New Zealand Superannuation: The facts and the fiction

Annual spending on superannuation payments is set to top $12 billion.

Annual spending on superannuation payments is set to top $12 billion.

OPINION: If you are a New Zealander who meets the residency test you are entitled to New Zealand Superannuation (the old-age pension) when you reach the age of 65.

The facts

The pension is not asset-tested - you can have unlimited assets and receive the pension.

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Nor is it income-tested - you can have unlimited income and qualify for the benefit. You do not need to be 'retired' - you can have a full-time job and still collect the full pension. While this may sound like we have already started talking fiction, these are indeed the facts.

In 2015, a single person aged over 65 and living alone will receive $374.53 per week ($19,475.56 per annum).

A couple living together, where both receive the pension, will receive $576.20 jointly ($29,962.40 per annum).

These rates are after tax has been deducted.

In contrast, a single person seeking work aged over 25 years of age will receive Jobseeker Support of $210.13 after tax.

A jobseeker aged 20-24 years will receive $175.10 after tax - less than half of their retired counterparts.

It is unclear why a single retired person needs $165 per week more than a single younger person seeking work.

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Yes, health costs may be higher for our older generations, but the health system is largely government-funded and subsidies exist for those with high health needs.

Census 2013 reports that 607,035 people aged 65 years and over are usually resident in New Zealand.

The majority are receiving New Zealand Superannuation.

In 2013/14 we spent $10.9 billion on superannuation payments.

By comparison, we spent $4.3 billion on other core benefits - comprising $1.7 billion in Jobseeker Support and emergency benefits; $1.2 billion in sole parent support; and $1.4 billion in supported living payments.

Budget 2015/16 provides $12.2 billion for New Zealand Superannuation payments - an increase of 12 percent from two years earlier.

Provisions for other core benefits remains unchanged from 2013/14 at $4.3 billion - around one-third of the cost of New Zealand Superannuation. 

The fiction

Many believe that New Zealand Superannuation is an entitlement.

Indeed, the universal nature of the pension is one of its many strengths.

Our health system is largely universal, but health care is provided according to need - to those who are sick.

So, why do we automatically pay a pension to those who have no need for the funds? 

For argument's sake, New Zealand Superannuation could be tapered back for people with incomes over $50,000 and eliminated by the time this income is $100,000.

The question also needs to be asked about the level of superannuation appropriate for those with significant capital assets - eg, over $2 million.

Perhaps people with such portfolios should be expected to support themselves in their retirement? These issues are unlikely to impact on most people aged over 65, but will remove the current anomaly whereby people who have no need for the pension still receive it.

We frequently hear that New Zealand Superannuation is affordable. In theory, we can afford anything. The real issue is how we pay for it.

Currently, New Zealand Superannuation accounts for 16 per cent of core crown revenue.

Projections are that retired people will number 1.1 million by 2031, with accompanying pension costs increasing to $20 billion a year.

The Government will have to take measures to be able to afford pension payments.

This could include seeking more revenue to fund it through tax increases, reducing expenditure in other government services, or increasing debt (which will also need to be paid for - back to square one).

Back to the facts. The Finance Minister recently claimed that the real funding issue in New Zealand is long-term welfare dependency, not New Zealand Superannuation. The reality is they are both problematic.

However, we have twice as many superannuitants as beneficiaries - and the majority of them are long-term recipients of state assistance.

Average life expectancy is currently around 81 years of age - slightly more for women and slightly less for men.

Therefore, on average, retired people will receive 16 years of pension payments. Yes, some people receiving welfare benefits are also long term recipients of state assistance.

But, we shouldn't let this fact be used as a tool to distract from the much needed public debate on the future of New Zealand Superannuation.

Dr Lisa Marriott is associate professor in Taxation, Victoria Business School, Victoria University of Wellington.

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 - The Dominion Post

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