Author Archives: Alec Waugh

Editors Comment : The political approach to NZ Superannuation

Alec Waugh is the chairman of the Consumer organisation known as Kaspanz (Kiwi Saver, Annuities, New Zealand Superannuation Protection Association Incorporated). He chairs U3A Takapuna Finance and Investment Group.  He has a Master of Public Policy and Bachelor Degree in New Zealand History.  He retired as a Police Superintendent in 2006 after 38 years of service.

WHY CHANGE THE AGE OF ELIGIBIITY ETC FOR NZ SUPERANNUATION

New Zealand leads the world with its twin model of NZ Superannuation and Kiwi Saver schemes. Recognized as the smart country by many offshore analysts in its approach to pension policy, New Zealand Superannuation current costs and future projections costs out to 2060 continue as one of the lowest in the OECD.  As Susan St John and Clare Dale in their 2016 paper said “The projected NZS expenditure appears modest, especially if net rather than gross spending is counted, and when compared to current pension spending in other countries.” Why then the proposal by the National Party  to change the age of eligibility from 65 years to 67 years?

Part of the answer is a lack of knowledge on the topic. Only Auckland University has a very small dedicated Retirement Policy and Research Centre. Another complexity is the perception that longevity is increasing, when the real issue is individual quality of life in senior years.  Some people may live a couple more years, but it’s the illness and injuries and inability to work that is the real issue. Economists have not helped with their crisis rhetoric and superficial comments. Developing social and public policy is not the expertise of these so-called experts, and their assumptions and long-term projections are often flawed. Further, the lack of comparative overseas research and information is often missing from the debate.

A range of New Zealand mostly male right- wing commentators compound both the facts and perceptions. These include  David Seymour, Guyon Espiner,  John Roughan. Peter Lyons, Matthew Hooton,  Mike Hosking, Larry Williams, Leighton Smith, Brian Farrow  and last but not least female commentator Fran O’Sullivan , who all  make comments on NZ Superannuation  which sound profound at first glance, but too often do not cut it upon subsequent  examination.  The voices of calm reason and substantial evidence flow from Susan St John,  Martin Hawes, Michael Littlewood, Roger Hurnard and Mary Holm; while Diana Clements and Carmel Fisher also offer balanced views, with Bernard Hickey often writing  provocatively, but has a depth of knowledge. John Gascoigne displays a wealth of understanding and  income trends over time. The less said about the editorial stance of the New Zealand Herald on NZ Superannuation  the better, superficial at best.

Judgments  hopefully rest upon thoughtful and careful assessment of many issues. Be wary of those calling for policy change from just one perspective.  The reality is no other alternative model of Superannuation outside of the current set up exists, a model which has assisted women and kept the elderly from poverty for generations. When you add in the fact that with retirement income issues there has not been a task force since 1991, and political parties have no accord between each other on retirement income policy, the potential for poor decisions is profound. There is no reason why NZ Superannuation does not continue for the generations to come!

The announcement by Prime Minister English contained elements of sound pragmatic political decision making. No changes for 20 years, and then a move upwards from 65 to 67 years. The change in residency entitlement (10 years residency to 20 years to qualify) is appealing to many New Zealanders. Our country has often had a liberal edge with that particular rule. English met the essential element of allowing for a long lead-in time, allowing consumer’s time to adjust both thinking and saving patterns.

But the announcement failed to address the Section 70 spousal issue of overseas pensions and a number of other minor adjustments could have been included which would have made the Prime Ministers’ announcement more substantial. It is of course a political announcement, vote for us and you will receive this offer.

Labour Party has announced the Status quo will continue. The issue here is that the Labour Party has recently changed position on this topic; the current position has the smells of electioneering vote seeking. Ironically their position is valid and sustainable, but a U turn is always likely on past performance. To date the new leader has been left off the hook, re her position on this matter, during the current campaign.  Voters want consistency on pension policy and Labour to date has proven to be flakey.

What was needed, and would have provided a buffer for the Government announcement, was a task force report, similar to the Tax Working Group 2010. A political party making a policy call on New Zealand Retirement Income Policy without such material is risky policy.

