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. Recognised 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 Government 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. 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 Acts’ David Seymour, John Roughan. Fran O’Sullivan, Matthew Hooton, Mike Hosking, Larry Williams, Leighton Smith, Brian Fallow, who all make comments which sound profound at first glance, but simply do not cut it upon subsequent examination. The voices of calm reason and substantial evidence flow from Susan St John, Michael Littlewood, Roger Hunard and Mary Holm; while Diana Clements and Carmel Fisher also offer balanced views, while Bernard Hickey often writes provocatively, but has a depth of knowledge.
Judgement calls 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, hence the necessity to continue with the current model and any for any party rising the age entitlement of NZ Super, must signal that approach decades in advance!
Posted Alec Waugh
New Zealand Superannuation payment rates 2017 : MCA NZ Limited summary is a good one
New Zealand Superannuation
March 2017:An overview
New Zealand residents, who meet the eligibility criteria, are entitled to receive a universal old age pension (NZ Super). The pension is paid fortnightly.
New Zealand residents must satisfy all of the following conditions. They must
- have reached State pension age (currently age 65);
- be a New Zealand citizen or permanent resident;
- live in New Zealand;
- have lived in New Zealand for at least 10 years since age 20;
- have lived in New Zealand for at least 5 years since age 50.
Residence in a country with which New Zealand has reciprocal social security arrangements (eg Australia and the UK) counts as residence in New Zealand.
The benefit is linked directly to the national average wage and is reviewed each year (1 April) against changes in wages. The target level for a married couple is referred to as “65 at 65” i.e. a net 65% of the net national average wage from age 65. The current level is 66% of the net national average wage for a married couple, i.e. approximately 33% each.
The pension is taxed as income in the normal way under the PAYE system.
There are no income or asset tests applied to NZ Super. However, if one partner of a couple qualifies and the other does not, both may receive the benefit, but an income test applies in respect of the benefit paid to the partner that does not qualify in their own right.
The pension when payable is not backdated. Also, an application can only be made when you are within 2 months of being eligible. Therefore, an eligible person should apply (make an appointment) in the 2 months before turning 65.
There are no specific social security contributions or “working life period” based requirements. The pension is funded out of general taxation.
The payment of the NZ Super benefit does not affect the private superannuation and savings of an individual. This includes benefits payable under KiwiSaver.
However, entitlements to an overseas social security pension (like the UK’s Basic State Pension) but not work-related, employer-provided pensions, reduce the New Zealand pension by the equivalent amount.
March 2017, the National Party announced that should it be re-elected and form the government after the 23 September 2017 general election, it would change the rules for NZ Super, such that:
- The age of eligibility would increase gradually from 65 to 67 between 2037 and 2040;
- The 10-year residency requirement would increase to 20 years.
There were no proposed changes for making retirement withdrawals from KiwiSaver. This will remain age 65, subject to the 5-year minimum membership requirement.Under the announcements, if you were born before 1 July 1972, age 65 would still apply for NZ Super. If you were born on or after 1 January 1974, age 67 will apply. The transition from 65 to 67 is:
|Born in||Age of eligibility|
|Pre 1 July 1972||65.0|
|1 July 1972 to 31 December 1972||65.5|
|1 January 1973 to 30 June 1973||66.0|
|1 July 1973 to 31 December 1973||66.5|
|1 January 1974 onwards||67.0|
New Zealand Superannuation rates – from 1 April 2017
|Before tax (gross)||Post-tax (net)|
|– a year||– a week||– a year||– a week|
|Single, living alone||$23,405.20||$450.10||$20,290.40||$390.20|
|Married person (each)||$17,721.60||$340.80||$15,607.80||$300.15|
The current (December 2016) national average ordinary-time wage is $58,745 a year before tax ($47,286 a year after tax and ACC) from 1 April 2017. There are no additional social security or health taxes. Social security benefits are all met from ordinary tax. All health, social services and education expenses are financed centrally. Local authority rates meet the cost of only local services, such as roads, refuse, reserves and planning.he after-tax NZ Superannuation for a couple is equal to 66% of the after-tax national average. Next change April 2018.
Posted by Alec Waugh