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Interim Retirement Commissioner Peter Cordtz says a proposal for a special tax scale for those over 65 that could help claw back NZ Super from high income earners is an idea that might be worth exploring

Interim Retirement Commissioner Peter Cordtz says a proposal for a special tax scale for those over 65 that could help claw back NZ Super from high income earners is an idea that might be worth exploring

By Peter Cordtz*

So who gets what, and who pays? That’s one of the key questions we’re asking as part of this year’s Review of Retirement Income Policies. As the Interim Retirement Commissioner I’m required by law to undertake this exercise every three years to advise government on whether its policies are working to ensure New Zealanders have a good standard of living as they age, and recommend how things could be made better.

The terms of reference for each Review set out the areas the government of the day thinks are important. Every Review has been asked to look at how the country can continue to afford the growing cost of NZ Super, and this year’s study is no different. The issue is becoming increasingly important as our population ages.

There is always plenty of conjecture about the impact various policy adjustments could have and the role that economic growth could play in containment of costs if NZ Super is considered as a percentage of GDP, but the demography that underpins the debate is irrefutable.

Lower birth rates and longer life expectancy mean that if nothing changes in terms of government spending and tax income, the long term numbers don’t add up. Those two population trends, together with the  ‘boomer bubble’, means that by 2060 the number of over 65s doubles.

Another key statistic is the shift in what we call the “dependency ratio”. This is the number of 16 to 64 year olds relative to those 65 and over. That number is currently 4:1, but our ageing population means that over the next 20 years, that reduces to 2:1.

At the heart of the “who pays” question, is the reality that it’s today’s taxpayers who fund today’s Superannuitants. Right now that figure amounts to $39 million a day. During the period that the dependency ratio halves, it increases to $120 million a day. You don’t have to be a statistician or economist to see why that becomes a problem for all of us, if there isn’t a plan to ensure Super is sustainable.

The default discussion in previous years has revolved mainly around the relative merits of increasing the age of eligibility (most recently from 65 to 67) and means testing. Both issues have tended to fire up an emotive debate and as a result, become politically ‘tapu’.

This year, we commissioned research from University of Auckland’s Retirement Policy and Research Centre to explore issues and options in this area. Susan St John and Claire Dale delivered a paper, with a ‘blue sky proposition’ that is worthy of consideration.

Their paper assessed that raising the age of eligibility or reducing the amount received by Superannuitants could create new problems, and means testing was discarded. Instead, they suggested a special tax scale for those over 65, that could help claw back NZ Super from high income earners. 

One scenario would see a top tax rate imposed of 39%, whereby the Superannuitant would have to earn $123,000 before the ‘break even’ point was reached. To be clear, this is the amount of earned income over and above the payment of NZ Super they would still receive. A two-tier tax scale, with a lower rate of 17.5%, would protect the majority of Superannuitants with only modest extra income.

The latter point is important as while we know that New Zealand has one of the highest rates of workforce participation by over 65s in the OECD, we also know that many of those people are not working full time. Some are working simply to make retirement more comfortable.

St John and Dale worked out that if their suggested tax regime had been in place in the 2017-18 financial year, together with an alignment of the single and married Super rate, around 16% of the cost of Super could be saved.

One of the key benefits of this proposal is that it preserves NZ Super as a universal basic income for those in retirement. Our system is envied worldwide for its simplicity and universality, so why would we compromise that?  While some might argue the proposed tax scale is means testing in disguise, it does not take into account assets, so isn’t the ‘wealth test’ applied in other countries. It focuses on income tax, which has always been the key mechanism for redistribution of wealth.

Another advantage this approach has over tinkering with the age of eligibility is the potential time frame for action. Any shift toward an older age would require a phased approach over decades, which doesn’t address the issues we face in the near future. While we’re not saying the sky is falling now, 20 years is too long to wait to start on the direction of travel required to ensure NZ Super is sustainable for future generations.

We’re interested in any ideas that could preserve Super as a backstop for our children and grandchildren – this is one that might be worth exploring.

While my whakapapa is anchored in the north (Ngati Wai/Ngati Hine), the most relevant whakatauki I’ve used to stress the importance of this work, comes from our Ngai Tahu whanaunga down south.

