Can we please debate New Zealand Superannuation?

By   /   May 28, 2015  /   30 Comments

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The baby-boom generation have had the very best of KiwiSaver subsidies. Now, like free tertiary education and access to affordable housing, they have again kicked the ladder away for the next generation.

baby_boomers

When there is no forum for debate about our retirement policies, we can expect kneejerk political reactions such as the removal of the $1000 kickstart for KiwiSaver.

The baby-boom generation have had the very best of KiwiSaver subsidies. Now, like free tertiary education and access to affordable housing, they have again kicked the ladder away for the next generation.

Worse, it tells us that government one day is likely to make kneejerk ill-thought through changes to NZ Superannuation. Maybe, but heaven forbid, they will stop NZ Super for those who are still working!

Our pension is remarkable. It is simple, fair, not tied to paid work and indexed to wages. It is good for women, encourages supplementation through paid work and helps keep the poverty rates very low for the over 65s. Surely it is worth protecting?

But paying NZ Super to those who are so wealthy they don’t even notice it, needs to be viewed alongside the desperate need for social investment in low income families and communities.

So what should be done? Lifting the age of eligibility for NZ Super is a blunt tool and can hurt the wrong people.  Besides, with long lead in times it doesn’t save money in the short term.

Payments to the well-off are already reduced by a top tax rate of 33%. Why not do a bit more of this?  It can be done simply and fairly as this paper from the Retirement Policy and Research Centre shows.

The first step is to pay NZ Super at the same rate to every 65+ year old as a non-taxable grant. The grant is a true basic income, so is not part of taxable income, is unconditional, does not change for marital status or other living arrangements, provides an income floor that is always there, and protects everyone from poverty.

The rate would be the current net rate of NZ Super for a married person. (Over-time the married and single rates would be aligned, so no-one’s basic rate is cut). All other income, whether earned or passive, would then be taxed on a new scale.

If the new tax scale is 17.5% up to $15,000 and 39% above that, worthwhile savings in state costs of provision of this age pension can be made. In fact, we could easily find the one billion dollars necessary to immediately address the social deficit, fix up the poor design of Working for Families, and protect 200,000 children against the debilitating effects of severe hardship.

As Brian Fallow recently said of this basic income proposal:

[This] latest contribution to the debate – the debate we ought to be having, but aren’t really – deserves careful consideration and not to be dismissed with craven phrases such as, “Third rail. Touch it and you die.”

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About the author

Co-director retirement policy and Research Centre, CPAG management committee

30 Comments

  1. elle says:

    The heading for this article is very antagonistic,The article is in itself is different and more explanetary. Ordinary superanuits who are not wealthy because of having to help grown children who have had problems because of this government
    Not all supers have pulled the ladder up.

    BobJones who is a millionaire and many like him are very derogatory to the poor ,can claim the super that is pocket change to them is more than a weeks income to others.
    Maybe if you target the very wealthy it would be more fair, People who work after sixty five often still have a mortgage and cant afford to stop working.
    Blanket solutions often don’t work.

    • Z says:

      Sorry, but if you have a mortgage at that age it was your choice as an adult.

      If “ordinary supers” are not wealthy now because you made the decision to bail out your children financially, at least you had a choice. Unlike many of the younger population.

      Just because you consider it fair for the rest of society to continue to bail you out doesn’t mean it has to happen.

      And what of the children who weren’t yours? Piss on them huh.

      • elle says:

        Nobody has ever had to bail me out Z I was writing in general so please keep the sarcasm to yourself.
        I was speaking of people who marriages have broken up later in life and have to get a mortgage to keep their house.
        I was speaking of generous oldies who have helped their children because they cant get a house or mortgage because of job situation .
        I speak of a friend whos son had a good education and has a degree, but no jobs available in his field ,there was when he started his university life,so now he is a roofer.

        I speak of a young man who developed an illness and couldn’t continue his job. these are ones who needed a helping hand.there are many more instances,but I wont bother a judgemental type like you Z.
        We are supposed to help each other not think of ourselves as you do.

  2. wild katipo says:

    Ha ! For some millionaires in this country that pension pays just enough for that high class bottle of bubbly which is then written off as a tax loss for business entertainment against their foreign investment and relocation of their company to slave labour in poorer country’s.

    Just like all the other tax dodges granted by Key to the already obscenely rich such as borrowing $300,000,000 every week to saddle the next generation in unpayable debt and national poverty.

