New Zealand Superannuation is the best protection against longevity risk, and we allneed a good NZS system. It is quite possible that, despite the introduction of KiwiSaver, younger cohorts will need NZS just as much, if not more, than older cohorts, because of lower homeownership, lower wage growth, less stable jobs, and lower savings rates. – Longevity in New Zealand report, Alison O’Connell, New Zealand Society of Actuaries PHD
Dominick Stephens’ Treasury paper ‘Longevity and the Public Purse’ became available in September 2024. It focuses on longevity, and the associated areas of government spending and revenue.
It contained no specific suggestions or policy solutions, but infers changes to Superannuation and health costs (big ticket items) will have to occur with fiscal policy having to adapt.
Already several economic commentators suggest changes to NZ Superannuation settings is required (means testing’s, entitlement age). In consumer terms, knee jerk reactions, most having no qualifications as public policy experts.
Economic voices are important but, keep in context they have a narrow lens. Both the Retirement Commission and the NZ Societies of Actuaries, have recently produced papers, stating there is no need to change either entitlements or universality.
Government spending is one of political choice and we already know NZ Super is very sound public policy with no suggested alternatives coming close to viable alternatives. If more revenue is required tax changes in the sphere of capital gains/land tax/wealth are all suitable options to consider, do not tamper with New Zealand Super.
The current government, while espousing expenditure cuts, gave 2.3 billion to already advantaged property owners with changes to the brightline test. Money has been found for a questionable issue, contrasting to the wonderful public policy of New Zealand Super.
Let us reinforce some of the key issues; repeat after me: First challenge a myth.
Means testing is a discredited issue, the educated always using assets and trusts to camouflage their own income. Advocating means testing, requires all trusts and asset protection schemes are dismantled, leaving all income transparent.
Means testing is an administration-heavy cost but, more importantly, it is impossible to accurately target the perceived group at risk. Combine the two issues and you have an expensive mess.
NZ Superannuation has a unique feature of being taxable, also one of the lowest costs in the OECD both currently and under future settings. It is assisted by the NZ Super Fund reducing future fiscal costs.
Senior New Zealanders are continuing to work but, remember, only the educated are likely to find productive work in their senior years, and coupled with the entrenched bias against senior workers, the work issue for seniors remains highly problematic.
Dominic Stephens mentions in his paper, that New Zealand now has the highest proportion of those over 65 working. I question the accuracy of that statement, and the measure being used compared to other OECD countries. Remember, New Zealand uses the statistics collection of one hour per week as being engaged in paid work.
This camouflages the issue. It would be more useful if two days a week of paid work was the measure used. Those who can find work, are driven by cost-of-living issues, seldom the joys of opportunity.
Also, senior years are often dominated by health issues and this issue of ‘life quality’ is far more important than possible increased longevity starting to reverse after a trend of increasing by approximately two years every decade.
Several research projects are showing senior health problems as a huge issue with many people carrying significant problems. This is unlikely to change over generations. Chronic neck and back issues, for smart phone users, will only add to the growing obesity, hip and knee, cancer, heart, dementia, and stroke conditions existing.
What is the real situation?
Some 40% of those receiving NZ Superannuation have no other income source, a figure which has been constant for a long period and is unlikely to change, even with KiwiSaver.
What does history say? Two of New Zealand’s eminent commentators Martin Hawes and Michael Littlewood have strongly supported the New Zealand Superannuation Model. Littlewood in a 2013 paper said: “New Zealand Superannuation (NZS) is one of the simplest, most effective, and most cost-effective Tier 1 schemes in the developed world. We mess with it at our peril.”
Hawes said: “NZ Super is a system so simple and cheap that we need to give people certainty and stop playing football with it.”
Littlewood repeated his comment in 2018, noting NZ Superannuation has one of the lowest total public pensions spending in the developed world with most OECD countries spending today, what we might spend in 40 years’ time. No crisis here!
Move forward to 2024, the Retirement Commissioner and Society of NZ Actuaries report reinforced the above comments. Why then is there such exaggerated rhetoric re-pension unaffordability?
The answer is the tabloid media approach of headlines rather than article substance, a lack of research discipline, by commentator, poor knowledge of trends over time, limited historical analysis, infrequent comparative analysis with other countries and the misuse of economic assumptions.
Projected future costs in 50 years’ time are worthless in their accuracy; they do not consider future societal adjustments.
Roger Hurnard succinctly reiterated, in an excellent paper (2011) entitled, ‘Mixed Messages: The Future Direction of New Zealand’s Retirement Income Policies’, that NZ Super has several attractive features
- It is extremely low cost in an administrative sense because it is funded out of general revenue, requires no individual contribution records to be kept and places no compliance cost on employers.
- There is no cost in administering an income test or monitoring changes in financial or employment circumstances.
- The absence of any employment or income test means that there are no built-in penalties from earning additional income beyond eligibility age. The present value of future pension wealth embodied in the scheme is unaffected by when a worker chooses to retire. This feature helps to explain why New Zealand has one of the highest rates of labour force participation of older people in the OECD.
- Knowing well in advance how much NZ Super will be worth, is a benchmark for people to judge how much additional income they need to plan for to achieve their own desired standard of living in retirement.
- Standard amounts for each person signals fairness and promotes social cohesion. The current scheme covers longevity risk efficiently by providing a known, fully indexed, gender-neutral annuity. This is advantageous for all, particularly for women.
Susan St John, from the Pensions and Intergenerational Equity Hub, Economics Policy Centre at the University of Auckland emphasises the gender fairness of New Zealand Superannuation – “it’s an equalising force for women upon retirement.”
We must acknowledge this significant fact! Any improvement in our current low productivity statistics will also cut future costs.
Unfortunately, Māori voices are silent on New Zealand Superannuation. Any change to an older entitlement age hurts Māori; they can already claim disadvantage from the present model.
The issue is very simple. Nobody has been able to present a coherent and viable alternative to the current model, with costs, fairness and political realities addressed.
New Zealand Super has become a generational transfer entitlement wrapped around family, equity and well-being principles. Our model is a world leader; no alternative system comes within a bull’s roar of its overarching benefits across a range of indicators.
Neither is it perfect, but any cost saving requirements can be appropriately managed by any number of policy levers, with only minor adjustments required, to the current model.
New Zealand is the smart country with its NZ Superannuation model, let that continue!
Chairman of Kaspanz, Alec Waugh
NOTE: Alec Waugh is a retired Police Superintendent, with a Master’s degree in Public Policy and a Bachelor’s degree in History, Research Associate Pensions and Intergenerational Hub. He is chairman of the consumer group, KiwiSaver, Annuities and Superannuation Protection Society
