The means testing of National Super argument again

National Superannuation is ‘universal’ – everyone from age 65 is eligible to receive it. While you don’t have to apply for it, presumably most people do once they turn 65.

The argument of whether it should be means tested keeps coming up, and it has recently.

RNZ: NZ Super costs up as NZ retirees on $100k passes 30,000

The number of New Zealand retirees getting their superannuation while earning more than $100,000 has topped 30,000 – costing taxpayers more than half a billion dollars each year.

Their table shows that as of 2017/18 that there were actually 31,048 people getting NZ Super.

Retirement Policy and Research Centre director Susan St John said the numbers were really an underestimate.

“It doesn’t count PIE (portfolio-investment entity) income and it also of course doesn’t count the capital gains many in those brackets will have enjoyed.”

Economist Shamubeel Eaqub said the figures weren’t surprising because a lot of people were continuing to work later in life and many had accumulated large amounts of wealth.

He wanted Super to be means tested – related to wealth and income.

He said based on the current fiscal year, and on the average Super payment being $19,592, not paying it to people on incomes of $100,000 or above would save taxpayers around $608m.

But $608 million is just a gross amount. For people on high incomes their Super will be effectively taxed at the highest rate of 33%, which totals about $200 million, so the net cost is $408 million – still substantial but well short of half a billion dollars.

An average Super payment of $19,592 surprises me. Here are the current rates:

  • Single: living alone $21,380
  • Single: Sharing $19,735
  • Married, civil union or de facto: one partner qualifies $16,446
  • Married, civil union or de facto: $16,446 each
  • Married, civil union or de facto couple: one partner qualifies and the other is included $15,631.50 each

A lot of people 65+ must be single. That will be more likely the older they get.

If the NZ Super is spent then much of it it will be taxed at a further 15% (GST).

People earning over $100k will be paying more tax than they receive in Super. Tax on an income of $100,000 is $23,920 which is more than nett Super (taxed at 33%):

  • Single: living alone $21,380 less 33% is $14,324.60
  • Single: Sharing $19,735 less 33% is $13,222.45
  • Married, civil union or de facto: $16,446 less 33% is $11,018.82

The point also often made that people earning larger incomes from age 65 are likely to have earned high incomes – and paid a lot of tax – over their lifetimes.

But this is all theoretical. There is no sign that Parliament or parties have any inclination to introduce means testing of National Super – especially in an election year.

Another approach to limiting the rising cost of Super is to increase the age of eligibility.

At the last election party policies were:

ACT

  • Raise the retirement age. Starting in 2020 we will raise the age of entitlement to Super from 65 to 67, at a rate of two months per year, finishing in 2032.
  • Trim back overly generous entitlements such as pensions after only ten years’ residency.
  • Read more here.

Green Party

  • Maintain universal New Zealand Superannuation for all New Zealanders 65 years and older, adjusted annually in accordance with movement in the Consumer Price Index.
  • The rate for a couple cannot fall below 65% of the average ordinary time weekly earnings or exceed 72.5 % of the average ordinary time weekly earnings.
  • The rate for a single person living alone is 65% of the rate for a couple, and the rate for a single person not living alone is 60% of that for a couple.
  • Identify ways to allow flexibility in the age a person may receive New Zealand Superannuation.
  • Oppose compulsory retirement savings.
  • Read more here.

– last year National proposed lifting it to 65 (by 2037).

Labour

  • Maintain the Superannuation age at 65, maintain Superannuation with inflation adjustments as at present, and restart contributions to the Super Fund.
  • Review the legislation around superannuation portability.
  • Read more here and here.

Maori Party

  • Amend existing retirement policy to enable all eligible retirees to take their superannuation at the full rate, earlier than the current eligibility age of 65 years.
  • Review and reset the eligibility criteria for accessing superannuation for Māori and Pacific and consider lowering the age to 63 until life expectancy outcomes for Māori and Pacific are the same as for non-Māori and non-Pacific.
  • Read more here.

Those proposals would increase the cost of Super, possibly substantially.

National

  • 750,000 superannuitants will receive a further increase on 1 April on top of their normal annual increase, with the couple rate going up by a further $680.
  • 15,000 superannuitants with high housing costs will benefit by an average of $1508 a year from 1 April 2018 from the changes to the Accommodation Supplement from the Family Incomes Package.
  • Increase the age of entitlement for New Zealand Superannuation from 65 to 67, starting in 2037.
  • Committed to resuming NZ Superannuation Fund contributions, so that everyone has certainty about saving for their retirement.
  • Tighten residency requirements, so that migrants moving to New Zealand from 2018 have to live here for 20 years before being eligible for Super.
  • Read more here and here.

