When we think of retirement income policy we usually think first of New Zealand Superannuation (NZS). For many older people this is their main or only source of income. But, when you come to think of it, NZS is only one part of a much wider system of policy settings and income sources which supports our wellbeing in old age. The Commission for Financial Capability (CFFC), in their 2016 Review of Retirement Income Policy called this an eco-system- “meaning ‘a complex network’ or ‘interdependent system’”  .
“The all-dominating subject of age of eligibility (for NZS) cannot be addressed without also acknowledging the interdependencies: the ageing workforce, the role of Kiwi Saver, decumulation options, and more.”
The elements of this system interact with each other and with underlying trends and attitudes. They all contribute to a central objective, which is to ensure that all older New Zealanders have an adequate retirement income: that is, sufficient income to ensure that they are able to “belong to and participate in the community” (Royal Commission on Social Security 1972). Adequacy relates not just to the level of NZS and its future sustainability, but also to supplementary payments, health and housing and more. Prolonged workforce participation and various means of self-funding are part of the interdependent system which calls out for a unified policy approach .
In this blog I will look at government policies which support retirement incomes. Later I will cover what individuals can do for themselves. These two sources of support interact to form the eco-system.
1. Government’s Contribution
New Zealand Superannuation
This produces a major demand on central government’s budget. With the ageing of the population, if there is no change in policy settings, the cost of NZS will increase to levels which raise concerns – its cost will almost double by 2036.
What can be done to increase the sustainability of NZS?
The options include raising taxes, cutting government expenditure and borrowing – all traditional responses when governments need more money. But also:-
• The New Zealand Superannuation Fund (NZSF) can smooth the cost of NZS across the generations and improve its sustainability. The intention is to draw down the fund from 2035-36. The 2017 Labour-led government has resumed contributions to the NZSF after the National-led government stopped them during its term of office.
• Raising the age of eligibility. Arguments for this are not solely based on fiscal savings but also on increased life expectancy and the potential for extending workforce participation.
• Adjustment of residence requirements. Many OECD countries have lengthened the residence requirement for pension receipt.
• Income and/or asset testing NZS. The administration and compliance costs would be significant and avoidance schemes are likely to spring up. Income testing would also discourage workforce participation beyond the age of eligibility.
• Deferring receipt of NZS for a higher pension. This policy would be administratively complex and seems not be actively under consideration.
Other government spending on retirement incomes
Several other government programmes effectively contribute to the adequacy of retirement incomes.
Over a third of health spending goes on the 65 plus age group and increased numbers of older people will raise health expenditure in the future, provided there is no reduction in service provision or subsidies. Increased health costs also relate to staff salaries and higher expectations of new medications, treatments and technology, not just ageing. Public hospital treatment is free and there are subsidies for GP consultations. Long waiting lists suggest that there may be scope for self-funding through medical insurance, which in the past has been encouraged by tax policies . There are also private health costs for dental, audiology and optometry services, and part payment for prescriptions, so health costs are already shared.
Fewer older people are now in residential care, albeit at higher levels of dependency. But, if the policy of “ageing in place” continues, then home care and services delivered in the community will become more important and are already under-resourced, even though they cost over $2 billion a year. Here again, there is potential for self-funding, and income-testing policies could be developed.
The Accommodation Supplement (AS) was designed to reduce the impact of housing costs on low incomes, so it may be a useful addition to retirement income. Its adequacy has been questioned, given the rise in rents. The public housing stock is historically low and private landlords do not fill the gap. Greater poverty among older renters has been predicted. Currently only about 5% of superannuitants also receive AS, but this still costs around $100 million per annum.
Poor housing has a negative effect on physical and mental health outcomes. Older renters may therefore generate higher health service costs.
Fuel poverty has become an increasing concern. The current government has introduced the Winter Energy Payment for superannuitants, worth $450 for a single person and $700 for a couple. This cash grant should add to the wellbeing of retirees and result in some savings in health care costs.
Other government-funded support for older people includes the Super Gold Card, the Total Mobility Scheme, Disability Allowances, targeted rent and rates rebates and some subsidies for hearing and other aides. It is not difficult to arrive at an annual cost of another $1 billion.
Kiwi Saver (KS)
Although not directly support to older people, the government contributes to Kiwi Saver through tax relief (formerly also through a grant of $1000 upon enrolment). And KS has the potential to deliver substantial funds to contributors on maturity.
The purpose of the Kiwi Saver Act 2006 is to encourage long-term savings to maintain standards of living in retirement. Both employees and employers contribute to individual accounts, held by registered KS providers. Funds mature at age 65, but can be withdrawn as a deposit for a first home and there is a provision for financial hardship withdrawals.
Compulsory enrollment in KS would ensure additional retirement income for all workers. But there are arguments against compulsion. For low income earners, especially those with dependent children, KS contributions could be a financial burden. Others may prefer to manage their own savings portfolio, or to adjust their savings to life-cycle flows of income and expenditure.
When Kiwi Saver accounts mature, people have the choice of withdrawing all their funds; leaving them in their accounts as investments; or shifting money into other forms of savings, such as term deposits in banks. In future KS may become the main source of retirement income, with NZS and KS interacting in a two tier system, with NZS as a “safety net”.
 CFFC Review (2016) Review of Retirement Income Policies, Commission for Financial Capability, Wellington.
 A Round Table discussion on the topic was held in June 2017 at Victoria University was the impetus for a paper by Judith Davey and Bob Stephens published in the Policy Quarterly, in August 2018. Cost estimates come from a working paper – Turning Silver into Gold: Policies for an ageing population – by M. Claire Dale, Retirement Policy and Research Centre, University of Auckland, 2015.
 In 2010 only 23% of people aged 65 plus were covered by health insurance.
For me the problem was being made redundant early in 2009 when the GFC led to so much unemployment. Being unemployed at 62, then not having work locally tipped me out of the workforce, Then I was unable to get back in to it. I would have gladly worked part time through my sixties, and on into my seventies, but it was hard to get a job in a new workforce in my sixties.
I wonder what you think about my idea of older people in your situation starting their own businesses – see my next blog.
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I did wonder about it, but was concerned about my lack of business experience. I worked as a librarian, teacher and telecom operator. My brother and sister worked for years for regional councils, I had no contacts or friends closely involved in business. I was very concerned that what I had amassed would be lost due to my inexperience.