The Government budget this year had little impact for retirees. There were a couple of tweaks with regard to the rates rebate scheme and other than that, the big news was increased spending on health. While that is good news, it is also an indication of the dire state of the health system, and it beggars the question of ‘Will the additional spending be enough?’. Probably not.
Most political parties are at least acknowledging now that the huge increase in the numbers of people retiring are putting a considerable strain not just on the health system but on the Government’s ability to fund the cost of NZ Superannuation. Treasury’s most recent forecast shows that the annual cost of NZ Superannuation will increase to around $8 billion more than what it is today by 2030.
As election debates heat up we are likely to see more conversations around solutions to the problems caused by ageing Kiwis. Let’s take a look at some of the proposals.
KiwiSaver
NZ First has announced its KiwiSaver election policy in which it is proposing to increase employee and employer contributions to 10% and make KiwiSaver compulsory. To help finance this, NZ First is also proposing tax cuts for both employees and employers. National has already announced that it would continue to increase KiwiSaver contribution rates for employers and employees. The Labour Party is responsible for introducing KiwiSaver back in 2007 and remains strongly supportive of it, however does not support making it mandatory and is concerned about the affordability of contributions for low-income earners and employers. ACT supports KiwiSaver but is keen to see less Government subsidy.
Raising the minimum contribution for KiwiSaver and/or making KiwiSaver mandatory places those on lower incomes under increased financial pressure.
Age of Eligibility for NZ Super
Over the last three elections, National has consistently supported increasing the age of eligibility for NZ Superannuation, while Labour supports leaving the age of eligibility for NZ Superannuation at 65. The Green Party is opposed to raising the age of eligibility.
Increasing the age of eligibility unfairly disadvantages Maori and Pasifika people who have a much lower life expectancy and people of all ethnicities whose work involves physical labour, such as tradespeople.
Means Testing of NZ Super
Labour has stated that it may consider means testing those with high income or assets, whereas NZ First and the Green Party support a universal pension with no means testing. There is no mention of means testing from National.
Introducing means testing penalises those people who have saved and invested over their working lives to build up their retirement capital. It is also a disincentive for people to continue working once they begin receiving their pension.
Income Tax Changes
The OECD has suggested we have a look at the way KiwiSaver is taxed. At present, we get no tax relief from contributions, but withdrawals are not taxed. The OECD’s suggestion is that we reverse this, giving tax breaks for contributions and then taxing withdrawals. This would offer an incentive for savers and would result in less tax being paid overall as tax rates in retirement are generally lower. National has dismissed this change as being too disruptive right now.
Capital Gains Tax
For many Kiwis, investing in property has been a popular strategy for building a retirement portfolio. Both the Labour Party and the Green Party have indicated that they support some form capital gains tax or wealth tax.
No doubt there will be some heated debate over these issues in the months leading up to the election. The most sensible approach would be for the main parties to reach some consensus on how best to manage the looming issue of funding NZ Super. It’s a problem of such significance that it requires a joined up approach between political parties to plan ahead with consistent, well considered policies to deliver a long term solution.