NZ First

  • Maintain New Zealand Superannuation entitlement at 65 years, as a universal, non-contributory, publicly funded pension scheme with no means-testing.
  • Raise the minimum residency requirement for full New Zealand Superannuation from 10 to 25 years after age 20.
  • Superannuation applicants retain their overseas pensions without any deduction from their New Zealand Superannuation, or from their spouse’s, New Zealand Superannuation.
  • End the labyrinth of bureaucratic complexities and unfairness caused by existing reciprocal pension agreements with other countries; overseas pensions are no business of the New Zealand Government.
  • Restart taxpayer contributions to the NZ Superannuation Fund and end its taxation.
  • Read more here and here.

Parties may or may not amend these policies this year. National restated their intention to raise the age of eligibility last year: National would still raise super age to 67 in 2037 if elected, finance spokesman Paul Goldsmith says

No party has suggested means testing National Super, so perhaps it is a futile argument.

Labour’s Super desperation

National Super costs ands eligibility age are important issues that need widespread debate and cross party agreement. Throwing an attention seeking bid into the middle of a campaign in an attempt to rescue an election is politics at it’s worst.

This is far too important an issue to bundle it in with a bunch of election lollipops.

And it’s the wrong approach – just putting up the age of elegibility to 67 severely disadvantages groups people (eg Maori men, diabetics) with life expectancies in the sixties, this squeezes them out of prospects for a reasonable (or any) retirement period.

United Future Flexisuper addresses this by offering choice – start on National anywhere between 60 and 70.

At the very least we should have a decent debate on this. Slipping it in to a bundle of election carrots is not the way to do that.

Party policies on Super age

I’ve tried to find out what each party policy is on the National Superannuation eligibility age,  after the Retirement Commissioner recommended the age be gradually increased.

Politicians accused of dodging superannuation issue

Politicians are being accused of dodging the issue of raising the the age of entitlement to superannuation.

National and Labour have rejected Retirement Commissioner Diana Crossan’s recommendation that the age of eligibility for the pension be gradually raised over the next 20 years.

But PricewaterhouseCoopers chairman John Shewan says the affordability of the entitlement needs to be debated.

“I think it’s understandable that politicians don’t want to go near a subject which is traditionally in New Zealand caused such a huge negative reaction. I think the electorate is perhaps getting ahead of politicians now,” he says.

Mr Shewan says people now accept that to have pension paid at 65, is neither affordable nor appropriate.

Auckland University retirement policy expert Michael Littlewood says the issue is too hard for politicians.

“They’re not stupid. They’ve seen numbers of heads shot off over the last 30 years on this issue. Diana has had an attempt to put a proposal to the Government and that’s been knocked back so I think we need to think about different ways of doing this,” he says.

Some of the parties dodge it altogether on their policy pages on their websites.  Only the Act Party has a detailed Superannuation police, albeit not particularly clear. United Future has a few options. National’s (John Key’s) policy is brief and blunt.

National will maintain Super at 66% of the average wage from the age of 65, or I will resign. John Key.

Click to access SeniorsDLE.pdf

Labour – can’t find anything. They don’t seem to have detailed policies, they only list a few key issues they are targeting.

Green Party – can’t find anything

New Zealand First Policies will be released after Delegates consider Electorate Remits at the New Zealand First 2011 July 30 and 31st Election Conference.

Maori Party (2008) – Adjust superannuation entitlements for those groups who currently experience lower life expectancy. Raise core benefit levels, including superannuation, veteran’s pensions.
http://www.maoriparty.org/index.php?pag=cms&id=130&p=election-policy.html

United Future – the option of choosing to receive New Zealand Super at a reduced rate from the age of 60, or at an enhanced rate from the age of 70.
http://www.unitedfuture.org.nz/senior-citizens/

Mana Party – none on Super

Act Party – by far the most detailed Superannuation Policy – Policy Detail
The transition to the new retirement system will take 40 years when 90 percent+ of New Zealanders are expected to have sufficient savings to provide for themselves.
It will be available to New Zealand citizens aged 18 – 65 years of age.
During the transition, retirees will receive two pensions. One based on the fund accumulated via tax savings each year and the second a percentage of the existing government benefit, dependent on the number of years individual has been eligible to be a member of new retirement system. See Superannuation Policy Schedule, chart 2.
Minimum combined benefit during transition to be at least what people get today but in most cases will be considerably more.
Capital after 47 years in the workforce for those who make no drawdown on that capital would be approximately $1.8 million or $850,000 in real terms. See Superannuation Policy Schedule, chart 1.
Government will contribute $30.80 a week, the individual to contribute $30.80 a week and the employer to contribute $15.40 a week, therefore total savings $77.00 a week, $4,000 a year.
Low-income workers will be able to phase in their contribution with government top-up available.

Will be paid for by a mix of the following:

  •     Money currently being put aside for retirement fund $2 billion.
  •     Money currently being used to subsidise KiwiSaver scheme $1½ billion.
  •     Interest on current fund already put aside for future retirees $1 billion
  •     Must be invested with organisations that have retirement authority approval.
  •     A working partner can make contributions on behalf of their partner.

http://www.act.org.nz/superannuation-policy