Mō tātou, ā, mō kā uri ā muri ake nei – for us and our children after us.

If you want to have your say on this and other areas of focus for this year’s Review of Retirement Income Policies, visit Public submissions close on October 31. My report and recommendations will be delivered to government in December.

*Peter Cordtz is New Zealand's Interim Retirement Commissioner.

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When the public is demanding tax cuts/helicopter money, what with the surplus and Labour cancelling the National's tax cuts plans, this is a stupid idea to float now.
Certainly an election loser.
Harakiri, any one ?

With Winston there, its not going to happen any time soon.

Wont be long before politicians run out of cans to kick down the road, so something like this is inevitable. Just hope the oldies spend the benefit of the present arrangement locally between times. Otherwise, they are doing no favours for the next generation who are paying for their excesses.

The St John-Dale proposal, essentially a re-presentation of their 2015 paper, offers the fairest solution to the NZ Super dilemma since Winston Peters succeeded in trashing the Surtax. Of course, its very fairness means it will enrage all the undeserving who collect or expect to collect NZ Superannuation as icing on the cake of their private investment incomes. (Take a look at comments appended to this article and you'll get the picture.) The present Labour-led Government, which now has a two-year history of buckling to NZ First, will want to quietly put the St John super proposal in the same bin as the capital gains tax and Welfare Expert Advisory Group proposals. It ought not be allowed to do so, because the NZ Super bill is rapidly heading towards being a crisis, and the St John-Dale proposal is the only one put forward so far that maintains both universality and the 65-year qualifying age, yet offers a simple way to restrict NZ Super to those who need it, thus reducing its cost to taxpayers.

This is a problem for the Politicians to sort out. It would not matter what solution the Voters came up with the Politicians would not keep their hands OFF. Evidence the last thirty years of Superannuation changes for the politicians benefit. Everyone knows that the present system is unaffordable in its present form, expressing different views all the time won't fix it

"Superannuitant would have to earn $123,000 before the ‘break even’ point was reached"
Net or Gross earnings? Regardless, it looks like the earnings of the accountancy/legal professions will do well out of this! (NB: I assume there'd be an implied income calculation for the privilege of living in one's own home - renting it to yourself, in other words? Otherwise, we are asking for more trouble on the hard asset front)

Agreed, nothing like a 39% tax rate to fire up the tax avoidance juices.

My question is will this rate continue to apply even after the super has effectively been repaid/offset. If so it could be a nice little tax the rich oldies cash cow.

Indeed, meat for the Legal Eagles, especially if a company workaround were to be invented: there are no company superannuitants....and the company tax rate is well less than 39% so arbitrageurs are gonna have a field day.

A company only avoids paying the difference if it retains the earnings.

That's why you use a trust and pay tax at 33%.

One can't be sure of many things in politics, but if there's one thing I'm sure of, it's that tax rates will not be going up any time soon.

Super is unsustainable. Instead of trying to bail water faster, we should repair the ship.

The solution is obvious: you pay for your own retirement. End of story.

I agree in principle, but where do you draw the line for those who have, rightly or wrongly, factored Super in as part of the retirement plan? Yes, we should have kept the Muldoon era retirement scheme we initiated in the '70s, and yes, we should have started "Kiwisaver' years before we did when Winston argued for it. But do we shut the gate on those who are below 60 now? Or 55, or even 45 ( they won't have saved enough to support themselves?). Or do we have a 'sliding scale' to close the gate? All very difficult to explain to those who just miss the cut. And how do we justify to those who do 'miss out' that they still have to pay for those who 'made the cut', but they won't 'get it themselves'?

An answer, of course, is to keep the status quo and increase the earnings of the Country to support it - increase the total tax take not by just ramping up the tax rates, but by encouraging business to make more and better. The problem isn't 'too much Super going out' it too many years of malinvestment of our scarce productive capital that is now coming home to bite us in the backside. Unless we change our capital application regime, NOTHING is going to make the situation better.

Means test them. If factored in means they cannot pay for food = they get the benefit. If it means they have to access their $10m term deposit in order to pay for the hooker on their cruise through Asia = no benefit. It works for every other age bracket.