  3. NZisAwesome says:

    Thanks Susan. I’m also concerned about whether adequate healthcare infrastructure is being developed in preparation for when baby boomers reach old age. Such as facilities to provide supervised care for people whose poor health takes away their independence. Or at least whether funds are being set aside. Otherwise, the burden of this could fall disproportionately on future tax payers.

    • Z says:

      Well you should be concerned given NZ can’t even pay for proper health care now regardless of age.

      Case in point…support workers. Complete shambles where the case loads are creeping steadily up to the point where one provider I know of has staff that can only cope for an average of two months due to the job stress.

      • elle says:

        Blame the government Z they are ones who put people in this situation .no need for bitterness .

    • Thanks for that NZIAWESOME. If there is a pot of money like the NZS Fund that money could be spent on the working age population, so there is no free lunch. Whatever resources we direct to the old are not available for the young no matter where the funding comes from. If we tax people today to pay for healthcare tomorrow who will but those paper assets but the young? In the meantime have we starved the system of real investment in the necessary infrastructure? The best preparation for an ageing population is to invest in children so they become a healthy productive workforce, to make sure older people have access to preventative healthcare and there are adequate care facilities for later old age, good public transport, and to make sure that there are empathetic well-trained caregivers. It is not to store up paper claims in a fund or to build monuments to the gods of gambling and sport.

      • Grant of Wellington says:

        Thanks for your blog Susan. I am one of those in the older age group who enjoy national super. I am qualified in a profession where there is a shortage, particularly in the sector I Have chosen to work in on a part-time basis, since retiring from my full time job.

        National superannuation as you have outlined is a complex issue. This is why I think successive governments have looked at changes but have done nothing. As you explain it can be a blunt tool and as an example, the life expectancy of various groups differs and if the retirement age was raised it would work against one group, as well how can labouring workers be treated similar to those who have spent their working life as an office worker or similar.

        There is not one solution and whatever is changed will have one group disadvantaged If it was easy it would have been dealt with ages ago.

  4. Cagey says:

    This is fortuitous as we were just discussing this very thing this weekend.

    I KNOW for a fact that Labour lost votes because of it’s retirement age policy – which ironically wouldn’t have kicked in before all baby boomers were already retired. It seems that the retirement benefit (which realistically is what it is) is treated as a ‘gift’, bestowed because of the years of contribution to society (though criteria is based purely on surviving passed the age of 65 rather than actual contribution).

    No way do we want to go back to the days of elderly dying of cold or starvation but it seems a bit wrong that the pension is used by too many as a supplement to a ‘cool retirement’ or an income top up while children are going hungry and their parents are chastised for lack of thrift (a beer – how dare you) and those now in their late 40s and under are threatened (better save -there won’t be any retirement money for you). And need I point out youth unemployment?

    The costs of running an elderly person is quite comparatively modest yet other benefits suffer abatement. Would we support – say Paula Bennett drawing a solo benefit while still getting her parliamentary? Yet we don’t question Winston Peters or Annette King receiving both?

    The Retirement Policy and Research Centre’s idea of a non-taxable grant to all is fantastic (and not just cos it was close to my ‘weekend’ argument,lol). Giving someone a guaranteed income, no matter what? Wouldn’t it be great if other vulnerable beneficiaries could also get this?

    I’m not begrudging anyone a retirement benefit – would love to get it myself but really – cut the crap, it is a benefit payment don’t treat it otherwise.

    *before anyone beats me up, I work intimately everyday with over 70 year olds, they have live well and contributed and I don’t begrudge them their lowly pension (but note: they’re all quite comfortable and happy with what they get). They are already starting to feel the pain though as care hours and services are cut for elderly and disabled.*

  5. BF says:

    Thank you for this contribution to the superannuation debate.

    Two points:

    “baby boomers … have again kicked the ladder away for the next generation”. That’s a tad unfair. WE didn’t; WE don’t make superannuation decisions. It’s the government who do that and they have not one superannuitant among them (judging by age at least).

    Although only tangentially related to the debate, I suggest that if you took superannuitants out of all the voluntary work across-the-board that is done in our nation, most of such work would come to a standstill. It is not as if we are sitting back in an ‘all-take, no-give’ attitude. Far from it. Sometimes the picture is bigger than is seen.

