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Amanda Morrall, author, financial educator and wellness advocate was a guest on News Talk ZB Sunday money show on Sunday June 16. An articulate speaker, she spoke about NZ Superannuation, immediately promoting the myth that NZ Super is unsustainable, pointing to the fact some OECD countries had or were changing the age of entitlement upwards, and hinting means testing and universality were areas where change was needed.

No mention was made that the educated camouflage income, using trusts and similar to avoid means testing regimes. If you want to advocate means testing, you must also advocate trusts and asset protection schemes are dismantled and all income is transparent.

Apart from the inherent bias of Amanda being associated with a managed fund company, she never mentioned that NZ Super is taxable, has one of the lowest costs in the OECD both currently and under future settings, and made no comment about future growth, productivity or societal adjustments affecting future costing. She was silent on the NZ Superannuation fund reducing fiscal costs associated with the payment of NZ Superannuation.

Amanda also spoke about many New Zealanders continuing to work, stating most NZ Seniors are healthy, able and wanting to contribute, and now living much longer. She glossed over the reality that again only the educated are likely to find productive work in their senior years, and coupled with the entrenched bias against senior productivity, the work issue for most is highly problematic.

She also misled many, by ignoring the fact, that the senior years are continuing to be dominated by health issues (quality of life) and this issue of life quality is far more important than the possibility of living between 1-3 years longer as each decade passes. A number of research projects are showing senior health problems continues as a huge issue, many people carrying significant problems, and this is unlikely to change over generations. Technology conditions, chronic neck and back issues, for smart phone users, will only add to the obesity, cancer, heart and stroke conditions that always exist.  Australian Bureau of Statistics, has recently lowered longevity trends.

Amanda is not alone with her sweeping generalizations, other economic commentator’s e.g. Cameron Bagrie have made similar statements, and NZ talk back hosts are notorious for their crisis rhetoric on the topic. Retired Retirement Commissioner Diane Maxwell has also fallen into the generalization trap


We know that about 40% of those receiving NZ Superannuation have no other income source, a figure which has been constant for a long period, and unlikely to change, even with the advent of Kiwi Saver.

Two of New Zealand’s eminent commentators Martin Hawes and Michael Littlewood have strongly supported the New Zealand Superannuation Model. 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, statingthe net cost of NZS today is 4 per cent of GDP. That’s a lot but it’s among the lowest total public pension spending in the developed world. Our Treasury thinks that in 2060, 42 years away, that net cost will be about 6.7 per cent of tomorrow’s GDP.That’s a sizeable increase but to put that into perspective, the average before-tax public spend on pensions amongst all OECD countries in 2011 was 9.3 per cent of GDP (the net cost will be a little less). The 28-country OECD average spends on pensions today is somewhat more than we expect to spend in 42 years’ time. So  not a crisis – again, not even close.”

Why then is there such exaggerated rhetoric re pension unaffordability? The answer is the tabloid media approach of headlines rather than article substance, also a lack of research discipline by a number of commentators. Add in the poor knowledge by many of trends over time, limited historical analysis, and denial of the various policy lever options available on retirement income issues, when considering options or redress.

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 current 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  emphasizes the gender fairness of New Zealand Superannuation,” it’s an equalizing force for women upon retirement”

Another positive difference for NZ pension affordability is that the future NZ pension fund bill will be partly offset by the NZ Super fund. When projecting NZ Superannuation costs long-term, I have yet to see any commentator off-set their cost projections with an assumption of the likely NZ Super fund contribution. Any improvement in productivity also cuts costs.

To me the issue is simply this. Nobody has been able to present a coherent and viable alternative to the current model, with costs, fairness and political realities addressed. The New Zealand Super model is a world leader, no alternative system comes within a bull’s roar of its overarching benefits across a range of indicators. Any cost saving requirements can be appropriately managed by any number of policy levers, with only minor adjustments, if any adjustment is considered necessary. NZ is the smart country re Retirement income.

Alec Waugh

Chairman of Kaspanz 9295604

Kaspanz submission to the 2019 Retirement Income Review

SUBMISSION FOR THE 2019 REVIEW (Kiwi Saver, Annuities, New Zealand Superannuation Protection Society Incorporated) is New Zealand’s only Consumer group with a focus on retirement income issues, formally incorporated since 2013, with an active website, updated weekly.

Kaspanz notes the announcement of the 2019 review and makes the following comments, all fundamental to a sound review and a caring society


The twin retirement income models are world -leaders, and New Zealand should be acknowledging this fact. The model is beneficial to women (not linked to employment salary scales) and being universal has kept the elderly from poverty, also the low economic group with an income guarantee from 65 years of age. The universality has had a calming effect on the inherent tensions between the wealthy, educated and those with choice, and the large population group with very limited savings potential.