Okay, so
1) start tapering Super right now for people that are currently under 65 (taper by age to 0 over the next 15- 20 years).. no waiting till after the horse has bolted as the Nats recent proposal was.
2) Take compulsory kiwisaver (or equivalent accredited scheme) deductions at a higher 5% minimum rate from income before tax is calculated,
3) End the kiwisaver withdrawals for first home purchasing (maybe with a few years warning for those that have been planning to use kiwisaver to buy a house)

1) OK, so people paying for other people to get super today won't get super themselves, BUT
2) They'll also pay an additional 5% payroll tax out of their gross earnings, leaving even left for costs of living (you know, after they've paid taxes to fund current retirees' super) AND
3) They'll ALSO somehow have to magic up 20% of their home deposits because they won't have the money they've been forced to save.

I mean there's inter-generational inequity and then there's this, which is just short of economic genocide.

"2) They'll also pay an additional 5% payroll tax "

Yeah, its not a tax... And the rest of your post makes about the same amount of sense.

It is a tax. It's money that you don't have to pay the bills out of your pay. And if you die before 65, you never get it. If it looks like a tax, smells like a tax and functions effectively as a tax, then it might as well be a tax.

But hey, thanks for the credible rebuttal.

In one line you call it a tax, then in the next line you correctly call it savings.... Tax is something the govt takes and keeps, kiwisaver is not tax.

I have a mortgage payment at the end of this month. I turn 65 in three and a half decades. The savings in my bank accounts are available to meet costs. My Kiwisaver is locked away for another 35 years, with no assurances it will be worth anything at the time I can actually access them.

Yes, it is 'savings' in the absolute technically correct sense but it functions as a tax for younger workers, who you want to also lump with the burden of supporting everyone ahead of them, and deny them access to those 'savings' to put towards a house deposit.

Time to connect with reality. The status quo is they (you) are already on the hook for paying superannuation for the previous generations. Not changing anything means they (you) will be supporting twice(at least) as many pensioners as you currently are, (and likely for longer as people live longer).

So whats your solution? Kill of superannuation dead now? Not going to fly, NZ won't allow grandma Mavis to starve because you cut off her pension.

E: I can't be bothered with this. You want to kick the can down the road, but don't care how much harder it makes for people between the time they start working and the time they retire. As long someone else takes the hit, everything is fine.

No, i'm putting forward an idea that transitions from me and you supporting the older generations to people paying their own way and supporting themselves, but in a reasonable timeframe so those that are currently 5 yrs or whatever from retirement don't get the rug pulled out from under them which NZ would never allow anyway.

Whereas all you are doing is shouting "Me me me" and not putting forward a solution at all.

What I'm doing is "Me for once" because after student loans, massive housing costs and imported labour driving down wages, it's been about literally everyone else and millenials/zoomers are being stuck with the bill after everyone else has done a runner. You're now talking about taking away the only realistic pathway to a 20% house deposit. But hey, great for people five years away from retiring, you're locking in free money for them whether they need it or not.

I didn't realise I was under an obligation to put forward an alternative before I could point out the glaring flaws with what you propose.

Right, so you don't have a better solution, but you are against tapering off universal superannuation and making people self reliant for retirement, so I guess you really must like the status quo.

This concept is little short of a means test in the sheep’s clothing of IRD. Back door stuff. No we won’t means test you will all get the same superan each week, still universal then isn’t it, but we will now have a “special” tax rate for those in the “select” bracket of our prerogative.

If it achieves the same thing with minimal overhead then it'd be great, but I suspect you'd find as other posters have suggested nothing more than a temporary boost to the wallets of accountants and lawyers as trusts and companies get formed to dodge this tax.

That's what means testing achieves. No need for the elderly to have a universal benefit that other people cannot access. It is absurd that poor young families pay taxes so millionaire retirees have spending money when they go on their quarterly cruise ship holiday.


The best practice policy is to tie the age of eligibility to a function of the average or median life expectancy, with a reduced rate of super available for those that have to retire earlier for health reasons.

The sooner we get some politicians with some gumption the better.

