Should earners get super?

June 26th, 2016 at 4:00 pm by David Farrar

The Herald on Sunday editorial:

Retirement used to be synonymous with receiving National Superannuation. Not any more. New Zealanders can still collect National Super at age 65 but, as we report today, nearly 40 per cent of those reaching that age now continue working. We have one of the highest rates of employment in the OECD for people aged 65-69, exceeded only by Iceland, South Korea and Japan. Why is this?

One reason is the health of people of pension age today. We report that NZ Health Surveys have found 88.5 per cent of New Zealanders aged 65-74 rate their health as “good” or better, which is virtually the same as the proportion of all adults.

In other words, we feel as well in our late 60s and early 70s as we ever have. And if we are enjoying working we carry on, pocketing a pension of $385 a week (or $592 on the married rate) in addition to our earnings.

It is the generosity of that arrangement that probably accounts for our high placing in the OECD. In places such as Australia, senior citizens are just as healthy as here, can look forward to living just as long as we do and probably enjoyed their career just as much as we did.

But maybe when they reach the qualifying age they have to choose whether to continue working for a living or taking the pension. Maybe we should, too.

So long as the administrative costs of any means test was a small proportion of the revenue it saves, that is what I would do. If you are earning $100,000 a year still you don’t need a welfare benefit!

A seniors party

June 7th, 2016 at 4:00 pm by David Farrar

Stuff reports:

A new political party founded by disgruntled pensioners has formed, calling itself the New Zealand Seniors Party.

According to a statement sent out by party spokesperson Barnaby Perkins, the party intends to enter candidates in the 2017 election.

Members have complained about the “lack of interest” shown by the Government in the deduction of employer and employee-funded overseas pensions from the New Zealand Superannuation scheme.

For every dollar a pensioner receives from an overseas pension, the New Zealand payment is reduced by a dollar.

If you spent 25 years working in the UK and paying taxes there, earning a UK pension, why should you also get a full NZ pension when you may have spent just 10 years in NZ?

“Today’s seniors are tired of being ignored and dictated to by politicians, government departments and their overpaid staff,” the statement says.

“They are educated and bring a lifetime of experience and knowledge to the table, and they are certainly capable of taking an active role in the running of their own country. Australian pensioners have already formed a political party as they too have been ignored far too long. Exactly the same is happening here in New Zealand. Now is the time to stand up and be counted and have dedicated representation in Parliament.”

The party’s goal was “to achieve fairness and justice” for all pensioners, including future generations.

Great – they may take votes off NZ First.

Note the level of superannuation has risen 28.4% since 2008, which is 12.4% in real terms. Far far more than anyone else on welfare has got.

If we want fairness and justice for all, we’d means test the pension, as we do for all other welfare payments.

Pensioners getting 12.4% more in real terms

April 4th, 2016 at 2:00 pm by David Farrar

Those living on NZ Superannuation do very well when you have low inflation but increasing wages – as NZS is linked to the median wage.

In the eight years since April 2008, the net rate of superannuation (for a single person alone) has gone from $285.87 to $384.76 – an increase of $100 a week.

This is a 28.4% increase. Inflation has been 14.2% so the real disposable income of someone on superannuation has increased 12.4%.

Well done Andrew

May 22nd, 2015 at 2:30 pm by David Farrar

The Herald reports:

Labour leader Andrew Little says the party will consider means testing superannuation but he did not agree with increasing the age of eligibility despite concern about the rising costs.

It should be means tested. It is silly that we pay NZ Super to someone earning $500,000 a year. It is good to see Andrew Little open to means testing.

Asked about means testing, Mr Little said there were some elements of unfairness in universal superannuation.

An example was where someone over 65 was still working and receiving the pension on top of their wages.

He said Labour would look at that issue, which he considered was unfair. Such a step would break almost four decades of political consensus on universality.

The only real argument against means testing is if the cost of doing so was prohibitively high and costs almost as much as it saves.

Rather he indicated Labour’s focus was on prefunding the cost of it by contributions to the Super Fund which the current Government suspended during the Global Financial Crisis and is yet to re-commence.

Pre-funding has a minor impact at best on sustainability.

UPDATE: I was too quick with my praise. Little has done a u-turn in just six hours.

This is deliberate

May 18th, 2015 at 1:00 pm by David Farrar

Stuff reports:

Pensions have risen by $67 a week in the last five years –  while the incomes of parents of childre

n born into low income and beneficiary households have fallen further and further behind.

The gap is poised to grow even larger as the country enters a long period of low inflation because while pensions are pegged to average wage rises, benefits are linked to living costs, or the CPI.

The latest round of benefit adjustments painted a stark picture of the growing disparity. Pensions increased 2.07 per cent, or $11.60 a week for a married couple, in line with wage rises. But other benefit rates rose by only 0.51 percent.

This is deliberate. Benefits are tied to inflation so they remain static in real terms. NZ Super has a floor tied to the average wage, to maintain relativity to working income.

The reason is because retiring from employment and going onto NZ Super is meant to be permanent.  While going on a benefit should generally be temporary. You don’t want people remaining on welfare for an extended period of time. Making benefits more generous reduces the gap between work and welfare.