Most OECD countries admire our schemes, the simplicity and universality, with New Zealand Superannuation being different to most others, being taxed at source, but with overall costs significantly lower than most OECD countries.

New Zealand is seen as the smart country in relationship to its Retirement income models, this requires endorsement and reinforcement. No major change is required; when adjustments are required they should be incorporated within the existing model, with no significant change needed.

Means testing is a discredited option, its costs and implementation significant, and advocates never mention the elephant in the room issue, of how the educated camouflage income, using trusts and similar to avoid means testing regimes. If you want to advocate means testing, you must also advocate all trusts and asset protection schemes are dismantled and all income is transparent.

Kaspanz suggests be very wary of single issue commentators and those attempting to forecast the future, the assumptions are frequently invalid, significantly erroneous, and don’t take into account the adjustment all societies make over time.

In simple terms, no alternative to the current NZ Superannuation and Kiwi Saver models has emerged, it’s time we acknowledge the substance of our schemes, and cement them in place for the next 50 years plus.


Kaspanz as the consumer voice, also states that New Zealanders want consistency on retirement income issues, long lead in times for changes, (so financial adjustments can be made and understanding of why adjustments are made, and understood).

Substantial change should be signalled 15-20 years in advance, there is nothing worse than announced changes, occurring within a short time period. The political party that understands these principles and acts accordingly will benefit at the electoral polls.


Kaspanz also is committed to comparative analysis, what is happening world-wide and what implications that has for New Zealand. In a similar manner what is the academic and research saying on trends over time, affecting the key retirement policy issues.

THE FINANCIAL LITERACY COMMISSION should focus on Retirement Income issues. Engage in research both contracted and internal, and should also be the source of authoritative analysis on Retirement Income issues. A hub of research including contacted work on topics is required.

Kaspanz is concerned that the focus on Financial Literacy while having merit in the intention requires too much implementation resource, to have any meaningful affect, and has left the Commission a limp reflection of what it could have been. The twice re branding of the Commission name has been a failure marginalising the Commission into a meaningless entity; New Zealanders have no awareness of the Financial Literacy Commission name or role.

Kaspanz remains concerned that many self-styled commentators on retirement income issues appear to have little historical analysis of the issue at question, or what the current research is saying.

For example while increasing longevity cannot be ignored, it’s “the quality of life “and associated health issues that an individual of senior years is faced with that is of primary importance, rather than the individual might live a couple of years longer each decade. In a similar manner the element of employment opportunity after 60 years is still primarily very limited, and is unlikely to change. Realistic options exist only for the educated and wealthy, the hurdle of perception and bias entrenched into the system compounds the limited options for most, the reality for the majority of the population post 60 years still remains limited work options and declining age, body and mind challenges.

We  notes that  40% plus of current NZ seniors only have New Zealand Superannuation as their income source, and that is  unlikely to change over the generations.!  Note the Australian system with its compulsion, has not affected the number of Australian citizens requiring some sort of Government support or pension! This fact is a baseline issue for any policy changes contemplated


The issue of Annuities often a combination of Insurance and managed funds, requires attention, a Government interested in community well- being should consider its involvement in annuity/ Insurance issues (decumulation).


The issue of fees re Kiwi Saver Funds and similar pension products, in New Zealand has been one of price gouging and outrageous fees, masked by the Industry for years. This state of affairs has gone on for too long, and requires Government attention.


Kaspanz notes there has been no Commission, Task Force or similar on Retirement Income since 1991, such a body would provide a baseline of information and substance for both industry and political decisions.


This submission having made comment on key retirement income issues now makes specific comment on the terms of Reference

Terms of reference for the 2019 retirement income policy review

Aspects of retirement income policies the review must address and the topics to be discussed in the Retirement Commissioner’s 2019 report:

  • An assessment of the effectiveness of current retirement policies for financially vulnerable and low-income groups, and recommendations for any policies that could improve their retirement outcomes.

COMMENT:  The twin Model of NZ Super and Kiwi Saver is a world leader. Its universality and payment to the individual is excellent for women (not dependant on paid work), and universality has a re-assuring affect, reducing the tensions within communities.


  • An update and commentary on the developments and emerging trends in retirement income policy since the 2016 review, both within New Zealand and internationally


The” Golden “age of inheritance is upon us. The transfer of wealth from one generation to another has been a phenomenon over centuries, and the current trend suggests another one has arrived. Research is suggesting grandparents are paying the fees for education, a dominant cost saver for the young with their dominant child caring role, and up there in their house lending mortgage capacity.

