point yet.
Australia’s means testing system is complex to administer, and if a similar system was introduced in New Zealand we’d have to think about how we assess assets such as property where prices can be massively inflated on paper.
Rather than means testing, it should be a no-brainer to increase the age people are eligible for super.
But if we don’t act, we can see our future by looking at Europe because they are ahead of us on the ageing curve, and for some European countries it's pretty dramatic right now.
In Germany the median age is about 50, and about a third of the federal budget already goes towards propping up the pension system. We don't want to end up in that position, and we still have time if we face it now.
Sharon Zollner, chief economist at ANZ New Zealand.
A recent Treasury fiscal update looked at the impact of different options for super. The modelling suggested the cost of super could be kept stable as a percentage of GDP by increasing payment rates in line with inflation rather than wages.
Means testing would need to kick in at relatively low levels of non-super income to generate similar levels of savings, and how much impact it had would also depend on how aggressively it was done.
The labour force participation rate of over 65-year-olds is a factor to consider. It’s valid to compare New Zealand and Australia here, and in New Zealand it’s 25% while in Australia it’s 15%.
Given the scale of labour force participation among people receiving super in New Zealand, it makes sense to consider means testing, and the argument that Kiwis need to save more does have validity.
But means testing gives a strong disincentive to work past 65. And if someone is physically able to stay in the workforce it is a positive for them as it boosts social engagement, and it’s good for physical and mental health.
In Australia, means testing is quite aggressive, and evaluates both income and assets to determine pension eligibility and payment rate. If introduced here, it could be one or the other or a combination.
The wealthier someone is the more means testing kicks in, and it is logical to ask why we pay to support the wealthy. But it’s also reasonable to ask why someone should be penalised for carrying on working when it’s good for them.
Most people would accept that not means testing has some advantages, but the question is can we afford not to? Is enabling people to work after 65 a good use of money when it increases fiscal pressure?
My suspicion is that although it’s nice not to means test super, we can’t afford that luxury any more. As fiscal pressures intensify, the question of why wealthy people get super will only become more prominent.
So we need to weigh up the competing pressures, and decide what to resource. And the slower we go, the bigger the mess will be, and the more abrupt the adjustment will need to be.
One frustration I have is how loud the voices of those who won’t be affected by changes to super are. The level of debate is essentially “don’t touch our super”, but it is younger generations who will be affected - not anyone receiving super now.
Martin Hawes, well-known financial writer, and was a financial adviser for more than 20 years.
Hardly anyone seems to remember that New Zealand has already tried means testing super by way of income. That was the National Superannuitant Surcharge, and to say it didn't work would be a ridiculous understatement.
The surcharge was introduced at a rate of 20 cents for every complete dollar over a specific threshold, and was later increased to 25c.
It was absolutely detested. Older people thought it was attacking something they had contributed to and were entitled to. It wasn't quite barricades on the streets, but there were just about riots. Trusts were widely used to avoid it, and that’s why New Zealand has something like 500,000 trusts, more than any other country in the world.
It’s important we remember that because people still have the same feelings around their right to super, and would go out of their way to avoid being means tested. We don't want to walk into the same fiasco we had last time.
Looking at Australia's mean testing system, my understanding is there's a huge amount of non-compliance and avoidance, and that the pension poverty rate is higher there than here. It’s also a complex system to administer.
In contrast, everyone understands NZ Super. It’s a simple system that's cheap to administer, and it’s universal, so nobody tries to game it. It’s globally recognised as a very good scheme, and we should get back to the idea that it’s a national treasure.
If a means testing system was introduced here, it would largely hit those in the middle, who might have a little income from investments or some extra work. Wealthy people have got enough money so it won’t damage them if they don’t get super, and poorer people will not be affected by means testing.
Means testing also impacts on work and investment behaviours. So I’d prefer to see the entitlement age increased. Because that would reflect what actually exists: 48% of people aged 65 to 69 are working, so 65 is not the universal retirement age any more.
You would have to be careful to ensure that people who are not well or have done long careers in hard manual work could get it earlier. But I don't see that would be a problem as there are ways to address it, doctors sign people off as unfit for work all the time for example.
In the past, super was a political football, and then there were changes and it settled down for a long time. But now the debate is back, and it needs to be addressed.
Brad Olsen, who is under 30, is chief executive and principal economist at Infometrics.
Purely from an administrative side of things, means testing comes with hefty costs, and it is time-consuming and complex for all involved when it comes to setting thresholds, and assessing assets.
People often look for ways to move assets away from situations where there is means testing, such as residential aged care for example. You’d see that 1000-fold if means testing for super is introduced.
But more broadly any shift to means testing super would destroy the idea of universal superannuation, and would require thinking about what the goal of pensions are, and what sort of system we want to have.
Rather than just tinkering with the current system, wholesale change would be needed. There would have to be extensive work to see if such a fundamental change would be cost-effective and how significant the impacts would be.
Going down that route would be a tough call due to the social contract that we all talk about, and the assumption everyone gets super for a certain proportion of their life. Although it should be noted that people these days are often on super for longer and get way more than was originally envisioned.
My preference would be to increase the age people are eligible for super, but I suspect that unless a drastic change comes we’ll just keep kicking this can down the road.
I don’t know how many of my contemporaries think about super. Those who do probably think that it will not be the way it is now by the time they reach retirement. That probably leads many people to start KiwiSaver earlier these days as a back stop in case the system does change.
But it is incredibly frustrating that the loudest voices on this are those of the people who will be affected least by any changes.
The people who are already on, or nearing super will never have it taken off them, and you would think they would want there to be something of value there for younger generations - who will be the big losers here if nothing changes.