Will NZ Super still exist when Gen X, Y and Z retire? - Diana Clement
Pensions continue to underpin retirement security in New Zealand. Photo / Getty Images
Calling Gen X, Y, and Z.
Will there be NZ Super when you retire? The answer is almost certainly “yes”.
The idea of paying pensions to older folk, may grind your gears now.
But New Zealand would be an international outlier if older people were cut off cold. I’ve seen how grim life is in countries without pensions.
The reality, says Auckland University Business School associate professor Susan St John, is that a pension, aka NZ Super, is part of our social contract.
That’s an implicit agreement that society will support or attempt to support people with welfare, healthcare, ACC, and pensions in return for us participating in and contributing to the system while they are able.
New Zealand is one of the lowest spenders on old age pension in the OECD. But as the number of retirees increases, it’s going to get more expensive, so we do need to consider NZ Super’s future.
It’s not as simple as ‘those greedy boomers are rich and deserve nothing’. Some are rich. Some really aren’t, and the inequality for older folk has been growing since the 1980s. Māori and Pasifika die younger on average than other Kiwis. And some workers are too worn out to work, come the age of 65.
For many people, living on NZ Super alone is very difficult financially. It’s not a king’s ransom, especially for those who pay rent, or are still paying a mortgage.
There are options to reduce the cost, without getting rid of NZ Super. St John wants to see cross-party accord, not one-party politicking. We can’t be changing this every election because it unnerves the populace.
In the United Kingdom increasing the state pension from 65 to 66 saw poverty rates rise in that cohort, according to the UK Institute of Fiscal Studies.
St John favours the clawback she and colleagues proposed in the 2019 Review of Retirement Income Policies.
NZ Super would remain universal at the age of 65, but some of the cost would be recovered from higher-income retirees through tax.
That’s simpler than means testing, where some people are excluded from NZ Super. The last attempt from 1985 to 1998 died thanks in part to the complexity.
Te Ara Ahunga Ora Retirement Commission spends a lot of time considering the future of NZ Super and the options for change, albeit from a starting place that it’s a taonga to be treasured and it protects a vulnerable section of our community against absolute poverty.
Means testing is certainly popular with armchair critics of NZ Super, but like any potential change, it doesn’t come simply.
Changes risk upsetting the applecart of the social contract.
There are many questions. Would it be applied to all retirees?
Or perhaps applied to groups such as 65 to 69-year-olds? The policy would need to address whether the means testing is just people’s assets? Or just their income?
Clawbacks or means testing don’t need to be for life. They could be until the age of 70, for example.
Another widely-discussed option is to up the age of eligibility to 67.
Not everyone working beyond 65 wants to be working. One option is to keep the KiwiSaver age at 65.
Or people who couldn’t work from 65 to 67 might receive a social welfare benefit. This is what some people have to do anyway, if they can’t work, or get a job. Ageism is rife in New Zealand.
Another interesting option discussed by the retirement commission is NZ Super as a loan for life.
Wealthier people’s estates would repay it once they die. This is an option for asset rich, cash poor people. Or those who have a bit of income, but not enough.
Any changes involve complex policy design.
No sane political party will say: ‘sorry, 64-year-old, you have to wait another three [or six] years’ or ‘we’re cutting you off now’.
Whatever happens, a good insurance policy for individuals is to save little and often, and chances are retirement won’t be as dire financially as some fear.
Catch up on the debates that dominated the week by signing up to our Opinion newsletter – a weekly round-up of our best commentary.