Some myths about NZ Super
Let’s not mindlessly raise the age, argues Susan St John, but try to solve actual problems ordinary people face
Recently a prominent New Zealand weekly magazine ran the story “Fresh moves to raise the age of super to 67”. Yet the Labour-led Government has given no indication that it is considering raising the qualifying age. In fact, it has locked itself into promises not to raise the age. Other commentators have joined in arguing that increased longevity makes raising the age inevitable. The concerns are usually expressed around the growing fiscal cost of New Zealand Super as society undergoes profound demographic change.
There is a lot of misleading information in the public commentary. It is easy to misinterpret OECD statistics as was done recently. The New Zealand basic super for a single person at 43 percent was compared with the Netherlands pension at 100 percent of the average wage leading to claims that we have one of the most ungenerous pensions in the OECD. However, that happy outcome in the Netherlands is for a person who has not only fulfilled the 50 years of residency for a full basic pension, but has made contributions to an occupational scheme for a full-time, 40-year career at the average wage.
In fact, New Zealand has one of the highest basic pensions, as shown in the OECD statistics at 43 percent of the average wage for a single living alone recipient. So contrary to inaccurate claims, and because of low residency requirements and its universal character, NZ Super is one of the most generous basic pensions in the OECD.
Even so, New Zealand spends only around 4 percent of GDP on NZ Super and while this will rise, at its peak it will still be well below the pension spending of many other countries today. We don’t spend very much in subsidising private provision either. KiwiSaver subsidies are very minor compared to other countries’ expensive tax breaks for private saving.
To think that raising the age is some kind of fiscal saviour overlooks so many qualifiers. Importantly, as National discovered when they tried to do this, it needs to occur gradually over a long time period for political acceptance and to give people enough time to adjust. National’s plans would have seen 67 years reached only by the year 2037. Fiscal savings would be minuscule for the first decade and even then the savings would be tempered by additional spending needed in the welfare system for the many unable to work full-time.
Raising the age a little is perhaps inevitable over the long term as there is so much momentum for it, but it is no answer to actual problems ordinary people face. It does not make NZ Super more affordable today but just holds the line as people live longer.
So what is the actual problem to be solved?
Well, it could be simply one of social equity. Many of working age have little chance of accumulating a supplementary nest egg that will cover the $270 a week that was recently claimed to be the extra needed for a good retirement. All the while, these same working-age people are taxed to pay for NZ Super for today’s wealthy superannuitants who may also still be working in highly-paid jobs. Today’s taxes also contribute to the New Zealand Super Fund for a pension that may be harder for todays’ working age to access especially if the age is raised.
Already many low-income pensioners eke out NZ Super with part-time work, and cannot and probably should not work full-time. More and more new retirees reach 65 still renting in a precarious housing market. The reality would be, if there is no basic age pension income until 67, many more people will reach the higher age even more impoverished.
For most wealthy superannuitants, NZ Super is a drop in the bucket. They don’t notice it. They certainly didn’t need the expensive Winter Energy Payment. It is possible to devise a higher tax rate for the very well-off that could provide useful saving of at least 10 percent of the total NZ Super cost without causing anyone hardship. A Retirement Policy and Research Centre paper shows how NZ Super could be changed to a basic income, the same non-taxable grant for each person over 65, with a separate tax scale for other income. Around $1 billion a year could be saved very easily.
That saving could then be used to improve KiwiSaver for low income people and help provide housing for those coming into retirement with few assets. Let’s not mindlessly raise the age but instead celebrate that New Zealand leads the world with the simple visionary idea of an inclusive basic pension for everyone at age 65 based on residency not contributions
New Zealand’s farsighted approach allows many of those over 65 to contribute to the critical voluntary unpaid activities such as caregiving, mentoring, and support of NGOs without which society would not function. There is nothing intrinsically better about paid work and many people find a freedom and satisfaction in doing the work they love without having to worry about being paid. Let’s hope the promised retirement incomes review in 2019 does justice to examining all the options for sustainability, fairness and affordability without just relying on the chimera of raising the age of entitlement.