Stemming the surge in superannuation costs

The cost of providing universal superannuation has been contentious for decades. As the 65+ population grows, so does the already considerable costs.

Attempts have been made in the past to make changes.

UnitedFuture tried to nudge National towards ‘flexi-super’ where people could choose the age they started to get super (with varying rates) a couple of terms ago. National fobbed this off by allowing an investigation that was always going to achieve nothing under John Key’s leadership.

In 2013 Labour proposed an increase in the age of eligibility to 67 but got hammered by the left so dropped their proposal. With NZ First holding the balance of power there seems no way that the age will be increased this term.

But a NZ First MP has proposed a change that will cut the costs.

ODT: Cutting cost of superannuation

Last month, a New Zealand First private members’ Bill in the name of MP Mark Patterson, who is based in Clutha-Southland, was put forward. It proposes increasing the minimum residency requirement from 10 to 20 years after the age of 20, so a childhood in New Zealand would not count. The current 10-year law only stipulates five of those must be after the age of 50.

Given the last National-led government proposed an increase to 20 years, there should be sufficient support for a Bill to pass. Mr Patterson cites Berl research which says the change to 20 years could save $4.4 billion over 10 years.

That will only reduce the ongoing costs slightly.

And it’s fair to ask why NZ First staunchly defend the age of eligibility for non-immigrants while they want to toughen things up for immigrants.

But is even 20 years enough? The 2016 policy review by retirement commissioner Diane Maxwell recommended 25 years, noting an average in the OECD of 26. Any change would not apply to those living in New Zealand now. She calls for action now in part because of the time lag. Superannuation cost $30 million a day and that would rise to $98 million in 20 years’ time, she said.

The 10-year rule goes back to 1972. Most migrants were from Britain and the UK state pension could be taken off NZ Super. But these days many come from the likes of China where there is no state pension. There is a clear monetary incentive for Chinese residents to try to bring out their parents under family reunification. After only 10 years they can be receiving this country’s state pension, as well as public healthcare.

It may look racist trying to double the residency requirement now there are proportionally a lot more Asian immigrants, but a lot of other things have changed since the 1970s. The age of eligibility was increased from 60 to 65 in the 1990s.

Twenty years is still a long time. To be eligible for super at 65 you would have to be resident in New Zealand by age 45.

How else can the increasing cost of superannuation be limited? Or should it?

Response to KiwiBuild ballot criteria

There were nearly 6,000 registrations of interest for KiwiBuild homes on the first day people could apply.

There were also a number of criticisms of the generous income criteria for those eligible to buy tickets in the government housing lottery. Few houses are likely to be available this year, and not a lot next year either.

RNZ: Ballot will keep Kiwibuild equal, Twyford says

Requiring people to ballot for Kiwibuild homes would help to ensure those on lower incomes still have a good chance, Housing Minister Phil Twyford says.

The income caps are $120,000 for sole purchasers and $180,000 for couples.

To be eligible, buyers must be purchasing their first home, or be “second chancers” – those people who have not yet had an opportunity to own their own home or who no longer own one.

They must be New Zealand citizens, permanent residents or those who ordinarily reside in New Zealand, and intend to own and live in the house for at least three years.

As of early evening there have been nearly 6000 registrations of interest in KiwiBuild since it opened online at 10am, and the numbers are climbing.

The balloting system would help to avoid those on the higher incomes blocking out those earning less, Mr Twyford said.

“Everyone has an equal shot in the ballot so people who are on a low income, or a high income, as long as they fit the criteria … then they can have a crack at doing this.”

He defended the high threshold for the income cap saying there were “not many” houses in Auckland people earning more than $100,000 could afford.

But some people will be more equal than others – those who can afford deposits, and those who get drawn from the ballot.

National’s Amy Adams: KiwiBuild a fail for lower-income families

The Government is admitting that its ‘affordable’ KiwiBuild houses are out of reach for many lower and middle income families by having to lift the eligibility criteria to $180,000, National’s Finance spokesperson Amy Adams says.

“Housing Minister Phil Twyford has set the eligibility criteria for KiwiBuild so wide that 92 per cent of first home buyers are eligible. That’s because he knows he will fail to deliver houses that are affordable to lower and middle income earners.

“Having such a wide criteria and a ballot system to determine the lucky few to get a subsidy is unfair and will mean struggling families could miss out in favour of higher income families and people with significant cash assets.

“There are 24,000 first home buyers a year and the Government is now only planning to deliver 1,000 homes in its first 20 months in office – so they should be targeted to lower and middle income families.

“It is ironic that Labour doesn’t think that someone on the average wage deserves a tax cut, but believes families earning $180,000 deserve a subsidy to help them buy their first home.

Some people on lower incomes will be able to benefit from low rent state houses.

But KiwiBuild is likely to be dominated by people on higher incomes who see an opportunity to make some capital gain from a cheaper Government funded/built house.