One British survey says 1/20 British people receive an inheritance worth more than their ten years of net earnings. NZ mirrors overseas patterns, all the above applies here. The effect of all this upon the retirement income savings of the senior generation is considerable, self-sacrifice for the young can be counterproductive for their own savings!

The Annuities issue requires detailed attention.


“The cost of caring for the sick and elderly will continue to grow, as long as the focus is on adding years to life, instead of adding life and dignity to years’”

Overseas research suggests the issue of living longer (possibly 1.1 -2.75 years longer every 10 years, dependent upon  which research source is used) has camouflaged the real issue that senior years quality of life is significantly impacted and impaired by illness and disease. The issue of improving health is questionable with a lot of research suggesting significant and often chronic ill health, diabetes, stroke, bowel, cancer etc., is not decreasing but increasing. Invalid perceptions in this area abound.

E.g. The Office for National statistics United Kingdom  noted life expectancy is decreasing in the UK, with older people dying at a rate higher than previous trends, and rising  life expectancy stalling An Oxford professor (Danny Dorling} who analyzed the data , said the figures were alarming, suggesting frail people were increasing, Alzheimer’s and austerity measures possibly contributing? Dorling also said people were somewhat blasé about the situation, “5 years ago such data would have got a lot more attention”.

The NZ Listener Feb 2018 reported “We may be living longer, but those extra years are increasingly likely to be marred by ill health.

A study published in Age and Ageing, the journal of the British Geriatrics Society, reports that the number of older people diagnosed with 4 or more diseases will double between 2015 and 2035. A third will be diagnosed with dementia, depression or a cognitive impairment and many also will have severe arthritis

The Australian Bureau of Statistics 2019 has just wound back long term life expectancy projections, rising obesity and associated illness, road accidents and suicides overwhelming advances in medical science.

Professor McDonald Massey University, recent critique of the NZ Health system would be an excellent starting pint:

A blueprint for change

Professor McDonald says there are viable, evidence-informed alternatives for dealing with the country’s future health and healthcare challenges:

  • Stop thinking of health as a set of medical challenges that have social and economic consequences. Instead, approach health (physical, emotional, spiritual, social) as a set of social, economic, political, cultural, and educational challenges (and opportunities), which sometimes produce medical consequences. 
  • Reduce poverty and increase social connectivity and inclusion – because it is good for health and the economy.
  • Stop blaming seniors for rising healthcare costs when the problem is largely caused by an ill-equipped health system being asked to deal with chronic conditions such as diabetes, asthma, and dementia.
  • Put more emphasis on, and funding into, disease prevention at a population and policy level, rather than through acute and primary care.
  • Protect health-enabling measures within international trade agreements.
  • Support healthy ageing by rethinking the design and accessibility of houses, transport, food, education, recreation, and complex care for seniors.
  • Protect dignity and autonomy at end-of-life, including more advanced care planning and hospice care. 
  • Increase public and private sector investment to make New Zealand food the most nutritious and environmentally sustainable in the world – a goal that will improve health as well as long-term exports. 
  • Increase investment and research to track and fight infectious disease through microbiological innovation


The trend is for seniors to work longer in the work place. This leads to senior year’s people contributing to the economy and societal well-being, including paying taxes, all positive engagement. However contrary to the headlines, research does suggest this work force engagement is because of necessity, due to marriage failures, poor investment decisions, caught up in the semi-regular pattern of world economic problems,  and the simple reality of requiring  paid work to maintain reasonable  living standards.

Research indicates most of the population do not have the choice of work, let alone the opportunity, they have to find work to sustain a living income, with hurdles every step of the way. Choice is only available for the privileged (educated)

Those that are educated have significantly more choice in the matter, but most people are working because they have too and not because they want to. Rampant bias against seniors in the workforce exists, compounding the problem for those seeking work.

  • An assessment of the impact that the following will have on government retirement income policies, including Kiwi Saver and New Zealand superannuation:
  1. The changing nature of work, including the increasing number of people who are self-employed and/or working in temporary and flexible jobs;

Nil Comment

  1. Declining rates of home ownership;

Nil comment

  1. Changes in labour market participation of those 65 and older.


The trend is for seniors to work longer in the work place. This leads to senior year’s people contributing to the economy and societal well-being, including paying taxes, all positive engagement. However contrary to the headlines, research does suggest this work force engagement is because of necessity, due to marriage failures, poor investment decisions, caught up in the semi-regular pattern of world economic problems,  and the simple reality of requiring  paid work to maintain reasonable  living standards.