    • Lloyd Jordan says:

      Plus it seems that all except the baby boomers forget that super shld have kicked in at 60 but we were robbed of that and the rate was slashed so we too were robbed of that… were we robbed when we payed our taxes weekly.. we thought not because some of those taxes were to provide in our old age… not the piddly 17% tax rate or the whopping top rate of 33%.. as a tradesman I was often paying 60% on my overtime and a min rate of 29%… an often overlooked fact of the hard done meme generation.. we didnt flog off all our assets, they were done in stealth and denial as per the last lot, assets that those taxes paid for assets that produced income to the country now off enjoying the caymans…moneys in acc and other accounts collected and gambled on the worlds stock exchange for huge losses in 87 and 99 and 2007..talk not to me about a pension revision .. talk to me how you are going to compensate me for the 5 years and the amount you stole from me.
      \

  6. esoteric pineapples says:

    Just thinking yesterday – political parties are not allowed to talk about not giving very well off people the pension, but everyone is allowed to argue that the age of retirement should be lifted from 65 to 67 or more.

  7. Great reply Cagey and not just that you agree re the idea. LOL Weare so close to NZ Super being a basic income. It would be really good to go the whole way and let people see how simple and fair it is. Once the ideas is accepted then gradually extend it to other groups- invalids, some unemployed, sole parents, artists actors, those doing community work and so on.

  8. ICD says:

    To state that “[o]ur pension is remarkable. It is simple, fair, not tied to paid work and indexed to wages” and to then go on about arguing for making it less fair by saying that “…paying NZ Super to those who are so wealthy they don’t even notice it…” and somewhat tying it to income/wealth is really just a confused position or disingenuous (take your pick).

    To me this appears to be just another attempt of trying to up the top tax rate, only this time on the back of using super as an excuse.

  9. bad12 says:

    ”Can we please debate Superannuation”, ‘We’ have been, continuously with Labour for the past 2 election cycles,(how well did the adherence to the neo-liberal line of continuing to raise the age of entitlement go for that Party in the last 6 years),

    ”There is no alternative” said Labour’s David Parker when promoting the policy prior to the 2014 election, a grand ‘channeling’ of the hated Ruth Richardson,

    ‘There Is’ an alternative said the electorate and thus ‘the left’ are not the Government,

    What gets me with this continual attack line against superannuation, besides the fact that it is simply ugly Neo-Liberalism, is superannuation is in fact a Universal Basic Income, without further information i am only luke-warm to the UBI, but, ‘the left’ seem to have embraced the idea which then makes attacks upon any segment of society receiving the Pension a matter of hypocrisy,

    If there is a concern over ‘the rich’ receiving superannuation it is not the benefit of superannuation itself that should be addressed, it is the taxation of the individual earnings of ‘the rich’ befor and after they reach the age of retirement that need be addressed,

    The Neo-Liberalism involved in cutting any entitlement to superannuation only need be exposed by asking and answering one question,

    How many rounds of tax cutting, culminating in Labour’s working for families tax credits occurred AFTER the age of entitlement for superannuation was raised in the late 1990’s occurred???,

    That is why the age of entitlement,(and now), other aspects of entitlement are again being questioned,

    Neo-Liberalism is based upon ‘picking’ winners and losers, Governments pick who will win and who will lose,(presumably based upon who they think will most likely vote for them), thus in the late 90’s the age of entitlement was raised from 60 to 65 and for years, until the Clark Government’s working for families tax credits, the ‘profits’ of raising the age of entitlement were dished out in the form of rounds of tax cutting,

    Such tax cutting was allowed by subsequent growth in the economies GDP and the reality of such tax cutting funded off of rising GDP shows that had this tax cutting not occurred the age of superannuation entitlement was affordable at age 60,

    The same situation still exists, Labour uses as a ‘scare tactic’ the fact that the number of those collecting a pension will have doubled in the next 30 years, ‘shock horror’!!!,

    Shock horror my backside, a scare tactic formulated by Neo-Liberal Labour based only upon a focus on the COST side of the Government accounts,

    The INCOME side of that equation when examined reveals the LIE, while the number of recipients will have doubled in 30 years so will the countries GDP and thus so will the Governments revenue also have doubled,

    This is the GDP record in big bites from 1940 to 2014, remembering that GDP has suffered through various financial crisis, oil and share market crisis and any other crisis you care to name, there is one irrefutable Fact, in any 30 year period where records can be found, no matter how many workers produced that GDP, it doubled,

    1940 GDP=$19 billion–1973 GDP=$60 billion–2004 GDP $125 billion–2014GDP=$171 billion,

    What appears to be occurring with the ‘discussion’ surrounding the entitlement to superannuation is a requirement for those who wish to be ‘in’ Government to find monies to dish out, what the wannabe’s flatly refuse to do is raise taxation to fund what they see as needed programs thus they propose to take such monies from such areas of the Government spend as superannuation,

