NZ Super is a taonga, not a burden

Opinion: A growing number of over-65s are reliant on NZ Super. In fact, 40 percent have virtually no other income and 20 percent have only a little more. Even with NZ Super as it stands, only 43 percent of New Zealanders are confident they will have a financially comfortable retirement.
NZ Super can provide a higher level of financial security than some may have previously encountered. It’s particularly significant for individuals with disabilities, carers, those who have experienced irregular employment periods, or have received low paid throughout their working lives.
Presently, many older New Zealanders are working beyond the age of eligibility to NZ Super, some because they choose to but many because they need to cover remaining mortgage payments, rental obligations, or have insufficient savings. Many will need to fund 30 years or more past the pension age.
Every day about 80 people turn 65 and 20 people turn 85. By 2050, these numbers will be 95 and close to 60. With an ageing population, it’s no secret that expenditure on NZ Super will increase as more people become eligible.
But while an ageing population is important to understand, it can’t be considered in isolation.
Housing affordability is a growing concern for the over-65 population. Growing numbers of people over 65 are facing high housing costs or do not have access to housing wealth they could draw down to support themselves.
There are significant disparities in income and wealth among the over-65 population – particularly between people in work and those not in work, and between people who have accumulated housing and other wealth and those who haven’t been able to.
And it’s not just the population over 65 we need to think about. There is a growing generation of people – sometimes called the sandwich generation – caring for both their children and their ageing parents which is likely to impact their own retirement saving.
So imagine the implications if NZ Super did not exist, or if it were changed so it no longer provided an adequate buffer against pension poverty.
NZ Super is a taonga to be treasured, not a burden.
The simplicity of its design is internationally envied. And New Zealand’s expenditure on its pension is both relatively low compared to other OECD countries and projected to stay there.
Any debate about it being ‘unsustainable’ long term needs to consider the full retirement income system. Treasury’s latest study on fiscal incidence looks at who pays for, and who benefits from, government spending and taxes.
This work shows that both young and elderly populations benefit most from government policies through education and health services, plus superannuation payments for seniors.Working-age adults are net contributors, paying more in taxes than they receive in benefits.
The argument, as if this is something remarkable, that the Government is spending considerably more on over-65s than it gathers from taxing them, is strange to me. We know that the majority have spent decades paying into the system ahead of reaching pension age.
While there is value in better understanding where government money goes – it can for instance better illustrate how to address poverty – you only really get a full picture if you also ask why this money is being spent in this way?
In other words, why do we have a welfare state that looks after the old and young, among others.
On this, the respected British economist Nicholas Barr described the welfare state as having two main roles: a ‘Robin Hood’ function and a ‘piggy bank’ one.
The Robin Hood function is about taking from people who have more and giving to people who have less. This is intended to ensure that everyone can access necessities like healthcare, education, and housing, regardless of their income.
The piggy bank role is about providing insurance and helping people to smooth their consumption over time. This means that people can rely on the welfare state to support them in times of need, such as during unemployment, illness, or old age. This helps prevent people from falling into poverty and allows them to continue to participate in the economy.
Barr argues both functions are not only important for society but play a fundamental role in supporting economic growth.
It is also important to avoid looking at parts of the retirement income system in isolation. The retirement system relies on both NZ Super and private savings: one should not be changed without considering the impact on the other.
While KiwiSaver has become instrumental in encouraging retirement savings, New Zealanders – and their employers – are simply not contributing enough. The low default contribution rates of 3 percent each for employee and employer imply that such retirement saving will be sufficient. For most it won’t. Just increasing to 4 percent each, with NZ Super settings remaining the same, will make a material difference.
Any major changes need to be signalled well in advance. People can’t prepare for retirement overnight. They need time to adjust plans, deal with life shocks, and make informed decisions about their future. They need to have confidence in a stable retirement system.
This highlights the importance of system stability which in turn highlights the desirability of cross-party consensus.
Stability is what’s needed to provide certainty for future generations of retirees. As is evidence-led decision-making that considers value as well as cost.