Analysis of household data by shows Government payments to over-65s have eclipsed those of any other age group, sparking harsh criticism the Government prioritised elderly over the young, which make up nearly half of New Zealands lowest earners.  

This has been the policy of all Governments in the last 20 years or so. NZ Super is linked to wages, and other benefits linked to inflation.

If you linked all benefits to the average wage, it would have costed tens of billions of dollars and many more people would be on welfare.

I actually think having NZ Super linked to the average wage will become unaffordable in the long term. As more and more NZers are aged over 65, we won’t have enough working NZers to support a universal wage linked pension. I’d propose that it be also linked to inflation – but say CPI + 1% – this would mean it always grows in real terms, but becomes more affordable.

In 2010 the Government adopted a policy change, to index superannuation with the average wage, while benefits remained driven by inflation. GST rose to 15 per cent that year, and tax cuts were not applied to benefits. 

No. Wrong. This has been policy for 15 years. In 2010 that policy was put into statute, but the policy has applied since the 1990s.

Labour Party finance spokesman Grant Robertson said while the elderly had been looked after, Government policy meant younger generations would not reach retirement with the same level of savings or income base.

“If you look at the 2010 tax cuts, they very specifically protected the incomes of the elderly, and that’s good that they did that.

“But at the same time they completely failed, and in fact went in the opposite direction, for people on main benefits. They took a policy decision to deliberately exclude those on main benefits from having their incomes protected, so to me that is definitely to the detriment of other age groups.”

Also wrong. The main benefits being inflation adjusted were fully compensated for the increase in GST.

Redesigning NZ Super

February 26th, 2015 at 4:00 pm by David Farrar

Michael Littlewood from the Retirement Policy and Research Centre has a commentary on redesigning NZ Superannuation. He says (and I agree) that we should not just look at one issue in isolation or just the cost.

He highlights eight key design features that should be agreed on. They are:

  1. Universal or means-tested (I favour means-tested if the administrative costs of doing so are not prohibitive)
  2. Age of entitlement (I favour increasing it and tying it to life expectancy)
  3. Residency test – how long should someone live here to quality. The current threshold is ten years and I think it should be higher. It used to be 25 years.
  4. The level. Currently is 43% of the net average wage for a single person. Set at 66% of  the after-tax national average wage for a couple.
  5. How to revalue? Is indexed to both CPI and the average wage.
  6. How to pay for it? Pay as you go and partially pre-funded. Should it be both? What should the mix be?
  7. Payments to single people? Why does a married couple get less than two singles living together?
  8. Overseas pensions? The rules for deducting overseas pensions are inconsistent

ACT’s proposal to have an expert panel devise a number of schemes that would go to a vote, would be one way we could have a debate on, and decide these issues.

A binding referendum on superannuation

February 23rd, 2015 at 10:00 am by David Farrar

Stuff reports:

ACT wants a binding referendum on the future of New Zealand’s superannuation and raising the retirement age.

Leader David Seymour says a public vote would end the “Mexican stand-off” between National and Labour, as pressure on the system grows. He believes it is untenable to keep paying out super from aged 65.

In a speech to his party’s annual conference yesterday, Seymour pitched the idea of an independent body to oversee a series of referendums on future of superannuation. And he pointed to an upcoming public poll on changing the flag.

“National won’t address the issue, Labour tried and are now backing away. This is a political Mexican stand-off, with the guns pointed at the younger generations,” he said. 

I’m very supportive of the ACT proposal, especially because it is not just about the age of eligibility.

The idea of a two stage referendum, as we had with MMP and upcoming with the flag, is very sound.

Let an expert panel put up say four different future superannuation schemes, each fully costed. Then New Zealanders can vote on which of the four we prefer and have that go up to a final vote against the current scheme (which is unaffordable).

A key aspect is the current scheme would remain in place for current retirees, and those near retirement. A new scheme would apply say to those aged under 50 only.

Easton on superannuation age of eligibility

November 17th, 2014 at 10:00 am by David Farrar

Brian Easton writes at Pundit:

I support raising the age of eligibility for NZS but not, primarily, for reasons of fiscal sustainability. Rather it needs to be increased for equity reasons. Longevity is increasing. When the Old Aged Pension was introduced in 1898, life expectancy at the age of 65 was 13 years; today it is 20 years, and it will continue to rise. It is a matter of equity that as the age of longevity rises, the age of eligibility for NZS should rise too. Here is how I would do it with five integrated steps.

1. We should set out a target age of eligibility based on life expectation. I suggest we choose the age as that where life expectancy is 17 years (similar to the 1938 level for 65). In current terms that would set an age of eligibility of 69.That target age would rise with increased longevity.

I like the idea of having a method to change the age over time, as life expectancy increases, without needing to change the law every few years.

However life expectancy seems to be growing at the rate of three years per decade. Or in other words life expectancy has increased by six years in the last 20 years. That would mean that the age of eligibility would constantly be increasing at three to four months per year.

2. However, the actual age of eligibility would be raised by only 3 months every year until it reached the target age. So it would take 12 years to reach 69, and the full adjustment would only affect those born after 1958 if we started next March (2015).