Research indicates most of the population do not have the choice of work, let alone the opportunity, they have to find work to sustain a living income, with hurdles every step of the way. Choice is only available for the privileged (educated)

Those that are educated have significantly more choice in the matter, but most people are working because they have too and not because they want to.

Rampant bias against seniors in the workforce exists, compounding the problem for those seeking work.

  • Information about, and relevant to, the public’s perception and understanding of Kiwi Saver fees, including:
    1. The level and types of fees charged by Kiwi Saver providers; and
    2. The impact that fees may have on Kiwi Saver balances.


Fee’s in New Zealand for the last decade are too high, and have been a golden mile for fund managers. They are well above most OECD countries. The Government should be talking them down, and also consider legislative requirements. Active funds should never be more than 1% and passive fees from 0.5% to.60%. The situation continues to be so bad, a Commission or Task force on this topic is required

  • Information about the public’s perception and understanding of ethical investments in Kiwi Saver, including:
    1. The kinds of investments that New Zealanders may want to see excluded by Kiwi Saver providers; and
    2. The range of Kiwi Saver funds with an ethical investment mandate.

Nil comment

  • An assessment of the impact of current retirement income policies on current and future generations, with due consideration given to the fiscal sustainability of current New Zealand superannuation settings.



The current levels are low compared to other OECD countries. Any reasonable projections show this will continue for many years. The costs re-funding this issue and its benefits mean NZ is in a good state; our twin model schemes (Kiwi Saver and NZ Superannuation) must be available to future generations. Be wary of economic forecasts which take no account of societal adjustments over times, there predicative relevance is minimal.

  • Information about the public’s perception of the purpose and principles of New Zealand superannuation.


Our members believe it is necessary, many see it as an entitlement, and it’s a key component of their retirement income money plans, the safety net for maintaining standard of living and investment decisions. Adjustments to the current model rather than significant change is the message

  • An assessment of decumulation of retirement savings and other assets, including how the Government can ensure New Zealanders make the most of their money in the decumulation phase.



 The emergency of Life Time Income as a provider cannot be emphasised enough. The product is solid and well thought out.  More competition is needed.

 Decumulation is a classic long term issue, which due to that fact seems to be avoided by policy makers.

 New Zealand has a great opportunity to be a world leader in new initiatives in this area and annuities must be addressed. The lump sum received from Kiwi Saver requires addressing e.g. combination of annuity, insurance and a component of the lump sum available for the individual receipt ant could be considered. Using Kiwi Saver Funds to purchase from Government increased Superannuation payment is a useful thought, and the Government Super Fund could be also be a useful vehicle to offer Government annuities, or be converted into such a scheme.

 Alec Waugh



2019 Retirement Commission Review. A contribution from Littlewood and Chamberlain

Both are significant contributors on New Zealand Superannuation, and have the knowledge and credentials to remain heavyweight commentators.

This is the stuff Research units (MMP Parties) and the Commission should be looking at carefully, its magnitude and complexity being both a strength and a weakness.

Informing the 2019 Review – 133 questions

Press Release

Michael Chamberlain – an Auckland-based actuary and investment adviser.

Michael Littlewood – now retired but an active participant in public policy issues associated with saving and superannuation and a co-founder of the University of Auckland’s Retirement Policy and Research Centre.

Two years ago, Michael Chamberlain and Michael Littlewood published what they suggested was the review of retirement income policies that New Zealand should have received from the Retirement Commissioner in 2016 (The Missing 2016 Review – building trust for life beyond work).

By December this year, the Retirement Commissioner must complete the next triennial review. The terms of reference for the 2019 Review were published earlier this year and listed eight general topics (available here).

Chamberlain and Littlewood have re-cast their 2016 report and have now published Informing the 2019 Review – 133 questions that New Zealand needs answered. This latest report is available online at www.alt- and is intended to help the 2019 Review by identifying the key issues, detailing what evidence is available (local and international) and then listing the questions that need answering on all aspects related to saving, pensions and retirement incomes, and the review process itself.

In 2017, the authors described the Retirement Commissioner’s 2016 report as an “evidence-free zone”. They now say that “if the 2019 Review is to achieve anything, evidence-gathering should be at its foundation. Unfortunately, the Retirement Commissioner doesn’t have the time and probably won’t have the resources to deliver the review that New Zealand needs. However, the 2019 Review can recommend that we start to gather data to form the basis for future, evidence-led, policy decisions.”

As in 2016, Chamberlain and Littlewood’s report has 22 sections covering the key parts of New Zealand’s overall retirement income framework. All the information has been updated from 2017 and questions have been added to or re-framed to take account of recent developments.

