New Zealand Superannuation: A national Treasure

The expected Commentator questioning of universal superannuation, has already begun, some misguided people within Grey Power, calling for means testing. Watch for next weeks article on that topic, but meanwhile


A delight to see the Retirement Commissioner, 2019 Review of Retirement Income policy report  “Fears that NZ Superannuation will diminish or disappear for future generations should be laid to rest, says Interim Retirement Commissioner Peter Cordtz in the three-yearly Review of Retirement Income Policies”:  Covid 19 also provides the opportunity to reflect on sound policy and good business models moving forward.

Peter Cordtz deserves a medal for common-sense and courage, for echoing the views of two of New Zealand’s eminent commentators Martin Hawes and Michael Littlewood who have strongly supported the New Zealand Superannuation Model over time.

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” and Hawes said “NZ Super is a system so simple and cheap that we need to give people certainty and stop playing football with it” Little wood repeated his comment in 2018.

Mary Holm in her excellent book Rich enough: A Laid-back guide for every Kiwi statesMany older New Zealanders are largely dependent on NZ Super. In a 2017 report :The material Wellbeing of NZ Householders Bryan Perry says of New Zealanders aged 65 and older :40% of singles have virtually no other income source, 60% report less than $100 per week from non-government sources, and 75% have more than half their income from NZ Super”,

Roger Hurnard a New Zealand consultant on retirement issues succinctly reiterated, in an excellent paper(2011) entitled ‘Mixed messages: the future direction of New Zealand’s retirement Income policies, that New Zealand Superannuation has a number of 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 mans 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 workers 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 NZS will be worth proves a secure basis for people to judge how much additional income they need to plan for in order to achieve their own desired standard of living in retirement.
  • Standard amounts for each person signals fairness and promotes social cohesion.
  • The scheme covers longevity risk efficiently by providing a known, fully indexed, gender neutral annuity. This is a critical contributor from New Zealand super as a form of annuity that covers longevity risk, particularly for women. Susan St John, from the Retirement Policy and Research Centre, Auckland University Business School  emphasises the gender fairness of New Zealand Superannuation,” it’s an equalising force for women upon retirement”.

What is not required is a continuation of doom and gloom  headlines, usually by economic commentators, with little public policy or political acumen, often with naïve long term projections, all close to useless in their accuracy.

Let’s get it out there, The New Zealand Super model is a world leader, the Organisation for Economic Co-operation and Development (OECD) shows NZ has one of the fairest, simplest and most fiscally affordable retirement income systems and David Harris (Director of TOR Financial Consulting) a recognised expert on world-wide pension schemes, is on record as saying New Zealand is the smart country with NZ Superannuation and Kiwi Saver as its primary retirement income schemes.  Alex Mallery chief executive of the global accounting body CPA Australia says “NZ the lucky country when it comes to Superannuation”:

No alternative model comes within a bull’s roar of its overarching benefits across a range of indicators, and outcomes. Any cost saving requirements can be appropriately managed by any number of policy levers, with only minor adjustments, if any adjustment is considered necessary.

Does this mean the model is perfect? No. There are a number of issues relating to NZ Superannuation, and its partner scheme (Kiwi Saver) which require attention and analysis, and a working group or Task force approach to these, without the pressure of a focus on whether to raise the age of eligibility, would benefit all. The last similar group was in 1991.

These issues could include for NZ Super increasing the minimum residency requirements, rationalising the 3 different rates for NZS, reducing payment levels by changing the indexation system, and Kiwi Saver has 12 suggested changes in the current review requiring attention, and that does not include compulsion.

Government re-commitment to the Retirement Commissioner report and its age of entitlement recommendation, reinforcing the NZ Superannuation model hopefully will follow, and it would be nice to see National party support-though consensus on any issue in election year is hard to achieve.

A national accord on this is the dream, and dreams are important. Sigmund Freud referred to dreams as being the royal road to the unconscious. He believed they held huge significance to our unconscious thoughts, feelings and desires. Let’s hope our Political party leaders still dream.

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