What we do know is that over 40% of New Zealanders 65 years and over relies on our superannuation as their sole means of income. This statistic has remained basically unchanged for a long time and will continue to be a future trend. Kiwi Saver savings are not substantial enough to make a lot of difference. The intergeneration tensions are a red herring; history shows many look back with rose tinted glasses and those looking forward often predict doom and gloom.

Every generation makes adjustments to the challenges faced, but the research on the topic indicates it all evens out. A rising problem for those in the 40-60 years group is they are on the retirement income treadmill, continually being pulled in multiple directions, saving plans in reverse, as they financially support adult children, and also looking after frail parents. Pre-occupied by others needs is the trend for this group, their own retirement savings eroded.

This group is aptly called the “sandwich generation”. Work-place pension’s schemes have diminished rapidly over the last 25 years, and defined contribution schemes like Kiwi Saver have camouflaged retirement income gaps. Research suggests that providing child care for those less than 5 years old, is now the dominant responsibility of grandparents. They are also coping with their children not departing the family home and becoming independent, but staying longer (nesting) and an emerging trend of children having experienced study and work experience, returning to the family home in their later years, seeking cheaper living costs. Parental hospitality, parental loans/guarantees to their children are everywhere.

Today’s reality for many parents is they are supporting their siblings financially, detrimentally affecting their own retirement nest eggs. Its imperative parents ensure their own retirement income needs come first.

In summary the current model is sound, tweaking and minor adjustments  are the only modifications required, and  for any party suggesting rising the age entitlement of NZ Super, substantial lead in time (2 decades)  provided , so saving habits and commitments can be realigned appropriately.

Labour and National Policies on the age of entitlement for NZ Super and resuming contributions to the NZ Super fund

LABOUR

A Labour Government will secure the future for New Zealand Superannuation so we can continue to provide superannuation to those retiring at age 65, says Leader of the Opposition Andrew Little.

We can continue to afford to leave the retirement age at 65; unlike National which wants to lift the age to 67.

“The argument to lift the age from 65 just doesn’t stack up. I’ve spent 20 years working with people who struggle to get to 65 now before they retire because of the physical nature of their work; that hasn’t changed”.

“I’m absolutely clear that there will be no change. A Labour Government I lead will keep the age of entitlement at 65 and we will re-start contributions to the New Zealand Superannuation Fund immediately.

“One of the first things a Labour-led Government will do is resume payments to the NZ Superannuation Fund, so we can secure its future. National’s failure to invest in the Fund puts the retirement plans of New Zealanders at risk.

“Despite finally running surpluses after years of trying, the Government says it won’t resume Super contributions until 2021/22 financial year, while promising tax cuts that will hand $400 million to the top 10 per cent of income earners.

“The value of the contributions not made by National during its period in office is nearly $14 billion. Currently the Fund is worth $33 billion. The NZ Super Fund estimates that, had contributions continued to be made, it would now be worth $52.6 billion.

“National has sold the future of New Zealand short by billions and billions. By the time National plans to finally resume contributions, a Labour Government will have doubled the size of the current fund to $63 billion.

“This will equate to $6,500 per person extra in the Fund by 2021/22 under Labour. More importantly, we can continue to afford to leave the retirement age at 65; unlike National which wants to lift the age to 67.

“The argument to lift the age from 65 just doesn’t stack up. I’ve spent 20 years working with people who struggle to get to 65 now before they retire because of the physical nature of their work; that hasn’t changed.

“I’m absolutely clear that there will be no change. A Labour Government I lead will keep the age of entitlement at 65 and we will re-start contributions to the New Zealand Superannuation Fund immediately.

“This election will provide a clear choice – only a Labour Government’s fresh approach will make the investments we need to secure the future for all New Zealanders,” says Andrew Little.

*Fresh from her elevation to Leader of the opposition Jacinda Ardern “I absolutely support the position that Andrew has, firmly staking in the ground that we support keeping the age where it is.”The argument that I always made was about making sure there was affordability.”