For example, the Tax Working Group’s recommendations for new tax breaks for KiwiSaver are analysed and labelled inconsistent and lacking any evidential basis. Similarly, the May Budget’s unheralded changes to New Zealand Superannuation are also criticised as failing the evidential test.

Chamberlain and Littlewood label the terms of reference for the 2019 Review as “in the same timid mould as its 2016 equivalent” and they do not expect much more than has been produced by the earlier six equivalent reviews . “That will be a wasted opportunity”, they say.

To put their 2019 report into context, the first section lists the authors’ nine top priorities.

Each of the following 21 sections describes one particular issue and there are many more issues than the eight that the Terms of Reference identify. Each of the 21 sections ends with a series of questions that New Zealanders need to discuss before we can settle public policy on that issue. Most require gathering data to inform the issues. Chamberlain and Littlewood suggest that, without the necessary evidence, New Zealand cannot make the robust decisions that are now needed. How for example, they ask, can the Retirement Commissioner examine the impact of “declining rates of home ownership” when there is actually no reliable evidence of that happening?

The authors say that their report’s overarching theme, as in 2017, is about what governments can and cannot do:

– There is a range of things that only the government can do – it should do those things.

– There is another range of things that, based on the evidence, the government seems unable to do – it should stop doing those.

– Finally, there are things that the government is doing but, based on the evidence, seem not to be effective – it should also stop doing those.

“This is evidence-based policy-making – if it works, based on the evidence, then do it; if it doesn’t work, stop doing it. If we do not know whether it works, gather the evidence before deciding what to do. For New Zealand, this approach to policy–making on retirement incomes would constitute a change but it’s time New Zealand tried it. Before that process can even start, there is a lot of data to gather.”

Chamberlain and Littlewood say that the Retirement Commissioner’s 2016 Review did not achieve much more than the preceding five similar reviews. Without a radical change in approach, they do not expect the 2019 Review to make the progress that New Zealand needs to make on a topic that, directly or indirectly, will affect every single New Zealander. They suggest that New Zealand deserves better.
Report accessible at:

Posted by Alec Waugh August 2.

NZ :The Lucky Country re Superannuation

This 2017 article is very applicable. I have just returned from Aussie, where protection of Superannuation Investments by Australians is the current rage, including the regulators and Boards adjusting to the new reality of protecting  the consumer, and focusing on fees, regulator performance etc and investors interests

This article takes us back to the basics, the excellent model of NZ Super we operate in this country

Many Australians would gladly swap;New Zealand’s pension provision for theirs.


The heated discussion about superannuation – age of entitlement, generational fairness, gender equity – is a good one for New Zealand to have now.

This is a global issue that every country is wrestling with and there are no easy answers to the fiscal reality of an ageing population and prudent provisioning for a universal pension payment.

The good news is New Zealand is in an enviably good place – in terms of government finances, the performance of its sovereign wealth fund, which starts making payments to the government in 2036, and strong immigration to address declining birth rates – compared to its international peers.

But you wouldn’t know it to listen to the various voices in the media. I get the distinct impression that Kiwis don’t know how lucky they are.

It’s fair to say there are many Australians who would gladly swap New Zealand’s pension provision for theirs.

To give readers some perspective, I’m going to share some of the faults of the Australian system which are absent from New Zealand’s super scheme.

Australia has one of the most complex super schemes in the world. It features a plethora of electable options that are confusing to the average person. It has provisions for insurance and for disposing of estate property, neither of which is an option in New Zealand.

This complexity is a cost on savings, reducing returns and diverting resources away from retirement income.

Australia features tight pension asset tests, as well as superannuation tax concessions, both of which are proving a bonanza for the financial planning industry, further siphoning resources away from its actual purpose.

If you want to talk about generational fairness, Australia has already implemented a gradual pension age increase to 67 years (for those born after 1 July 1952) and if the current government is returned at the 2019 Federal Election, the pension age is slated to increase to 70 years. Editor note , this last provision has been rescinded

New Zealand’s system, by contrast, is probably the simplest pension scheme in the world. There is no asset testing, you can work and continue to receive the pension, there are no electable options and there’s an absence of fishhooks to indirectly benefit the financial services sector as families struggle to understand and comply with a raft of Byzantine rules.

The government has said it will raise the age of entitlement as life expectancy increases  but by international standards 67 years is a generous provisioning and it won’t be phased in until 2037. Set at 65 per cent of the average wage, New Zealand’s pension is higher than many other countries.