A sensible way to do it, but by the time we got to 2027, then life expectancy would have increased another four years and the age would need to keep increasing until age 73. Is there a limit at which we stop?

3. We need to recognise that there are people who cannot be expected to work in the years before the current age of eligibility, and who will have insufficient savings. They should get an early retirement benefit. Except for its name – reflecting a different status – it would be very similar to the Invalids Benefit.

That’s an excellent idea.

4. We need to strengthen private provision for retirement by making KiwiSaver compulsory and increasing its contributions. A compulsory contribution is much like a tax; but the beneficiary is solely the individual taxpayer. (This sort of approach may be a way we can get around – to some extent – the deadlock over raising income tax rates for structural macroeconomic purposes.)

I’m not convinced compulsion is a good idea, as it may force some people into a particular form of savinsg, which is not ideal for them. Paying the mortgage off or investing in a business can be the best decision for some people.

5. Any fiscal savings we gain from the raising the age of eligibility should be channelled into better provision for residential and domiciliary care for the very old. If we dont, we may under-provide for them or cost-shift provision onto their children – privatise it.

If KiwiSaver was made compulsory, I think the level of NZ superannuation (specifically the link to the average wage) needs to be looked at. When KiwiSaver was first introduced the calculations were that someone on the average wage would end up with a higher level of income in retirement from KiwiSaver and NZ Superannuation, then while working. That implies to me a level of over-taxation as people should have higher incomes while working (with associated costs of working) than while retired.

We should have a first principles approach to defining what level of retirement income is desirable, and then if KiwiSaver is compulsory, have NZ Superannuation set at the level between the desired level of retirement income, and what people will get from KiwiSaver.

I’d do that be ringfencing the current NZ Super scheme for those currently retired or near retirement, and designing a new scheme for future retirees.

Winston forgets his own scheme?

June 17th, 2014 at 6:47 am by David Farrar

Stuff reports:

Winston Peters has called out Dame Jenny Shipley over the superannuation debate but said she’ll never do it because he will make a mockery of her.

The veteran New Zealand First leader had immigration and the super scheme high on his agenda at a Grey Power meeting in Hamilton, where he promised members free GP visits and discounted power bills for SuperGold card holders.

More than 100 over-50s packed the Age Concern headquarters in Hamilton yesterday to hear Peters go on the attack against “so-called retirement experts” who wanted to lift the age of entitlement, reduce pensions and cut back health and home help.

He said Dame Jenny, chair of the Financial Services Council, wanted to privatise the retirement system and issued her with the challenge.

This is one of his bigger hypocrisies.

It was Peters who in 1997 proposed a scheme to effectively privatise the retirement system and have compulsory individual finds for everyone. It was Shipley who campaigned against the scheme – and won.

He told Grey Power members more than $22 billion in fees would be siphoned off Kiwisaver over the next 30 years to many offshore accounts and said he would start a “Kiwifund” after the election.

“It will be a state-owned and run alternative but run by you and owned by you because those people in your age will be saving in that plan.”

KiwiBank already has a fund, so Peters is promising something that already exists.

Should Super be means tested?

May 12th, 2014 at 11:00 am by David Farrar

Stuff reports:

Tens of thousands of well-off pensioners are claiming up to half a billion dollars in superannuation every year.

With government debt at more than $60 billion, critics say the wealthy are asking their children and grandchildren to fund their so-called retirement.

Ministry of Social Development figures revealed more than 26,000 people with total income of more than $70,000 a year claimed superannuation last year. At current rates, this could add up to $570m a year before tax..

These figures, released under the Official Information Act, come as the country wrestles with how to pay for our growing retirement-age population and looked increasingly isolated in offering universal super.

The Australian Government recently announced plans to raise their retirement age to 70 in a bid to ease the growing financial burden of the ageing population. They already means test pensions.

University of Auckland business lecturer Susan St John said there were likely to be far more than 26,000 well-off people claiming super, as many were able to hide their earnings through investments and trusts.

She said the country had become far more generous to retirees at “the top end” in the past few decades. In the 1980s, a surcharge was used to rein in super payments for high earners, but that had been abolished in the late 1990s.

“There is a case for redesigning the tax system to gently claw back NZ Super, at the top end – without affecting the living standards of the bulk of people who might genuinely only have small amounts of additional supplementary income.”

I think all benefits should be income tested.

St John has proposed such a system to the Treasury, that would effectively claim back the bulk of super payments in tax from the wealthy.

Brian Gaynor, of Milford Asset Management, said New Zealand was an exception and most developed countries, including Australia, means-tested super payments.

“There are people who are very wealthy, and I don’t see why they should be eligible for NZ Super,” he said.

“They do pay higher tax on it than someone who has no other income, but that doesn’t justify it. It doesn’t seem to me to be the best use of the country’s resources.”

Means testing can be both income and asset testing. Useful to be specific about which we are referring. Incidentially a reader pointed out to me by e-mail that in the 1950s the means test included how many pairs of underpants you owned!

But Grey Power president Terry King said retirees who have saved to supplement their income, even by $60,000 or more a year, should not be penalised by income-testing policies.

“If they’ve worked hard through their lives, through business or whatever – superannuation is an entitlement, not a benefit.”