Agree with the principle of eligibility tied to life expectancy, we should have done it decades ago, but i don't hold out much hope of it happening, regardless of who the government is. Sadly i think i is going to have to get to the point where we can no longer fund things like health and education because we are paying so much for super before we seriously look at raising the retirement age. The notion of clawing back some of the cost of super through a higher tax rate for over 65s seems more politically realistic and at least a step in the right direction.

Life expectancy for whom?

Well said. And how exactly would the ditch digger fare in the new regime of life expectancy based entitlements?

I agree with bw. Instead of spending more, why don't we just earn more?
Sadly, not with this lot in power. You'll need real transformation to do that. Our systems are tired. Welfare is outdated, especially to the young. We need a better leadership system right across the board. Politics, state, local, national, we need better systems & with that better people. Instead we sponsor dumb people to feed & breed inter-generationally. Quality not quantity is the call.

Not with the last lot either.. our real GDP/capita has been stagnant for more than just a couple of years. Deduct the effects of the chch EQ rebuild and we've been going backwards I believe.

If you adjut to PPP its pretty much constantly up.

Another Tax idea that won't go anwhere because of political suicide, as already mentioned. NZ parliamentarians need to get hard on this subject and pass some form of proposal like NZ First tried to introduce by saying if you have not lived in this country for "x " number of years then you do not qualify. The majority of those receiving Superannuation now were spending the Heating Allowance on necessities (rather than power) just to get by, now that is gone for six months heaven knows what they are going to do until it is reintroduced. Most retirees say they should be paid the minimum wage. I don't know why NZ First introduced changes to the Gold Card and computerisarion for retirees when the majority carn't afford the basics. A waste of 7.5 million, perhaps.
Retirees, generally, only work because they have to to make ends meet. Not because they want to.
The next generation should be okay as they will have had Kiwisaver for the majority of their working lives. A relief for the super fund, I suggest.

So...means testing in effect? The issue here is it'll punish those who diligently slaved towards a comfortable retirement.

Means testing punishes the diligent and rewards the profligate. This is not the correct message to be sending to society.

those are contributing to kiwisaver are going to punished because of wealth gap between those who are not contributing

So does the dole. So we should have a UBI?

Its the bare faced cheek of people like my two grumpy uncles who have more money and rental houses stuffed away than can be believed YET they still get super. Why do they need to get super? If the govt is meanfisted enough to harrangue and sanction (even jail) beneficiaries over the measly support they do receive (if they aren't lied to in the process by a deceitful case manager) then wealthy 'pensioners' should have no super. Its just not fair.

how would this affect kiwisaver ?are those who are contributing going to penalised because of those who arent saveing

if national hadnt stuffed up the norman kirk scheme we wouldnt have a problem they stuffed up the cullen fund as well someone needs to be held accountable for there mismanagement

How did they 'stuff up the Cullen fund'.

By suspending payments into it in 2009 and missing out on the excellent returns that investment would have made. Payments were re-instated by the Coalition in 2017.

They stopped contributing to it.. instead of building the balance to smooth out the boomer hump they did nothing. So now you get to pay more in future to support those retirees who were still working in 2009 to 2018 that could have paid a little more in tax to partially fund their own retirement.

It'll only be time to means test when the middle class who were saddled with massive student debt and consigned to renting for life get to 65.

This sounds suspiciously like the super surcharge of the early 90s. As a young accountant I used to prepare tax returns for superannuitants. The very wealthy didn't pay the surcharge as their assets were not personally owned. Only the middle class people paid it, as they weren't rich enough to avoid it. If you were reasonably well off, you paid all your net super back via the surcharge.

That's why you should probably just put in Land Value Tax. Much harder to avoid and taxes the source of wealth that also receives the most betterment from society around it.

People might've been able to save up more for their retirement if wages kept going up at the rate they used to

Too much emotive crap here. Big problem for retirees is that you don't know when the grim reaper will come knocking. So it's next to impossible to draw down any savings with any degree of certainty. And in these near-zero interest rate times, there's very little income coming in from savings. $1million gets you $25,000 a year, and going down! That's around $50,000 net a year for a couple, including super. Not anything like enough to pay for a quarterly cruise after rates, insurance, property maintenance, healthcare, transport have been accounted for. And who's got a mill anyway? How did this myth of 'super-rich baby boomers making the lives of young people miserable' ever get off the ground?

