New Zealand Super – treasure or cause for panic?

Bill Rosenberg

A feature of the recent Budget was the Minister of Finance’s claim that New Zealand Superannuation is becoming unaffordable and urgently needed reining in – a problem “for today”.

Yet NZ Super is one of the lowest cost pension schemes among OECD countries. The Retirement Commission in its 2024 review described it as is “a taonga to be treasured”. Treasury modelling – from which the Minister took her scary figure that its cost would rise by $10 billion between when she took office in 2023 and 2030 – also shows that its rise in cost is modest compared to our resources. A recent study from the OECD makes her claim even less credible.

How can these statements be true at the same time?

The key is that it is always easy to throw around large scary numbers when dealing with the whole of our economy and government. But affordability needs perspective: how big is the cost compared to the total income available? That’s how we commonly measure public debt for example, and how we compare two countries’ debt or expenditure on pensions or health. Though one measure of the cost of NZ Super (I’ll come back to this) is projected to rise by $9.6 billion between 2023 and 2030, New Zealand’s total income (nominal GDP) is projected to rise by $152.6 billion over the same time.

To look at this more closely, we need to measure the cost of NZ Super correctly. The $9.6 billion figure is after deducting the income tax NZ Superannuitants pay. But it is not net of the tax paid by the NZ Super Fund (NZSF) – New Zealand’s biggest taxpayer. Neither does it take account of government contributions to the NZSF now nor the non-tax contributions the NZSF will make to paying for NZ Super in the future. Only when all those are included can we get a full picture of the costs of NZ Super. In the full picture, costs rise by only $6.1 billion between 2023 and 2030.

Returning to the affordability of the scheme, look at its cost as a proportion of GDP. In 2023 it was 4.7% of GDP and – astonishing to the Minister perhaps – it is projected to be only 4.5% in 2030. It is projected to be more affordable 2030 than in 2023.

She might point out though that in 2023 the economy was going downhill, so let’s take the trend value instead: 4.3% (the same as the average in the 2000s).  It would have risen just 0.2% of GDP to 2030 had 2023 been a “normal” year. Even if we look out thirty years to 2056 it will have risen to only 5.3% of GDP. The rise is the same as the government has announced for the defence budget over just four years, which, apparently, we can afford.

International comparisons give another perspective on affordability. The OECD shows that in 2023, New Zealand had the fifth lowest cost public pension scheme (before tax) out of 33 countries as a proportion of GDP. They range up to 15.5% of GDP. Projecting out to 2060, New Zealand’s cost remains in the lowest seven, and its cost in 2060 would be lower than the current OECD average.

A new OECD publication on the impact of population aging on tax revenue adds a further dimension. Unlike many other countries, New Zealand over 65s pay as much tax per person as the whole population – perhaps because more are in paid work and there are no tax concessions for age. They keep contributing to the cost of NZ Super. The researchers also simulated how revenue would change if our population suddenly aged to what is projected for 2060. New Zealand was one of a few countries for whom the tax revenue per person increased. Tax revenue as a proportion of GDP would also rise – the second highest rise in the OECD (in most countries it fell). We should question assumptions that an aging population necessarily makes NZ Super less affordable in terms of revenue.

If more revenue is needed, one of the study’s suggestions is taxing wealth, because of the falling number of people in paid work as the population ages. That is particularly apt for New Zealand, a relative rarity with no capital gains, wealth or inheritance taxes. These would be an equitable method to in effect means-test superannuation while also filling inequitable gaps in our tax system.

NZ Super gives all of us security in old age, keeps us out of poverty – a remarkable achievement – and provides a cornerstone for our own retirement savings. It currently does these well, while encouraging people to keep working, helping to maintain their incomes and wellbeing, and contributing their skills to both paid and voluntary work. Yet, the writing is on the wall that NZ Super will become insufficient given the unaffordability of housing. Increasingly, people will still be paying off their mortgages or renting when they reach 65. With this and the stark international comparison above in mind, we are spending too little on superannuation, not too much.

Raising the age of entitlement with life expectancy makes sense only if there is reasonable equality of life expectancy and life quality of the aged. But there is not, particularly for people who have worked in physical jobs and experienced hardship through their lives, including many Māori. A more equitable society would reduce health disparities (and costs) and make superannuation policy easier to change.

NZ Super policy cannot be driven by a hasty and inaccurate reactions. It doesn’t cost too much and we have time to adapt. It appears that NZ Super policy is being crowbarred into an arbitrary limit on the size of government. A fiscally responsible government must consider future additional revenue options. Otherwise we will short-change the coming generations who also deserve dignity in retirement.

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Dr Bill Rosenberg is a Wellington-based economist with interests in labour, economic development, productivity, macroeconomics, tax and health matters. He has been a member of reference groups for the Retirement Commission.

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The following are for editorial reference.

The Minister’s comments were made in the Budget Lock-up and elsewhere, and widely reported – e.g. https://www.thepost.co.nz/politics/361013675/budget-2026-how-nicola-willis-already-tight-budget-was-squeezed-coalition-demands and https://www.rnz.co.nz/news/political/596618/budget-2026-nicola-willis-takes-swing-at-nz-first-over-superannuation

The Retirement Commissioner’s comment is from NZ Super: Issues and Options, February 2024, Te Ara Ahunga Ora Retirement Commission, p.4, at https://assets.retirement.govt.nz/public/Uploads/Policy/TAAO-RRIP-NZ-Super-issues-paper.pdf

Nominal GDP for 2023 and projection for 2030 from Budget Economic and Fiscal Update 2026, Fiscal Time Series, at https://www.treasury.govt.nz/publications/efu/budget-economic-and-fiscal-update-2026

New Zealand superannuation data sourced and calculated from New Zealand Superannuation Fund Contribution Rate Model – BEFU 2026, at https://www.treasury.govt.nz/publications/new-zealand-superannuation-fund-contribution-rate-model-befu-2026

OECD public pension data from Pensions at a Glance 2025, Table 8.4, “Projections of public expenditure on pensions, 2023‑60, percentage of GDP” at https://www.oecd.org/en/publications/pensions-at-a-glance-2025_e40274c1-en/full-report/long-term-projections-of-public-pension-expenditure_af4ed734.html#title-433d87bca5

The new OECD publication is Sicsic, M., & Hourani, D. (2026). The impact of population ageing on tax revenues in OECD countries (Working Paper No. 75; OECD Taxation Working Papers). OECD. https://doi.org/10.1787/94cbc7e5-en. See in particular Figures 7, 9 and 12, and p.35.