I disagree. Far better to have people pay less tax when they work, rather than over tax people during their working lives – to then give a fraction of it back to them when they turn a certain age.

And while Labour has mooted raising the retirement age from 65 to 67, neither of the main parties nor the Greens were interested in giving less public money to retirement-aged people who had a little extra cash.

Not quite correct. The fine print of Labour’s policy is that they will effectively income test NZ Super from age 65 to 67. That sets a precedent for extending income testing to all ages.

Roughan on Super age

February 16th, 2014 at 12:00 pm by David Farrar

John Roughan writes in NZ Herald:

To my astonishment I have passed the age of 60. In fact two more years have passed since that milestone flew by. In no time at all, I’m going to wake up one morning to realise I can claim the public pension and Winston’s card.

This is ridiculous. It really is.

Babyboomers have begun to declare 60 the new 40 because it’s true. It’s not just that we feel as fit and well as we were at 45, but human longevity has visibly rocketed in our lifetime.

My grandfather died at 66, my father is now 86. At this rate, unless the age of entitlement is raised I could be receiving the pension for a quarter of a century.

I have no need to stop work at 65 and I know I am not unusual.

I believe the age of eligibility should increase. Also a case for means testing, so long as the administrative cost of doing so wasn’t too high compared to the spending saved.

John Key has not made many political mistakes but even on his side of the fence there is a feeling he went too far when he solemnly promised the terms of national superannuation would not be altered while he was Prime Minister.

It was a mistake. No one should ever make a promise beyond the next term. We have elections to allow parties to offer different policies in the future. It is unfortunate that Labour’s scaremongering over superannuation in the mid 2000s resulted in Key going too far with his promise. I suspect he regrets making such an commitment.

But he did. He not only promised no change while he is PM, he pledged in writing that he would resign as both PM and an MP if he broke his word. I do not want him to break his word, because it would result in a Labour/Green/Mana Government. I suspect Labour would ever have signed up to increasing the retirement age except for the political benefit that it puts pressure on Key to break his word, which would politically cripple him.

It should be a lesson for future leaders that they should never be pressured into making a commitment beyond one election.

A problem for Cunliffe

January 27th, 2014 at 10:00 am by David Farrar

Newstalk ZB reports:

The bartering’s already underway ahead of this year’s election, with New Zealand First laying down the law on superannuation.

Leader Winston Peters is making it crystal clear his party’s against the age of entitlement being changed.

“Categorically, we will not support any party that seeks to move the age to beyond 65 at this point in time.”

This is a real problem for Labour.

I support the eligibility age going up, and Labour policy is for it to go up. It is a rare area where they can try and claim they are fiscally restrained and credible.

But the reality is that if Winston says it is non-negotiable, then their policy is worthless. Almost every poll since the election has shown Labour/Greens can’t govern unless NZ First support them. So the NZ First stance means that Labour’s policy is almost certainly dead on arrival.

National is (sadly) also saying the age should stay 65, so the NZ First position causes them no problem.

“Now I don’t want you running off and saying we’re reneging on raising the age. That’s a post-election discussion, I have not said that.”

But the reality is that the policy is dead in the water.

Labour on superannuation

December 5th, 2013 at 12:00 pm by David Farrar

The Herald reports:

Labour would raise the age of eligibility for New Zealand Superannuation to 67, make KiwiSaver compulsory for employees and increase the KiwiSaver contribution rate if voted into power.

Deputy Labour leader David Parker told members of the superannuation industry his party was not afraid to tackle the age of eligibility issue despite it being politically challenging.

“I am willing to deal with the age of eligibility for superannuation. This is not populist politics.”

Parker said the Census data released this week backed its decision. He pointed to the number of people in the 50 to 59 age group increasing by 22 per cent since 2006 to 989,000.

“Although the total population increased, fewer people are under 15 than in 2006 and this reinforces the need to address superannuation.”

Paying for superannuation cost more than all benefits combined and within two years he expected it to exceed the annual spend on education. Labour has proposed raising the age of eligibility for New Zealand Superannuation from 2020 increasing it two months at a time to reach 67 by 2026.

I back raising the age. It is worth noting that in the fine print of Labour’s policy is that they are not so much increasing the age, as applying a means test for those aged 65 and 66. So if you stop working at 65 and have few investments you will still get super.

The party would also make KiwiSaver compulsory for those in employment. It would be optional for the self-employed and those without an income.

This means a take home pay cut for those who can least afford it. If you make KiwiSaver compulsory, then you should over time cut the level of NZ Super to recognise that everyone will have private savings.

Assertion as fact

November 23rd, 2013 at 9:00 am by David Farrar

Stuff reports:

Waikato pensioners are starving and raiding their KiwiSaver accounts to pay back mounting credit card debt.

This is a badly written story. It takes an assertion of a financial adviser and reports it as fact. It should report it as an assertion and credit it to the financial adviser.

Hamilton Budgeting Advisory Trust manager Clare Mataira said financial abuse of the elderly is a growing problem and she is pushing for banks to tighten their lending policies.

“We’re seeing people use credit cards for living expenses.

“I’ve seen more superannuitants in the last four to five years using credit cards for living expenses than in my whole career,” she said.