Because they blew out house prices, imported population pressures and then NIMBY'd the hell out of meaningful planning reform to nerf any chance of supply ever catching up. Sorry you can't go on a cruise now and then, truly the cruiseless boomers are the real victims here.

The 2000+ price boom wasn’t the first time house prices blew out. Lots of booms and busts in my time. I was in the UK in the early 70s and house prices virtually doubled in three years, then dropped by a huge amount about six years later. Same sort of thing happened here. And we boomers had to support our older generation, men who retired at 60 and women at 55. I think you may well find a lot of 45-55s (not boomers) NIMBYising in Aucklands leafy suburbs. And the immigration boom happened under National, and Labour. Few of the ministers responsible are boomers. The only real opposition to immigration has been from Winston Peters, who oddly is a boomer — or is he too old to be one? Frankly, I find your views both pathetic and ignorant. Sorry...

If it's such a problem why aren't the Baby Boomer cohort gluing their hands to the windows of the RBNZ in protest of such low interest rates?

This will encourage all kinds of tax avoidance and make every one a little bit of a cheat. Nice way to spoil the New Zealand moral fibre. We will truly become an Asia (pacific) nation.

This is a bit disappointing. Five years ago his own organisation, in conjunction with the NZ Treasury, commissioned research to find out what New Zealanders do and do not want from their retirement income policies. Out of seven options, the most important thing (by a long way): no means testing. So they ask some of the highest-profile advocates for tax surcharges (means-testing by another name) in the country for a report on future options, and out pops the reply: tax surcharges. There is some support for tax-surcharges in New Zealand, - about 18 percent by one measure - but it is minority support. (Incidentally, when a group of public servants answered the same survey, support for means-testing amongst this group was appreciably higher.) This survey may or may not have problems, but as far as I know there is no evidence that large numbers of New Zealanders want means-testing as part of the solution to New Zealand's future retirement income issues.

The strangest thing about this article is one of the quotes at the end.
“We’re interested in any ideas that could preserve Super as a backstop for our children and grandchildren – this is one that might be worth exploring.”

In its current form New Zealand Superannuation is largely a “pay-as-you-go” system – current tax collections pay current pensions and nothing is saved. More than 50 years ago, the Nobel-prize winning economist Peter Diamond showed that under prevailing economic conditions this system imposes huge costs on young and unborn generations relative to a system that accumulates assets. For half a century economists have known the current system is against the interests of our children and grandchildren. Wanting to continue a system that imposes high average costs on young people is perhaps not to everyone's taste (and certainly not to mine) . Fortunately there is a solution: you can prefund using the NZ Superannuation Fund to get around this problem Not only are there are lot of advantages for young people in doing this, but the same survey indicated 65 percent of New Zealanders would be prepared to pay higher taxes now if it prevented even bigger tax increases on future generations.

Incidentally, some of the best theoretical work on the topic suggests New Zealand Superannuation is likely to increase long run wealth inequality, by lowering the wealth of people with low incomes and lower than average life expectancy – unfortunately, this group includes disproportionately many Maori.

There are many potential ways that NZ’s retirement income arrangements could be changed. NZ has a retirement income (and tax system) that is entirely different from those in almost all other OECD countries, so there are plenty of examples to investigate – and economic theory shows that it is possible to adopt systems that aren’t biased against young people and future generations , unlike NZ Superannuation, and which may not contribute to long run wealth inequality. We can only hope that the interim Retirement Commissioner considers these options as well.

Disclosure: I was one of the authors of this survey – and I was surprised as anyone else at the results.

Andrew Coleman

The "pay-as-you-go" system discourages any govt encouraging a declining population policy which is a pity.

Super belongs to the 20th century
there will soon be no such thing

is this an attention seeking piece from peter?up until now he has only been remarkable for his unusual surname.cant see how it can help his job application for retirement commissioner,most retirees wont like the message and MPs over 65 wont vote away their pension.

Your not thinking ahead, life expectancy is going to start decreasing for the millennial's and generations after that. We are getting fatter and less fit with each generation so the number of people getting to 65 will start decreasing rapidly, problem solved.

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