Qualifying for Kiwibuild ‘affordable home’

Ahead of an announcement expected today Stuff has details on eligibility to buy a Kiwibuild home, optimistically labled ‘affordable’ in Couples earning up to $180k will be able to buy homes

The income test is $120,000 for a sole buyer or $180,000 for a couple. Both citizens and New Zealand residents will be eligible.

The homes will be available to all first-home buyers and most “second-chancers” – usually people who go through a divorce and have lost property. Second-chancers must not have assets exceeding $120,000 in Auckland, $100,000 in most other cities, or $80,000 for the rest of New Zealand.

First-home buyers will not be subject to a financial asset test – they will simply need to be buying a first home.

Housing Minister says this will allow 92% of first home buyers to be eligible. Presumably the other 8% earn too much. And presumably, most of them should be able to buy a house without Government help.

Occupation and resale requirements:

Those who purchase a home will need to live in it for at least three years without selling it, but will be able to rent out spare rooms to flatmates.

Some purchasers will be able to sell the home within three years if special circumstances such as a death or serious illness occur – but they will need to apply for permission from the Government, who will consider each person on a case-by-case basis.

Scoring a Kiwibuild house will be a type of lottery for those who pass eligibility tests.

For the first years of the scheme, the homes will be balloted, meaning every eligible buyer who enters will have an equal chance of buying a home.

As has been widely noted, ‘affordable’ is still a hell of a lot for first home buyers.

Three-bedroom homes in Auckland and Christchurch will cost $650,000 or less, with two-bedroom homes costing $600,000 or less and one-bedroom homes costing $500,000 or less.

All KiwiBuild homes outside of Auckland or Christchurch will cost $500,000 or less.

That’s still a lot of money – and for most wanting a new house it will mean a lot of mortgage, if they can get one.

First, houses will need to be built. Actually no, first sufficient suitable land will need to be found and pass Resource Consent requirements.

Life expectancy and superannuation

One of the reasons given for needing to increase the age of eligibility for New Zealand’s universal superannuation is the baby boomer bubble that is will raise the number of people who qualify substantially.

Another factor is life expectancy – with more of us living longer that lengthens the time we are paid Super.

Here are life expectancy trends from Statistics New Zealand:

LifeExpectancyAtBirth

This is god for showing improved life expectancy trends, but I have always been unclear what this means for someone born in the 1950-60s. Perhaps we had a higher chance of dying young than babies born now.

This trend gives a better idea of what our expectations are now (subject to life’s lotto):

LifeExpectancyAt65

See information about this data.

In 1977 the Muldoon introduced universal superannuation for everyone from 60 years old.

Then average life expectancy for a man was about 65+13 years (18 years of pension), and for a woman it was about 65+17 (22 years of pension).

The age of eligibility was raise to 61 in 1992 and gradually rose to 65 in 2001.

In 2001 average life expectancy for a man was about 65+17 years (17 years of pension), and for a woman it was about 65+20 (20 years of pension).

In 2013-15 average life expectancy for a man was about 65+20 years (20 years of pension), and for a woman it was about 65+23 (23 years of pension).

So people are on pensions on average about three years longer than at the start of the century. And life expectancy is predicted to keep improving so this will keep growing – unless the age of eligibility is increased.

Super age change unlikely

It looks unlikely there will be any change to the age of eligibility for national superannuation despite Bill English saying he wouldn’t continue John Key’s commitment to not change it – see English open about superannuation.

English said there could be small changes to National’s Super policy but nothing drastic.

David Seymour has taken the opportunity to push for raising the age, but ACT are unlikely to be in a position to demand it in any coalition negotiations.

Winston Peters has confirmed that no age change is a bottom line for NZ First – Winston Peters’ coalition hinges on retirement age.

Mr Peters has promised the age would stay the same, at 65, and has made it one of his top bottom-lines going into any post-election deals.

“Not reneging on promises made to the retired and soon-to-retire people of this country is very important,” he told Newshub.

While “one of his top bottom-lines” doesn’t sound definite it would be a big shock if Peters agreed to an age increase. This is one policy he has remained consistent on.

The Maori Party is also unlikely to support any increase.

With Māori life expectancy rate lower than that of the general population, the Māori Party wants Māori and Pasifika to be exempt from any increase.

One of its policies is to reduce the superannuation age to 60 for Māori and Pasifika people.

So it is unlikely that National will push for an increase in election policy unless it looked like they could get a majority on their own, and it would be a huge surprise if they did have a majority on their own.

And Andrew Little has scrapped Labour’s Super age increase policy so if they form the next government it is unlikely to be considered.

This makes all the conjecture and political posturing a bit pointless.

UPDATE: English has just said on RNZ that there will be “no change to the entitlement” but it wasn’t clarified exactly what that refers to eg age or amount or universality.

On RNZ  Peters has just said that it’s not a bottom line for NZ First but that people could trust their consistency on the Super age for the past 25 years. “We’re not going to compromise”.