Monthly Archives: March 2016

Cullen floats ideas for pension funding

Michael Cullen’s proposal for increasing the affordability of NZ Super follows.  It has two main components:  making KiwiSaver compulsory and a clawback of 10 percent of the Government’s incentives at the time of payout, this money going into the NZ Superannuation Fund to ease the cost of NZ Super.  Effectively baby boomers will in large part self-fund the ballooning cost of NZ Super.

Note that the clawback is only from the Government’s contributions (and the interest stream from those contributions presumably);  it does not impose an additional tax on savers’ contributions.  It leaves unanswered the question of ‘time of payout’;  it could be argued many people will draw down from their KiwiSaver as a supplement to their NZ Super.  When does the moment of ‘payout’ arise?  That aside, this looks like the most elegant and viable (Treasury-costed) proposal to date.

Michael

Article begins:

Compulsory KiwiSaver and a clawback tax of about 10 per cent upon payout, paid into the New Zealand Superannuation Fund, would cover the rising cost of superannuation, says former Minister of Finance Sir Michael Cullen.

Speaking at a Grey Power Napier and Districts meeting yesterday, the “maturing” 71-year-old superannuate – a recent pacemaker and hearing aid recipient – said family sizes had halved since the height of the Baby Boom and people were living longer, putting pressure on remaining taxpayers.

In New Zealand superannuation was primarily paid for by taxation but, with a general expectation taxes should fall, changing the age of entitlement was “almost the only variable”.

“New Zealanders have persuaded themselves that taxes should go down rather than up.”

The current Government was “dangling the carrot” of tax cuts even though it was not delivering regular surpluses.

Means testing was ineffective and an incentive for people to leave the workforce.

Lowering the amount paid would place a large number of elderly into poverty, especially with an increasing number retiring in rented accommodation.

Changing the age of entitlement was an obvious solution but older people were more likely to vote so were a powerful political force.

The rising cost of superannuation was already affecting government spending in other areas, including infrastructure, mental health and conservation.

“The real issue from Grey Power’s perspective is, will the welfare of young people be affected?”

Treasury modelling showed his proposed tax on Kiwisaver pay-outs combined with compulsory KiwiSaver membership would cover future needs without the need for more general tax.

The pay-out tax would target incentives paid to KiwiSaver members, not members’ own savings, he said.

More than 200 people attended Sir Michael’s presentation at St Columba’s Church in Taradale, which Grey Power president Laurie Jenkin said was a record turnout.

Currently chairman of New Zealand Post, Sir Michael served as Deputy Prime Minister, Minister of Finance, Minister of Tertiary Education, Attorney-General and deputy leader of the Labour Party.

He was architect of the New Zealand Superannuation Fund, colloquially known as the Cullen Fund, which was intended to pay for future superannuation costs, but the National Government suspended contributions in 2009.

Hawkes Bay Today

NZ Super rates April 1, 2016

NZ Super rates

Eligibility

New Zealand residents are entitled to receive NZ Super (the old age pension) if they satisfy all of the following conditions. They must:

  • have reached State pension age (currently age 65);
  • be a New Zealand citizen or permanent resident;
  • live in New Zealand;
  • have lived in New Zealand for at least 10 years since age 20;
  • have lived in New Zealand for at least 5 years since age 50. The benefit is linked directly to the national average wage and is reviewed each year (1 April). The current level is 66% of the net national average wage.There are no income or asset tests applied to NZ Super. However, if one partner of a couple qualifies and the other does not, both may receive the benefit, but an income test applies in respect of the benefit paid to the partner that does not qualify in their own right. 
  • New Zealand Superannuation rates – from 1 April 2016
  • However, entitlements to an overseas social security pension (like the UK’s Basic State Pension) but not work-related, employer-provided pensions, reduce the New Zealand pension by the equivalent amount.
  • The pension is taxed as income in the normal way under the PAYE system.
  • Benefit
  • Residence in a country with which New Zealand has reciprocal social security arrangements (like Australia and the UK) counts as residence in New Zealand.
  Before tax (gross) Post-tax (net) 
a year a week a year a week
Single, living alone $23,058.36 $443.43 $20,007.52 $384.76
Single, sharing $21,191.56 $407.53 $18,468.32 $355.16
Married person (each) $17,458.48 $335.74 $15,390.44 $295.97
Married couple $34,916.96 $671.48 $30,780.88 $591.94

The next change is due 1 April 2017.

 Posted Alec Waugh

Accessing NZ Superannuation

Diana Clements  NZ Herald article February 20th, is a solid effort to condense many issues into one article. Kaspanz strongly supports the Section 70 issue in relation to the unfairness of “partners”  also being affected by the direct deduction policy, and the Ministry of Social Development needs to be very transparent on this issue, including using case studies, and making sure the double taxation agreements with other countries are both available and able to be understood.

Readers should also keep in mind, no scheme is perfect, and we don’t want free riders, abusing  a unique and in essence very  sound model of Superannuation.

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11592453

 

Posted by Alec Waugh

 

 

 

Question for discussion is the residency test too liberal?