NZ Superannuation is becoming both unaffordable for the Government and insufficient for retirees.
Treasury is predicting that the cost of providing NZ Super will rise in 2060 to just under 8% of our GDP (which measures our economic activity) from about 5% now. This means that people who are still working will potentially be paying more tax to provide the Government with enough revenue to cover NZ Super payments.
Various solutions to this problem have been implemented and some are still up for discussion.
To date we have:
- Set up a dedicated fund in 2003 to support NZ Super, funded by tax revenue. This fund, the NZ SuperFund, is currently valued at over $80 billion, and is expected to start paying out to the Government in the 2030’s to support NZ Super payments.
- Encouraged private savings by establishing KiwiSaver in 2007. There is currently around $120 billion invested in KiwiSaver.
- Increased the required residency period for pension eligibility for people moving to New Zealand. The change in the residency requirement started in 2024 and will gradually increase from 10 years to 20 years by 2042.
Other things that can be done include;
- Raising the retirement age from 65 to, say 67
- Introducing means testing
- Making KiwiSaver compulsory
- Adjusting pension levels – eg linking the pension to the Consumer Price Index rather than the average wage as it is currently.
- Encouraging people to work past the official retirement age to help reduce their dependency on NZ Super and to keep tax revenue flowing to the Government
- Changing immigration policy to allow more people of working age to come to New Zealand, thus increasing tax revenue.
The Retirement Commission provides independent advice to the Government on Retirement Income Policy, backed up by research.
Their most recent research tested how Kiwis are feeling about a number of different aspects of the NZ Superannuation funding problem – the amount of NZ Superannuation, the age of eligibility, means testing, willingness to increase taxes to fund NZ Superannuation, and willingness to increase taxes on future generations to fund NZ Super.
Unsurprisingly, raising the age of eligibility to 67 was ranked by 61% of people surveyed as the worst of these options. There was also a strong preference for a universal pension rather than a means-tested approach, and people expressed opposition to increasing taxes on future generations, which implies continued support for the tax-funded NZ SuperFund.
The overall conclusion from the Retirement Commission was that there should be no change to current settings for NZ Superannuation, however we should explore mechanisms for supporting people for whom NZ Super is not enough on its own.
The Retirement Commission noted that around 40% of people aged 65 and over have virtually no income besides NZ Superannuation and another 20% have that and a little more.