Not sure why, as the pension has increased well beyond the rate of inflation. Every year the purchasing power of NZ Superannuation tends to increase. We have the most generous superannuation scheme in the world – universal, linked to the median wage, no means or asset testing etc.

Superannuation changes

October 10th, 2013 at 7:33 am by David Farrar

The Commission for Financial Literacy and Retirement Income has made 16 recommendations around future superannuation. Some of the more significant are:

That a new method of indexation of New Zealand Superannuation, based on the average of percentage change in consumer prices and earnings but no less than price inflation in any year

This change is highly desirable, and important.It would do more to make superannuation sustainable than adjusting the age. All other benefits are inflation adjusted only. Superannuation also has a floor linking it to the average wage and as wages rise faster than inflation this means the gap between NZ Superannuation and other benefits will continue to increase. It also means that as the population ages, the cost of superannuation will increase as a share of the economy.

That as soon as fiscally prudent, an  auto-enrolment day be held for employees who are not currently members of KiwiSaver, with retention of the right to opt out

I believe this is planned.

That in line with a recommendation of the Savings Working Group, the Government remove tax on the inflation component of interest on simple savings products such as bank deposits and bonds

Does any other country do this? Might cost a bit, but worth considering.

That the proportion of life over the age of 20 in receipt of New Zealand Superannuation be kept at a minimum of 32 per cent

This is code for saying have the age increase over time, which I also support.

They key for me is that we should not tinker with just one aspect in isolation.  We should give certainty to everyone aged 50 or over and pass entrenched legislation guaranteeing the current scheme for those born before 1963. This would then allow a proper debate over the appropriate scheme to have in place for those yet to retire.

Flexi-Super – change for changing times?

October 1st, 2013 at 4:30 pm by David Farrar

It can be tough to talk about the future; sometimes it seems like there are so many unknowns. Just think about how much the world has changed since the introduction of New Zealand Superannuation (NZS) in 1977 creating a universal – and not means-tested – scheme that paid 80 per cent of the average wage to married people over 60.

During the ensuing years, adjustments have been made to the scheme which in itself was the latest incarnation of much older systems. This shows we can be flexible when we need to be – and right now, with a population which is living and working longer,we need to talk about superannuation.

It’s time for an honest and frank discussion about how NZS might need to change to reflect these changing circumstances and lifestyles because the current arrangement of eligibility for NZS at 65 may not suit everybody’s needs.

Earlier this year, United Future leader Peter Dunne released a Government Discussion Paper on aFlexi-Super plan and New Zealanders have just a few more weeks left until the Friday, 11 October deadline to comment on the proposal.

Flexi-Super gives New Zealanders the option of choosing to take a reduced rate of NZS from the age of 60 or an increased rate if they delay taking up superannuation until they reach 70.

“The basic motivation for this policy is giving people more choice because New Zealanders want choice about how they live their lives,”Mr Dunne says.“At the moment, they have no option but to carry on working until they’re 65 or leave and make do.”

Under Mr Dunne’s Flexi-Super plan, the standard age of eligibility for the state pension remains at 65 and payments stay at two-thirds of the average after-tax weekly wage for those who take their super then. But the earlier someone decides to first take NZS, the lower the payment will be each year relative to the rate they would have received had they decided to first collect NZS at 65; alternatively, taking NZS after age 65 means receiving a higher relative rate.

These rates will be adjusted for inflation and wage increases,so the mechanism for adjusting rates of NZS does not change. It will remain possible to continue working and receive NZS-and that could offer greater flexibility to those in physically demanding jobs.

The paper points out that there are advantages and disadvantages in allowing such flexibility.

Advantages include making the system fairer for workers in tough, physical jobs and those, such as Maori and Pasifika, who have a lower life expectancy. It also avoids the possible stigma associated with seeking benefits among those who, for a variety of reasons, can no longer work. It may also enable some people to pay down debt or build up assets.

Giving people the option to wait till they are 70 before drawing down NZS will encourage older workers to stay in the labour force for longer, helping to retain much-needed skills, experience and institutional knowledge.

There is a risk that Flexi-Super may reduce incentives for the 60- 64 year olds to work and if NZS is taken too early, it could create hardship for many who retire early. It is vital for us all to understand that the reduced rate we accept in return for being paid earlier would be the rate received for life.

The State might end up having to supplement the incomes of people who retire early, then find themselves unable to make ends meet because of an unforeseen change in circumstances.

A layered system could also seriously complicate what is at present an easily understood and administered system. Government actuaries will face a Herculean task to figure out a sliding scale that takes all the required factors into account and delivers a system that iscost-neutral, as is proposed.

“This is part of a wider conversation about financial literacy that we all have to have and I encourage all New Zealanders to think about these issues and discuss them in the course of daily life,” MrDunne says.

According to a Fairfax Media-Ipsos poll in February, 49 per cent of people want to choose when they receive their state pension, with reduced or enhanced rates depending on the age they start drawing payments.

So we need to consider carefully Flexi-Super and the Government wants to hear your views. The Discussion Paper can be viewed at and also on the Minister of Finance’s website.