The other benefit New Zealand has over other countries is the relative absence of political meddling and 1993’s multi-party accord has delivered real benefits to Kiwis via that policy stability. Changing the age of entitlement in 2037 will be the first substantive change in 44 years.

If there is a blot on Godzone’s retirement landscape, it’s the parlous state of private saving. New Zealand was a late adopter of workplace savings schemes and KiwiSaver, while a good start, will take time to adequately provision its citizens for gradually withdrawing from the workforce.

But that is a minor quibble. When it comes to superannuation, perhaps it’s New Zealand that should be called the Lucky Country.

Alex Malley is chief executive of global accounting body CPA Australia

Posted by Alec Waugh 23 July

NZ Superannuation Research: 2017 paper from economist Bill Rosenberg

2017 Opinion paper

Economist Bill Rosenberg runs the ruler over NZ Super cost predictions, and argues it’s not as scary as we’ve been told; Calls for a proper debate on population policy.

Last month, Prime Minister Bill English announced that his Government now favoured raising the age of eligibility to receive New Zealand Superannuation from 65 to 67 by 2040, a turnaround from its previous denial that any change was necessary. Labour has also reversed its 2014 election policy and now opposes the raising of the age.

The usual reason given for raising the age of eligibility is affordability of the scheme. For example the Commission for Financial Capability (formerly the Retirement Commission) in its 2016 Review of Retirement Income Policies justified it by asserting that in 2015/16 New Zealand Superannuation (NZS) cost 4.1 percent of GDP, and that “Treasury predict that it will rise to 7.1% (net) of GDP in 43 years”.

I have a look at these numbers and find that they are misleading. The picture looks very different if we take into account the tax paid by the New Zealand Superannuation Fund, the contributions both main parties say they will start making to the Super Fund, and the contributions the Super Fund will start making to the cost of New Zealand Superannuation in 2032/33 (according to current plans).

There are further arguments to be considered about the affordability to the public purse of current levels of payment and economic affordability.

The affordability to the public purse is frequently presented as an absolute. But affordability is a matter of priorities, what New Zealand society wants and what it is prepared to pay in the way of taxes. Many other countries are facing the same problem and many have considerably more retired people, and costs, in proportion to their populations than we do.

Economic affordability centres around the ‘dependency ratio’ – the number of people who are working, thereby generating income to be taxed and shared with superannuitants, compared to the growing number of superannuitants. But this does not take into account either other ‘dependants’ such as children, nor Treasury’s most recent long-term projection which did not show a looming economic problem.

Finally, it will become apparent that the question of New Zealand Superannuation cannot be seen on its own: we need to think about matters like New Zealand’s population and other forms of retirement income. I don’t cover these in detail but they are important to gain a full picture.

 How much will New Zealand Super actually cost into the future?

Treasury looked at this question as part of its regular statement on New Zealand’s Long-term Fiscal Position. It released its latest one in November. In it they project current policies into the future to look at the ‘fiscal’ consequences of continuing those policies indefinitely – that is, the effect on government spending and revenue needs.

It shows that it is important not to rely on the headline figures of what the government spends on New Zealand Super. In the year to June 2016, payments to New Zealand superannuitants cost 4.9 percent of GDP or $12.3 billion. The projection shows that by 2060, the period of Treasury’s long-term Statement, it would be costing 7.9 percent of GDP – an increase of over 60 percent, which sounds a little scary.

But New Zealand Super is taxed – so it is actually its net cost after the claw-back of superannuitants’ tax payments that is important. (A Government could easily reduce its apparent level of spending by simply making New Zealand Super tax-free at its current net levels!) Its net cost to the government in 2016 drops to 4.2 percent of GDP or $10.4 billion. In 2060 it would cost 6.7 percent of GDP.

In addition, the Super Fund, set up by the 2000s Labour-led Government to partly fund New Zealand Super in the future, also pays tax. It doesn’t make much of a difference right now (though the $0.5 billion in tax paid in 2016 and $4.6 billion since the Fund started is not to be sneezed at) but by 2060 the tax is projected to be $8.0 billion a year. That brings the net cost by 2060 down to 6.1 percent of GDP.

Then there is the direct effect of the Super Fund. Firstly, both main parties (and the Retirement Commissioner) want contributions to the fund to resume – some earlier than others. The current Government won’t restart contributions until the year to June 2021. From then until the year to June 2033, when withdrawals are started from the Fund, there is an additional cost of up to $3.0 billion (which incidentally isn’t counted in Core Crown expenses because it is regarded as capital spending). In 2021, the total cost to the government of New Zealand Super plus these contributions is projected to be 5.0 percent of GDP. It would have been the same in the year to June 2016 had contributions resumed that year. By 2060, when the Fund is projected to be contributing $4.0 billion to that year’s New Zealand Super costs, the net cost to the government of the day amounts to 5.9 percent of GDP.

