New Zealand Superannuation :  An actuarial view on reform

Retirement Income Interest Group of the NZ Societies of Actuaries view on reforming New Zealand Superannuation (NZS)

1. Today’s younger people may need NZS more than older generations. Although younger people will be able to be in KiwiSaver for longer, they may have less potential to both own a home and save.
2. Retaining NZS at current settings is one way every generation can have similar financial security in later life, recognising there will be differences in work and savings potential over time.
3. All proposed reforms to NZS are problematic, and none are simple enough to be “silver bullets” to any perceived problem with retirement income policy. We see means-testing and flexible age of eligibility as particular fails when assessed against RIIG’s principles for reform.
4. If age of eligibility were to be increased, simply linking it to a longevity index is not a good option. It would not take politics out of the decision; it would ignore inequalities and it would not work as intended as it could be highly sensitive to assumptions which can change frequently. Instead, we favour a well-designed independent assessment of relevant factors including longevity trends.
5. If age of eligibility were to be increased, we believe there should be a reasonable lead-in time and a phased approach, so people will have sufficient time to make changes to their financial situation. Putting information on NZS including age of eligibility, on KiwiSaver statements, would help to ensure people are not taken by surprise.
6. Future mortality trends are not clearly positive. Independent review of the age of eligibility should be repeated at intervals with planned increases cancelled if trends turn out worse than expected. The significant visible differences in lifespans in New Zealand suggest at least not increasing the NZS age of eligibility until there is evidence of the gaps closing.
7. We are still of the view that it is not necessary to reform NZS. Debate usually focuses on the “cost” of NZS, which is often portrayed wrongly as in crisis. Expenditure is a policy choice. Contrary arguments which stress the value and purpose of NZS are strong.
8. Looking at KiwiSaver policy is more relevant than reforming NZS now. On current policy and settings, KiwiSaver accounts are not going to be high enough to allow any painless reform of NZS.