    Now to me and many like me that is just plain wrong, if there is a problem with a segment of society collecting a pension because they are rich then it is the income they made while getting to be rich that should be the subject of discussion not the pension they get at the back end of the whole process,

    Superannuation is a Universal Benefit,and, no matter what Labour/ACT and the Treasury say, that superannuation based upon projected GDP is affordable, thus the payment of Superannuation should remain Universal…

    • Lara says:

      It’s not a UBI though is it, because its only for those aged 65 +

      “1940 GDP=$19 billion–1973 GDP=$60 billion–2004 GDP $125 billion–2014GDP=$171 billion”

      $19 billion in 1940 is not the same as $19 billion in 2014.

      Inflation over the same period of time reduces the spending power of those figures.

      So those figures don’t actually mean National Super will be affordable… unless inflation is zero and GDP keeps increasing fast enough.

      • bad12 says:

        Hairsplitting Lara???, Yes for the 65+ group Superannuation is a UBI, are you a proponent of a full UBI, shall we start dreaming up ‘exclusions’ for the proposed UBI???,

        My point being, in including the UBI within my comment discussing Superannuation is to point out the hypocrisy inherent in creating ‘exclusions’ to what is ‘universal’,

        GDP in 1940 of $19 billion dollars sure don’t equate to 19 billion dollars in 2014 Lara, but then, i am sure you know this,

        19 Billion dollars of GDP in 1940 dollars equates to a GDP of 171 billion dollars in 2014 so the inflation across the intervening years is all counted in the gross,(crude) Reserve Banks measurement of GDP,

        • Lara says:

          There’s no need to be rude.

          Pointing out that National Super is not exactly a UBI because it’s only available to people aged 65+ isn’t “hair splitting”. It is an accurate statement.

          A UBI includes EVERYONE. Not a minority of the population due to age.

          Universal = universal.

          You pointed out that GDP keeps doubling, you seem to be implying that this doubling of GDP means we can afford National Super for all over 65.

          Your second comment mirrors EXACTLY what I pointed out: “GDP in 1940 of $19 billion dollars sure don’t equate to 19 billion dollars in 2014 Lara, but then, i am sure you know this”

          Yes, of course I do. I stated it very clearly I thought.

          I don’t think you read my comment very carefully at all.

          Just because GDP doubles does not mean there is more money to spend. Because of inflation.

          • bad12 says:

            Rude Lara???, if you think my previous comment was in any way rude perhaps you might care to ask the moderator to allow my next one to appear on the page no matter what it contains,

            Every New Zealand citizen and resident who has met the required term of residency in this country is entitled to NZ Superannuation, split hairs if you must,

            An increasing GDP of an economy means just that, Government who tax and spend GDP to the tune of about 33% of total GDP ‘DO’ get to spend more as that GDP increases,

            That increased spending by Government comes in two forms, an increase in taxation of GDP based upon an actual increase in real production, and, an actual increase in taxation where Inflation causes the price of goods or services measured as GDP to rise,

            To simplify what i wrote above, just in case, if the price of petrol increases at the gas station then GDP as it is measured by the Treasury and Reserve Bank has increased and this is reflected in the Government accounts through an increase in tax collected,

            The above increase in GDP and therefore Government taxation is entirely due to Inflation as no extra petrol
            has been produced nor consumed…

    • Lloyd Jordan says:

      one of the best i have read

  10. Mike the Lefty says:

    We would not be in the state of having an unaffordable super scheme if the Muldoon led National government hadn’t petulantly wiped Labour’s NZ super scheme in the 70s. The NZ Super scheme was broadly similar to the present Kiwisaver scheme, quite ahead of its time and it was a good scheme. Unfortunately the high inflation rate at the time made it look bad. National had a scheme that would pay out immediately rather than people having to wait until they retired before they would be paid out. National’s usual tactic of bribing to win elections, and of course the people fell for it. National didn’t stop to think what would happen when the large baby boomer generation reached retirement age, they were banking on having enough young workers to support it, but of course National never can think outside the three-year electoral cycle.
    Another example of a National government ballsup that has led to a financial mess.