The deadline for submissions is October 11, 2013. Submissions can be made by email to or posted to Flexible Superannuation, The Treasury, PO Box 3724, Wellington 6140, New Zealand. Following this consultation, the Government will consider whether to further explore the Flexi-Super proposal. More detailed policy work and more consultation will take place before any decisions are made.

pd uf  House of Representatives black on white crest


Peter Dunne, Leader, UnitedFuture, 04 817 9410

What will be the impact on Super of an effective minimum wage of $18.40?

September 9th, 2013 at 2:00 pm by David Farrar

A reader posted this question to me. NZ Superannuation is set at 66% of the average wage (for a couple).

Now if you jerk up the effective minimum wage from $13.75 to $18.40 per hour, that will increase the average wage significantly.

That will then mean the rate of NZ Superannuation will increase significantly, making it more unaffordable.

Any economists out there want to take a stab at what the extra cost of NZ Super would be if the minimum wage was $18.40?

Superannuation vs Education

August 28th, 2013 at 2:00 pm by David Farrar

The Herald reports:

Mr Parker said Mr Key’s position, including his pledge to resign rather than increase the age of eligibility was “just populism” intended as a vote catcher.

“We know that it’s wrong to be spending more on super than education, that it comes at the cost of caring for children, and yet he has got his head in the sand.

Vote Education is $12.4 billion.

Vote Superannuation is $10.9 billion.

I would have though a Finance Spokesperson would know this.

I of course do support increasing the age of eligibility for superannuation, and delinking it from the average wage.

Dom Post and Grey Power on flexi super

August 28th, 2013 at 1:00 pm by David Farrar

The Dom Post editorial:

Ohariu MP Peter Dunne already has one thing in his favour as he pushes for flexible National Superannuation: significant public support.

According to a Fairfax Media-Ipsos poll in February, 49 per cent of people would like to choose when they receive their state pension, with reduced or enhanced rates depending on the age they start drawing payments.

Certainly, Mr Dunne’s proposal, which the Government agreed to consider as part of its confidence and supply deal with UnitedFuture, breathes some fresh air into the superannuation debate. It is well worth the discussion kick-started by a Treasury scoping document issued on Monday. 

A more hysterical response from Grey Power:

Allowing national superannuation to start at age 60 would be a cruel poverty trap for people who are short of money, Grey Power says. …

“This latest idea from Peter Dunne is one of the more cynical, cruel and dangerous bits of stupidity I’ve heard in a very long time,” said Grey Power president Roy Reid.

“It will be a poverty trap for financially hard-pressed people already on low incomes who will be tempted to take an early but low pension with no hope of it ever increasing to the rate that people who can afford to wait until they’re 70 will get.”

Mr Reid says Mr Dunne is a typical MP who has no idea of what life at the bottom of the heap is like.

“It’s like offering a starving family a loaf of bread today, and every day hereafter if you take it now, or two loaves a day and a big box of sausages every day if you wait for 10 years to collect.”

Mr Reid says Grey Power will fight the Government if it takes up the idea – and it wants Mr Dunne out of Parliament.

My God, the hysteria. Grey Power obviously thinks elderly people are so stupid they can’t be trusted to make decisions about what is best for them.

if you are 60 and in bad health, the option of early retirement could be a massive advantage.

Of course there are potential problems, but we need a rational discussion, not mad rants.

I note also that the Grey Power President has declared he wants certain MPs to be defeated. So I hope Grey Power will be registering as a third party for the election campaign.

Flexi Super

August 27th, 2013 at 9:00 am by David Farrar

UnitedFuture Leader Peter Dunne has announced:

UnitedFuture leader Peter Dunne has released a Government Discussion Paper on UnitedFuture’s flagship “Flexi Super” plan.

“Flexi Super gives New Zealanders the option of choosing to take a reduced rate of New Zealand superannuation from the age of 60, or an increased rate if they defer taking up superannuation until they reach 70.

“A Fairfax Ipsos Mori poll earlier this year showed almost 50% supported the idea – almost more than twice the level of support for shifting the age of entitlement for superannuation to 67, or keeping it at 65.

“Flexi Super lets people choose for themselves when they want to take up superannuation – without being told by the government when they should or should not retire,” Mr Dunne says.

Mr Dunne says Māori, Pasifika and other demographic groups with shorter life spans would benefit most from Flexi Super.

“The Discussion Paper is open for public submissions open until Friday 11 October, after which time the Government will consider these and determine what action it will take,” he says.

The Flexi Super Discussion Paper was a provision of the National/UnitedFuture Confidence and Supply Agreement.

Stuff reports:

Exactly how much more or less than the current rate of NZ Super they would get has not been calculated.

Examples given yesterday suggested a 6 per cent discount for every year the pension was drawn early, or 10 per cent extra for every year it was delayed.

The Treasury discussion document warned the final figures could be “much different” and would depend on detailed analysis which has not taken place.

The treatment of SuperGold cards would be unchanged, no matter when the pension was drawn.

I’m supportive of the principle. The challenge is how to do this is a cost neutral way. Individuals will know reasonably well their likely life expectancy based on their health. So those with bad health will take a reduced Super at 60 and those with good health a higher Super at 70 and the overall cost may end up higher for the taxpayer.

