Judith Davey
July 2016
This year you have a chance to put your views forward.
Under the Superannuation and Retirement Income Act 2001, the Retirement Commissioner[1] is required to review retirement income policies every three years. 2016 is one of those years. The terms of reference for this review[2] cover the sustainability of New Zealand Superannuation (NZS) settings, while not specifically mentioning the age of eligibility.
The last review, in 2013, recommended raising the age – not to a specific age, but in line with increases in average life expectancy. This seemed a sensible proposal, once you can get your mind around it, but it received no favour from government. It would keep constant the average proportion of life during which NZS would be paid and would make NZS more fair and sustainable[3].
When the first New Zealand age pension was introduced in 1893 the age of eligibility was 65. It is at this same age today, even though life expectancy has risen substantially. So the average person is receiving retirement income support for much longer and we expect life expectancy to keep on rising. The review team calculated that, even with an eligibility age of 68, today’s 25-year-olds would receive NZS for longer than people who are now aged 85 plus (who had an eligibility age of 60). Countries a lot richer than New Zealand have increased the age of eligibility for pensions, including more than half of the OECD.
There is no political consensus about this. The present government is standing firm on no. I do not intend to take a stand either for or against raising the age for NZS. Instead, I will just put forward the pros and cons of such a move.
Arguments against increasing the age of eligibility
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Older people are entitled to a decent life after retirement.
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They have worked hard all their lives and deserve a pension. They have bought homes, raised and educated children, saved money, paid off mortgages, while contributing to social services and financial support, including superannuation, through paying income tax.
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People currently in the workforce have adjusted their savings plans on the expectation of a certain entitlement age.
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People should have security and should not have to worry about income in their old age. Private sector savings, including Kiwi Saver, depend on the vagaries of financial markets.
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Many people lost their savings in finance company failures, even though they saved and invested for their retirement. Many low paid workers or beneficiaries cannot afford to save for retirement anyhow.
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Raising the age will just increase the demands on other benefits (sickness, unemployment) with no net fiscal gain.
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Many people are unable to continue in paid work, especially hard physical work (there are arguments for them to have NZS earlier).
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Similarly, increasing the age is unfair to Maori and Pacific people, whose life expectancy is lower.
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NZS is sustainable – given good economic conditions and increased productivity. It is better to put more effort into achieving a competitive, fully employed, high income-generating economy.
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If you are a politician, you may fear an electoral backlash if receipt of NZS is deferred.
Arguments for increasing the age of eligibility
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People are living longer and healthier and this provides the opportunity for them to work longer.
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There are benefits in people continuing to work longer – it has been linked to better physical and mental health; it gives them focus, stimulation and keeps them active. Income from work will improve living standards in later life and ensure they have some savings when they do retire.
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The tax contributions of older workers will make it easier to meet the costs of an ageing population for health services and social care.
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Why should younger taxpayers to fund a long unproductive retirement? Do we want to increase the unfair burdens placed on younger generations?
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It will encourage saving – with a good lead-in time, young people can adjust their personal savings plans to compensate.
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New Zealand simply can’t afford NZS at 65 for everyone. It should be a safety net, not an automatic entitlement. The country is in too much debt already.
What are the alternatives to raising the age of eligibility?
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Have a means and/or income test on NZS.
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Have a work test – stop paying NZS to people who are still in full-time employment.
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Have a graduated NZS option – by paying those who postpone retirement a larger sum per year. People who wish to retire earlier could do so on a reduced amount.
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Tighten up on eligibility for NZS – increase residency requirements for recent immigrants.
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Cut government spending, for example cut back on other benefits and services.
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Expand/increase taxation – raise GST or income tax, introduce a capital gains or inheritance tax.
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Replace NZS by KiwiSaver – with compulsory membership.
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Encourage people to have financial plans so they can retire when they want to at an age that isn’t reliant on government.
So what are your views? What is the CFFC likely to come up with this year?
[1] The Retirement Commission is now the Commission for Financial Capability and has changed its focus although it retains the requirement for the policy review.
[2] htttp://www.cffc.org.nz/reviewretirementincomepolicy/April/reviewing-retirement-income
[3] http://www.cffc.org.nz/assets/Documents/RI-Review-Report-to-Govt-Dec-2013.pdf
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