    • Lloyd Jordan says:

      mike the kirk scheme was a dog.. it wasnt a gvt scheme but a pvt companies insurance scheme made compulsory by the gvt.. as you pointed out like kiwi saver again a dog of a scheme handing massive profits to overseas companies plying the super deals… watch those companies and your money dissolve faster than you can sneeze with another downturn of the magnitude of 2007

  11. Andrea says:

    I never knew that! I didn’t realise that every last miserable cent of the old age pension (by whatever name) vanished forever – FOREVER – from the economy, never to be seen again.

    Wow. Just Wow.

    It never reaches the supermarkets or the medical mob or the grandkids and kids or the local small businesses. Never.

    It is vaped up into offshore tax havens. Stuffs mattresses. Lines the walls of the Baby Boomer McMansions.

    Greedy. Avaricious. The ghastly gimme generation who have the barefaced cheek to vote for the whole rainbow of political parties and HAVE NOT even been in the hallowed precincts of the Beehive. Most of them. Too busy and stupid to be political, eh? Snobs and unpatriotics.

    If it wasn’t for the rising cost of funerals you could wish them dead. You would. Shove them out of the meals on wheels drivers. Close down those food banks where they take the flak. Cut out those vile volunteers who don’t need those seminal experiences on their cv’s. Past it! The whole lot from the unemployable 50s to the mid 90s. (I know they’re not evil Boomers but it’s the Principle, isn’t it?)

    The answer, the only fair and reasonable answer is as it’s always been – Soylent Green. Make them useful.

    I’m sure all you divide-and-conquerors agree.

    Don’t you? When you’re sober?

  12. Lara says:

    So many retired people who don’t need a pension getting one seem to think that because the government promised them a pension they should have it.

    They seem to think their tax dollars went into some kind of piggy bank, to be paid back to them on retirement.

    Yet we all (including them) know this to be factually incorrect. We’ve known it for a very long time. We’ve known the country is in debt for a very long time.

    Governments lie. To all of us. Nothing makes one generation more special and more entitled than another.

    The basic rate of National Super is not enough for some retired people to live on in dignity and it is my opinion that it should be raised. If they still have a mortgage (which can happen for a variety of reasons), if they still have dependents, if they never managed to own their own homes… some retired people are doing it hard.

    But for those retired people who don’t need it they should not be taking it. There are kids hungry, people in real need. Yet we give over $200 per week to a fair number of people who are comfortably off who don’t need it. Yet they tell us continually they somehow deserve it.

    There is something quite disgusting about people who may even be millionaires and quite well off taking money every week because they feel entitled in this country.

  13. Mike in Auckland says:

    I admit I only had a brief look at your analysis or report, Susan.

    But when the discussion about Andrew Little came up, having first considered some means testing, or at least not denied such considerations, I instantly thought of taxation as a measure to deal with the fact that some retired persons continue to work and have additional income.

    It is absolutely essential that we return to a more staged, progressive taxation system, as the present situation of a maximum tax rate at 33 percent is unsustainable and unaffordable.

    The Nats have ensured the high earners and wealthy do well, when reducing income tax a few years back, and increasing GST for all, that though affects the low earners more.

    Let the elderly continue working if they wish, but do not bring in complicated means testing, which is highly unpopular.

    Instead bring back a 39 percent or even over 40 percent maximum tax rate for high earners.

    So only the high earners will pay extra taxes, if they combine super with extra earnings.

    It seems though (looking at their last election policies) Labour are too scared to raise the top tax rate(s) too much, as they are so desperately trying to win more votes in that “centre” ground, where professionals earn good incomes and many of them would not like to pay more tax than National governments gather from them.

    At the same time they seem to make little effort to gather more votes from the disillusioned or disinterested non voters.

    Also on this, it is time for a rethink for Labour.

  14. Dan says:

    This topic needs to be debated, but its far too late in regard to the baby boomers. Never the less, for future generations, the debate must be had. In fact it should have been had years ago.
    And for Susan to say “they have again kicked the ladder away for the next generation” What crap. Democratically elected governments over the last 30 years have done that whether they have been left, right or centre.

  15. GettingOn says:

    One slightly tangential point I’d like to make. A significant proportion of the population pay income on what is essentially an honesty basis. This includes tradespeople and the self employed. It is generally believed that by paying these taxes there is some sort of benefit for them in the form of healthcare and the super. As many of us know, many medical costs now have to be paid for. If super is no longer a benefit paid through current taxation then non-PAYE taxpayers may wonder what they are paying tax for. Taxation is a form of contract between the state and the individual – I pay, in return for a certain range of services. If you don’t provide those services for me, maybe I will use those tax dollars more effectively myself.