So the true comparison of the fiscal cost now and the cost in 2060 is more like this: 5.0 percent of GDP soon, compared to 5.9 percent in 2060. That increase doesn’t look nearly as scary. If it is affordable now (as all seem to agree) then it is likely to be affordable in 2060.

Here’s a table summarising the situation with the total impact on government finances in the bottom line:

Affordability to the public purse It is wrong to present affordability to the public purse as an absolute in the way that English and some others put it: he was raising the retirement age to “ensure the scheme remains affordable into the future” . Affordability is a matter of priorities, what New Zealand society wants and what taxes we are prepared to pay.

The Retirement Commissioner points out that there are other costs that rise as the population ages such as health care. But to draw the conclusion that superannuation should be cut to pay for these is not logical, unless we are moving to a society where each generation is expected to look after itself and not concern itself about younger or older generations.

We do always need to consider our priorities and options, but one option is to raise more revenue. Many New Zealanders would be willing to pay more to maintain the financial security of their parents and themselves in retirement, and for other public services that they value. If the assumption is that the current level of taxation is fixed and can never increase as a proportion of GDP then there are many other problems we cannot address and the outlook for New Zealand is dim.

Some of these problems cannot be addressed by individuals on their own (such as environmental problems, income inequality and poverty). In other cases such as health and retirement income, individuals could pay for it but it becomes inefficient, inequitable and impoverishing (as the US private health system shows). It is much better for everyone if the risks are shared and it is paid from government revenue. It might raise the government’s costs, but from an economy-wide and societal point of view it costs less and is fairer.

We are not a highly taxed country. OECD data shows that we have one of the lowest differences between what an employer pays and take-home pay among the high income countries that make up the OECD – we rank between 28 and 34 out of 34 countries and well below the OECD average. Our tax revenue as a proportion of GDP is low for a small country . We rank 19 out of 35 OECD countries and less than most similar size OECD countries. Our problem is not the level of taxation but its distribution.

The proportion of GDP New Zealand spends on pensions is also low. The OECD put it at 4.8 percent of GDP in 2013 (a misleading figure but it is just a basis for comparison). The OECD average was 6.4 percent of GDP and only 10 out of 33 countries had a lower proportion, including Mexico with zero and others that also have private compulsory contribution schemes. There were 14 already above 7 percent of GDP. New Zealand’s ratio is low partly because we are fortunate to have a relatively young population.

Clearly affordability is a decision that societies make in terms of their priorities.

 Economic affordability

Much of the economic debate centres around the ‘dependency ratio’ – the number of people who are in paid work and thereby generating income and tax revenue, divided by the number of older people. This is projected to fall: fewer people will be working to generate the income required for each retired person. Treasury’s population projections show it falling from 7 working age people to every person 65 or over in 1972 to 4.3 in 2017 to 2.1 in 2060. (That’s taking the working age population to be aged 15 to 65. It’s unlikely that adjusting the lower limit of 15 up a little would make a big difference to the analysis. Statistics New Zealand defines it to be aged 15 years and over.) . Of course the effect of the fall in the ratio will depend on how many people of working age are working (the participation rate), and how many of the over 64s are working. The participation rate is currently rising more rapidly in this age group than any other.

But consider this: people over 64 are not the only ‘dependants’ in society (and an increasing proportion of them are not dependent either). Children make up the other main group of dependants. In 1972 children under 15 made up 31 percent – almost a third – of New Zealand’s population and the 65+ age group only 9 percent. The working age population made up 60 percent. The whole ‘dependency ratio’ was 1.5 working age people to every dependant.

The population is aging in two ways: we have a greater proportion of over-64s and a falling proportion of children under 15. In 2017 the children made up only 19 percent of the population, people of working age made up 65 percent and the over-64s 15 percent. The ‘dependency ratio’ is 1.9. By 2060 the projection reduces children to 16 percent of the population, people of working age 57 percent and the over-64s to 27 percent. The ‘dependency ratio’ would be 1.4 – not much lower than the 1.5 it was in 1972. So in 2017 we are in a sweet spot – the highest dependency ratio since 1972 was in 2.0 in 2006 and we are not far from that. Perhaps this is the unusual time rather than 2060!

The effect of this all depends on the cost of raising, educating and looking after the health of children compared to the costs of old age.