Labour finance spokesman David Parker said the party would consider the policy.

But he warned it had “fishhooks”.

Because many of those with shorter life expectancies would take the money early, Treasury would have to pay a much lower rate at age 60 if the scheme was not to add extra cost.

But Mr Parker warned that some workers would be tempted to take the money early because of difficult financial circumstances – even if that meant they ended up with less money for much longer.

“Some people, because of their economic circumstances might be pressured to take their pension early, despite the fact that doing so could mean they live in poverty as they age.”

I’m not sure you protect people from their own choices. And I would presume that the level of NZ Super, even if taken early at 60, would still remain higher than being on another form of welfare benefit.

The discussion document is here. The example given is that if you took NZ Super at 61 you would get $279.06 a week but if you held off until 69 it would be $523.30 a week. I’d be holding off!

The document also lists other countries that have similar policies such as Australia, Canada, France, Germany, Ireland, Japan, Netherlands, Sweden, UK and USA.

The retirement age

August 15th, 2013 at 11:00 am by David Farrar

Simon Collins at NZ Herald reports:

The growing numbers of elderly New Zealanders who are working beyond age 65 have cut the net cost of the country’s ageing population.

Statistics NZ said yesterday that the population aged 65-plus had doubled since the early 1980s to 635,200 and was likely to double again by 2040.

But a paper by the University of Auckland’s Retirement Policy and Research Centre, published today, says Treasury estimates of the net costs of superannuation in 2060 have been revised downwards from an estimate made in the year 2000 of 9.7 per cent of national income to just 6.6 per cent in the latest revision this year.

Centre co-director Michael Littlewood said a key factor in the reduced net cost was an increase in national income because of spectacular increases in the numbers of elderly people working well past 65.

This shows there is no immediate crisis, but it is still inevitable that the age of eligibility for NZ superannuation will increase.

Labour’s policy is a modest step in the right direction. It doesn’t in fact really increase the age of eligibility. It merely applies an income or means test for those aged 65 or 66. The logical extension of their policy should be to extend the means test to everyone who is eligible for NZ superannuation. I’d rather we tax people less, and only provide welfare to people who need it – than over-tax people, just to give them some of their own money back later.

The argument against means testing is that the cost of applying a means test would be considerable, and the money saved not great. I wonder if Labour have budgeted for the extra compliance costs of their means test?

In terms of the age, I think a gradual shift to 70 is sensible.

But Mr Littlewood said the revised figures gave the country time to have a “research-led debate” about all aspects of retirement policy – not just raising the qualifying age to 67 as the Labour Party advocates, but also whether super should be linked to wages or prices and whether some of the cost should be clawed back through tax changes from those still on high incomes after 65.

The key measure you could change to make superannuation more affordable would be to link it to inflation, not the average wage.

What I’d like to see is the current scheme locked in place for everyone born before 1965 or even 1960. And then have that research-led debate on what sort of scheme we should have in place for those far off retirement.

UK Fabians say raise taxes on elderly

May 7th, 2013 at 4:00 pm by David Farrar

The Daily Mail reports:

Pensioners’ taxes should increase, their benefits be cut, and a tax on property wealth should be introduced in order to share the pain of austerity with today’s hard-up workers, a think-tank said today. 

The income gap between pensioners and workers has shrunk massively in the last few decades, so taxes should be raised on those in retirement, the Fabian Society said.

Middle-income working households enjoyed an income 93 per cent above that of middle-income retired households when Margaret Thatcher came to power in 1979, but that figure is now 37 per cent.

I don’t think we should raise taxes on the elderly, but I do think NZ Superannuation should be means tested and linked to the rate of inflation rather than the average wage. Otherwise the gap between it another benefits will continue to grow significantly.

‘Old age is no longer a proxy for poverty’, the Fabian Society said. ‘In public policy and deficit reduction measures, ministers should adopt a presumption of equality across age groups.

‘In financial terms alone, older people are no longer distinct, and blanket policies favouring them should be reviewed.’

I agree.

Cullen on KiwiSaver and superannuation

December 12th, 2012 at 1:00 pm by David Farrar

Vernon Small reports:

The architect of KiwiSaver, former finance minister Sir Michael Cullen, is proposing a revamp of the scheme to help cut the long-term costs of superannuation to the Government.

Under his plan KiwiSaver would be made compulsory in 2016 and contributions would rise to 4 per cent for employees and 4 per cent for employers, followed by further increases to 6 per cent or 8 per cent for employers.

But half of a saver’s nest egg would have to be used to buy an annuity.

If that provided an income lower than the current superannuation formula, the state would top it up to the guaranteed retirement income.

“In effect this means that for many people the shift from state funding to private funding would result in half of their retirement KiwiSaver savings being income-tested away,” Sir Michael said.

This approach has some considerable merit. We have not adjusted superannuation policy o take account of KiwiSaver. I recall when KiwiSaver came in, the projections were that someone who earned the average wage would receive in retirement a higher income from KiwiSaver and NZ Super combined that they did when working. This is clearly not sustainable.

Labour’s proposal to lift the age from 65 to 67, while a step in the right direction, is just tinkering. What Cullen proposes would make a huge difference to the long-term financial sustainability of retirement savings.