Ms  Ardern said a bigger issue was resuming contributions to the New Zealand Superannuation Fund.” Bill English has not done that… and he’s essentially said that it’s my generation that’s going to pick up the tab.”

NATIONAL

 

Prime Minister Bill English today announced the National Party will go into the election with a responsible policy of lifting the age of entitlement for NZ Super from 65 to 67 starting in 20 years’ time.

Under our policy, the age of entitlement for NZ Super increases by six months each year from July 2037 until it reaches 67 in July 2040.

This means everyone born on or after 1 January 1974 will be eligible for NZ Super from age 67.

Other settings such as indexing NZ Super to the average wage and universal entitlement without means testing will remain unchanged.

National’s policy also proposes doubling the residency requirements for NZ Super to ensure applicants have lived in New Zealand for 20 years, with five of those after the age of 50.

People who are already citizens or residents will remain eligible under the existing rules.

National has chosen 67 because increases in life expectancy mean somebody retiring at 67 in 2041 will spend on average almost a quarter of their lives receiving superannuation, which is the same as someone who retires at 65 today.

While New Zealand has a more affordable scheme than most other countries, our greater life expectancy, while positive, is driving up the cost of NZ Super.

Without making changes, future trade-offs – such as restricting spending increases in areas like health and education or increasing taxes – would be necessary.

Under our changes to the age of eligibility and residency requirements, we expect to save New Zealand taxpayers in excess of 0.6 per cent of GDP or $4 billion annually once the changes are fully in place in 2041.

National’s NZ Super plan ensures the sustainability of the NZ Super Scheme in the long term and provides assurances for generations of hard-working New Zealanders.

It’s the right and responsible thing to do to secure New Zealand’s future.

Key information:

  • National intends to increase the age of entitlement for NZ Super by six months each year from July 2037 until it reaches 67 in July 2040. This means everyone born on or after 1 January 1974 will be eligible for NZ Super from age 67.
  • Other settings such as indexing NZ Super to the average wage and universal entitlement without means testing will remain unchanged; and the age that KiwiSaver funds can be accessed will remain at 65.
  • National is also proposing to double the residency requirements for NZ Super so that applicants must have lived in New Zealand for 20 years, with five of those after the age of 50. People who are already citizens or residents will remain eligible under the existing rules.
  • Posted by Alec Waugh

Treasury Regulatory paper! NZ Super

Comment on this paper below by Tony Alexander BNZ, Weekly Overview 3 August 2017

I took a look at the paper to try and gain some insight into a couple of factors relevant to the long term sustainability of the NZ super scheme. One is Treasury’s assumption about net average annual migration flows. They use 12,000. That seems much too low considering that over the past ten years the flow has average almost 25,000 per annum and before that 11,000 per annum. A higher average flow will mean more employees able to make tax payments supporting NZ Superannuation flows because migrants tend to be working and tend to be young. I also wanted to see how they factored in a rise in the proportion of people 65 years of age and over remaining in paid employment – therefore delivering more tax into government coffers. But it is not clear that this proportion is assumed to rise above the near 24% recently achieved – from less than 6% in 1998. This means the actual rise in the after-tax cost of NZS measured as a % of GDP could be less than the projected 4+% now to just over 7% come 2060. The current OECD average is about 8%. The proportion of NZ’s population projected to be 65 and over come 2060 is 27 from 15% currently. For your guide here are the current ratios in some other countries. % Australia 15 Denmark 21 Finland 21 Germany 21 Greece 22 Italy 23 Japan 27 New Zealand 15 Portugal 21 Spain 19 United Kingdom 18 USA 15 http://data.worldbank.org/indicator/SP.POP.65UP

http://www.treasury.govt.nz/publications/informationreleases/superannuation/sup-3753731.pdf

Reply from Monash re why NZ omitted from Global Pension survey?

 

Alec

NZ is being included in this year’s survey.

Regards

Rod

——————————————————————————-

Dr Rodney Maddock

 

Professor, Monash Business School, Monash University

Professor and Vice Chancellor’s Fellow, Victoria University

 

Non-Executive Director, CEDA

 

rodney.maddock@monash.edu

 

0417554149