Have you noticed it’s people in suits, high income earners, or well-paid Talk back hosts who suggest means testing income when the topic of NZ Superannuation comes up?!

The latest example is Sunday Star Times editor Tracy Watkins, writing 2 recent editorials on the Topic.  The same people are often awash with their own asset protection and trusts to camouflage their individual income level. They, only suggest means testing “income”, not capturing retirees with large capital gains or huge wealth holdings. Suggesting means testing to NZ Superannuation, can only apply if all trusts and asset protection schemes are removed, so the accurate measurement of all individual income applies to every NZ resident.

Means testing is usually poor policy, difficult to target and accurately police the margins of where the boundaries are set, significant admin costs to establish and further it creates a them and us mentality, reducing community trust and confidence. One of the great strengths of universal benefits is that they create a sense of solidarity and shared understanding. Means tested benefits create the opposite, divisions, and misunderstanding. Jim Anderton (MP) said in 2006 a “them or us” approach was not the way for New Zealand to get things done. Wise words from a wise owl.

History shows means testing often has unintended consequences, the outcome scourge for policy makers.

The New Zealand approach to Superannuation is recognized by many off shore commentators as the primary example of how to address retirement income issues.

I dug through the history files and found comment from Michael Littlewood, considered by many the Guru of New Zealand Superannuation knowledge. Among other comments he said

“I used to favour income tests for NZS because, said quickly, it does not make a lot of sense to collect tax from everyone, including the poor, and pay a pension to people who on any reasonable measure, do not need it. The devil, however, is in the detail. Australia is a good illustration of what can go wrong – Australia’s means-tests (a very complex mix of income and asset-testing) among other things mean:

• They have more than we do invested in the primary residence;
• They ‘retire’ about two years earlier and have much lower participation rates at older ages;
• They still have high rates of 100% pensions and part pensions;
• A hugely complex regulatory environment that will shortly become even more intrusive;
• High rates of avoidance activities;
• Higher rates of pensioner poverty than in New Zealand.

I have concluded that a universal pension is a simpler, more understandable, more transparent arrangement that is much cheaper to administer and more effectively deals to the reason we have a pension – to reduce or eliminate poverty in old age.”

Littlewoods sentiment is echoed by many others. Research papers over the last 20 years, have a consistent theme of supportive conclusions re NZ Superannuation, our Retirement Commissioner and the NZ Societies of Actuaries being 2 recent examples. The final word to  Martin Hawes, author, and commentator on retirement income policy,

“New Zealand Superannuation (NZ Super) is a thoroughly excellent scheme. It is most retired people’s financial bedrock, providing reliable income that appears every fortnight and allows people to at least buy the basics. The scheme is universal (nearly) and means that there is little or no absolute poverty amongst pensioners in New Zealand. It is relatively cheap to administer and, because it is not taxed at a special higher rate for those at the age of eligibility, it provides a financial foundation without disincentivising further work.”