The Retirement Commission has recommended raising the retirement age by two months per year from 2020 until it reached 67 in 2033, it said today.
It also recommended a slow reduction in the pension formula to bring its growth closer in line with inflation rather than average weekly earnings growth.
In parallel, a transitional means-tested benefit should be introduced for those aged 65 who are unable to financially support themselves, the Commission said.
Prime Minister John Key was reported immediately by Stuff as saying he would not adopt the recommendation.
Key has previously promised to resign if he every altered the retirement age or retirement pension.
"We're going to continue to pay New Zealand Super at 66 per cent of the average wage for New Zealanders who are 65 and above," Key was quoted as saying.
He disagreed that the age of retirement would have to rise. "For a variety of reasons but in my view, New Zealand super is sustainable at age 65," he was quoted as saying.
A spokeswoman for Labour leader Phil Goff later told interest.co.nz that Labour was also not proposing to extend the retirement age or change the pension.
Here is the response from Goff's spokeswoman:
“Labour would not be prepared to lift the age of eligibility for superannuation or to reduce payments to pensioners.
It would restore pre-funding through the Cullen scheme to ensure the future affordability of superannuation. Labour would also further develop KiwiSaver. It’s important to work now to off-set the costs so the burden is not simply postponed for future generations to deal with.
While the Retirement Commission’s proposals are not necessarily the right proposals as far as Labour is concerned, it is important that we are able to have a full and frank debate about the issue. I invite the Government to come clean, provide all the information available and act on a cross-party basis to look at this issue. We can’t just focus a year ahead to the next election, we must look much further beyond that to ensure a sustainable superannuation scheme for the future.”
Here is the release from the Retirement Commission:
The Retirement Commissioner has recommended changes to New Zealand Superannuation to keep it affordable over the long term and to strengthen the principle of universal individual entitlement.
The recommendations were made in the three-yearly Retirement Income Policy Review, which was tabled in Parliament today.
Ms Crossan said changes were critical to preserve New Zealand Superannuation for the next generation.
“Something will have to change to keep New Zealand Super affordable for the long term. We know that there’s a huge number of baby boomer superannuitants coming, and we can’t keep on ignoring this issue until it’s too late. New Zealand Super is essentially a great scheme and is vital for the wellbeing of older New Zealanders,” she said.
Keeping New Zealand Superannuation affordable
Retirement Commissioner Diana Crossan says the Review’s primary recommendation is a package of two measures starting in 2020 designed to keep New Zealand Superannuation affordable when baby boomers will make up the majority of superannuitants and the costs of New Zealand Superannuation are accelerating.
Raise the age of eligibility
From 2020, begin gradually raising the age of eligibility by 2 months per year, so that it reaches 67 in 2033. In parallel, a transitional means-tested benefit should be introduced for those aged 65 who are unable to financially support themselves.
Adjust the formula used to calculate the annual increase
From 2020, adjust the formula by which New Zealand Superannuation’s annual rate adjustment is calculated. The Review recommends that this formula should change so that, each year, the rate adjustment should be the mid-point between the percentage increases in the CPI and in average weekly earnings. The real purchasing power of New Zealand Superannuation would still be protected by ensuring that the annual adjustment is never less than the increase in the CPI.
Strengthening the principle of universal individual entitlement
The Review also stresses the importance of the underlying principle of universal individual entitlement on which New Zealand Superannuation is based. Three recommendations are made to remove specific areas of unfairness in the current system that are all based on a person’s partnership status:
Remove the non-qualified partner rate
The Review recommends removing the option of income tested New Zealand Superannuation for people aged under 65, or who don’t meet the residency test, whose partners are superannuitants.
Equalise the unpartnered and partnered sharing rates
Currently two different New Zealand Superannuation rates apply for people sharing accommodation – one for those who are partnered and one for those who are unpartnered. The Review recommends that these rates should become the same.
Abolish the deduction of a person’s foreign pension from their partner’s New Zealand Superannuation
The Review recommends an end to the current policy of reducing the value of a person’s New Zealand Superannuation if their partner receives a specific foreign pension that exceeds the value of New Zealand Superannuation.
Ms Crossan said the second set of recommendations was based on the principle of fairness.
“New Zealand Super is the entitlement of every qualifying New Zealander regardless of their income or partnership status. These three recommendations address the areas where that principle is clearly not being applied, and should be addressed,” she said.
The Retirement Commissioner is required by statute to complete a review of retirement income policies every three years.
The full report, which contains 17 recommendations, is available atwww.retirement.org.nz.
(Ipdates with comments from Goff's spokeswoman)