It is interesting that Treasury’s economic projections for the size of the economy do not show an economy struggling to pay for New Zealand Super – otherwise its cost as a proportion of GDP would be much higher. It is of course dependent on its assumptions which may be unrealistic. These include a high proportion of people continuing to work, and in particular among the 65+ age group.

It also assumes that labour productivity grows at an annual rate of 1.5 percent and that real wages (the average hourly wage adjusted for rising prices) grow at the same rate. Productivity has been struggling well below that level for a decade. Wages since the early 1990s have failed to keep up with productivity.

However if the link between productivity and wages were achieved, Treasury observes that raising productivity is not the answer to paying for New Zealand Super: raising productivity raises wages, which raises the cost of Super because it is linked to wages, and we are no further forward without more progressive tax rates.

All of this means that this modelling cannot be the final word on the subject. But it is not immediately obvious that there is an economic reason to reduce the cost of New Zealand Super.


This discussion raises many questions: the question of New Zealand Superannuation cannot be seen on its own. What would be the impact on its affordability of increasing our future working age population by encouraging people to have more children or a somewhat higher level of immigration (better managed than now)?

We could encourage more children by paying a universal child allowance, making child care better quality and free, and reducing working hours. Treasury says that if it raised its assumed net immigration rate from an average of 12,000 per year to 25,000 per year in the long run (both much lower than at present), “population ageing slows and the population is younger and approximately 928,000 higher in 2060. The higher net migration lowers the ratio of expenditure-to-GDP” and reduces net core Crown debt. These questions add to calls for a proper think about where we want for New Zealand’s future population to head – a population policy.

New Zealand Super is not the only income retired people rely on. We should be thinking about boosting Kiwisaver, and the Retirement Commissioner recommends raising contribution rates. The CTU has proposed making Kiwisaver compulsory if the employer contribution rate was raised to 6 percent, there was a 2 percent contribution from both workers and the government, the minimum wage was increased at the same time, and the government contribution of 2 percent (of minimum wage or benefit level or another amount) applied to all those of working age who are not earning for a period.

We should also be thinking of fair ways to pay for the increasing cost. Susan St John in the Auckland University Retirement Policy and Research Centre has made proposals for a progressive tax on those receiving New Zealand Super but more universal solutions may be less contentious given our history.

There will never be a last word on this subject. We should continue to review the situation, keeping a watch on both the adequacy of our people’s retirement income and the cost of it. But New Zealand is lucky enough that we don’t have to make urgent decisions to manage the cost of New Zealand Superannuation.

Posted Alec Waugh 5 July 2019


Most in advanced age rely on pension

16 April 2015

A survey of people in advanced age has shown that for most people (89 percent), New Zealand Superannuation is the main source of income.

The University of Auckland study, funded by the Ministry of Health, also shows a significant difference between Maori and non-Maori people reporting that the NZ Superannuation (NZS) pension is their only source of income.

Twice as many Maori (41 percent) as non-Maori (21 percent) reported the NZS as their only income.

These findings are from a population-based sample of 937 people – Māori (aged 80 to 90 years) and non-Māori people (aged 85 years) – living in the Bay of Plenty and taking part in a longitudinal study of advanced ageing.

The study is called ‘Life and Living in Advanced Age: a Cohort Study in New Zealand – Te Puāwaitanga O Ngā Tapuwae Kia Ora Tonu’, (LiLACS NZ).

The latest LiLACS NZ short report presents key findings about the main sources of income, how people felt about their money situation, and the entitlement cards they had in advanced age.

“People receiving only the NZ Superannuation were more likely to feel they could not make ends meet, “ says study leader, Professor Ngaire Kerse from the University of Auckland. “ And fewer Maori than non-Maori felt comfortable with their health situation in advanced age.”

Almost all the people in advanced age surveyed had a SuperGold Card, but fewer Maori than non-Maori had a High Use Health Card.

Significantly fewer Maori (six percent) received superannuation from other sources as well as the NZS, compared with 14 percent for non-Maori.

It was the same pattern with income from investments (Maori 28 percent/non-Maori 65 percent), but as would be expected, more Maori (32 percent) received tribal land trust money than non-Maori, (two percent).

NZ Superannuation was the only source of income for more women than men, and significantly fewer non-Maori women received NZS or other pensions. Non-Maori women were also more likely to receive financial assistance from family than non-Maori men.

The majority of people in advanced age (75 percent) were comfortable with their money situation with 25 percent saying they had just enough to get along and one percent saying they could not make ends meet.

These perceptions were significantly related to source of income and all of those who could not make ends meet, had NZS as the only source of income.

More people who felt they had just enough to get along, relied solely on NZS for income (50 percent) than those who reported that they were comfortable (30 percent).

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