Kirk Hope on superannuation

September 5th, 2012 at 11:00 am by David Farrar

Kirk Hope of the Bankers Association writes in the Herald:

 It’s Money Week. It’s not just about our everyday personal money management. We also need to think about how we’re providing for retirement income as a nation. The debate has recently been dominated by a narrow focus on age of eligibility issues for New Zealand Superannuation.

And the debate needs to be far wider than that.

Ignoring the fact that the best mix for providing retirement income is neither fully public nor fully private leads us to ask the wrong questions, and gets us caught up in issues that may not be as important as we think. The questions we need to ask are whether we should adopt a compulsory approach to private savings, retain the current voluntary arrangements, or move to a mix of the two depending on individual circumstances.

I would go even wider than that. There are basically three sorts of retirement savings. They are:

  1. state
  2. workplace
  3. private

We need to debate all three together. KiwiSaver has been created, and no changes made to NZ Super. This means that some people will actually be earning more in retirement than when they are actually working.

Another critical issue in respect of NZ Super is its universality. Is it necessary? Is it affordable? Most importantly, is it sustainable? The Australian equivalent of NZ Super is both means and asset tested, acting as a safety net for those without sufficient savings income. The Treasury acknowledges in its 2010 paper, Saving in New Zealand – Issues and Options, that if we were to move to compulsory private provision of superannuation then also retaining a universal government funded pension scheme would make us unique.

The provision of a state pension for everyone over a certain age, regardless of their need, assets and other income, was a great innovation in its time. It was a defining aspect of 20th century New Zealand. It had its place in a time when we had a strong economy, a large working population, and a relatively small retired population that did not on average live too long past the age of retirement. Much of that has changed. We now need to develop a sustainable solution for this century, and we’re well on the way with KiwiSaver.

To truly make NZ superannuation sustainable, we need to delink it from the average wage. Other benefits are inflation adjusted only. In recognising superannuation is a bit different, I’d look at having the level be adjusted by say CPI +1%. This means it will increase in real terms, but not be unsustainably linked to the average wage.

Armstrong on Peters

June 25th, 2012 at 10:00 am by David Farrar

John Armstrong writes in the Herald:

So much for the theory that Winston Peters was mellowing into Parliament’s version of everyone’s favourite, if somewhat cranky and irascible, uncle.

It was a more familiar Peters who delivered the leader’s address at New Zealand First’s annual convention last Sunday.

The speech was not so much a dog whistle as a wolf howl for attention. There was certainly no coded language to decipher.

His pinging of Chinese immigrants for allegedly sponging off New Zealanders by picking up state-funded super payments and other entitlements without paying any income tax was unquestionably populist – so much so that he was almost parodying himself.

A lot of people view Peters as a benign joker like figure. I’m not one of them. I think he has a history of scape-goating, and trying to convince people that it is the fault of some other group that they can’t receive more money or jobs or benefits.

He instead rationalised his accusation of freeloading by arguing that New Zealanders needed to know all the facts about superannuation rather than being manipulated by the savings and insurance industry into believing there was a “crisis” which required an end to universality in the payment of the state-funded pension.

Peters knows that superannuation is not sustainable. He argued so in 1997, when he proposed compulsory superannuation, saying that people “do not believe that the current arrangements will be there to deliver the same level of assistance in retirement that their parents currently enjoy”. Even worse Peters proposes superannuation be made even more expensive, with an increase in the floor.

It actually did not add up at all. Peters is the one choosing not to put all the facts on the table, especially major Government policy changes affecting those applying for residency under Immigration New Zealand’s family and parent categories.

While Peters rails against Chinese immigrants supposedly gobbling up the super – but then refuses to say what he would do about it – the National-led Government has quietly stolen a march on him. …

What is clear is that imminent changes to immigration rules are going to screen out those unlikely to pay tax.

The parent stream is currently closed pending the introduction of a new two-tier category.

Those applicants earning more than $27,203 a year as singles or nearly $40,000 if they are a couple will be able to go into tier one. They will also have to bring with them at least $500,000 in “settlement funds”.

Their sponsoring adult son or daughter will have to have an annual income of at least $65,000 and have been a New Zealand resident for at least three years.

Those who cannot meet these requirements will go into tier two where the only financial obligation is a lower benchmark of nearly $34,000 in income required of the sponsoring adult child .

Tier one applicants, not surprisingly, will get priority. As do a separate category of parents who can gain entry if they invest a minimum $1 million in New Zealand for at least four years.

With a two-year wait already for applications to be processed and a capped annual limit of 4000 on the number of parents approved for residency, those in tier two could be waiting years to get to the front of the queue.

So in fact the Government has already acted to mitigate the issue that Peters talked about.

Peters also used his convention speech that day to climb into the council for calling for the age of eligibility for super to be lifted to 67.

Claiming the council would be pushing for the privatisation of super, he also rounded on its chair, his old bete noire Jenny Shipley, who openly campaigned against Peters’ proposed compulsory savings scheme while National was in coalition with New Zealand First in the late 1990s.

This is such a bending of truth, it is hilarious. Peters proposal in 1997 was to effectively privatise superannuation, and Shipley was a prominent campaigner against it.