No serious political party can go into the next election without a policy that tackles the rising cost of superannuation, Finance Minister Nicola Willis says.
Willis spoke at the Financial Services Council Conference in Auckland on Wednesday. This was followed by a question and answer session with facilitator and TVNZ reporter Jack Tame, during which Willis was asked about KiwiSaver and superannuation.
Tame said with taxes going towards the superannuation of people who are retiring now, the whole tension here is that the country has an ageing population and there are fewer workers for the number of retirees.
“We’re not going to be able to make that work anymore. We’re not going to be able to square that circle compulsion,” Tame said before asking Willis what she thought about this.
Recalling the last election and National Party’s campaigning of increasing the retirement age, Willis said “I think it is one of the political monsters in the room”.
She said her party had campaigned on a policy of what she would call “realism”.
“Making your point, which is this is getting more and more unaffordable in terms of our demographics. Let’s raise our age gradually to 67 and that will make it even more affordable.”
Willis said she was calling for the upcoming election to have a “mature, grown up conversation” about retirement.
When asked about having cross party agreement on KiwiSaver and Superannuation, Willis said although she was cynical, “if we can get a consensus that results in enduring change, that is the most stable thing for everyone involved”.
Asked whether National would go to the next election with a new additional superannuation policy other than raising the retirement age, Willis said: “[I’m] always respectful of my caucus, but able to commit that we will go to the next election with a superannuation and savings policy that we believe addresses the challenges which I’ve outlined to you today.”
“KiwiSaver has to be part of that,” Willis said.
Last weekend, New Zealand First leader Winston Peters announced the party’s proposal to increase both employee and employer contributions to initially 8% and then later to 10%.
This would be a big increase from the 4% default rate announced by the Coalition Government in the budget in May, which won’t be fully implemented until 2028.
Speaking at New Zealand First’s annual general meeting in Palmerston North last weekend, Peters said KiwiSavers and employers would receive tax cuts to cover the increases.
When asked about NZ First’s proposal of 10%, Willis said she saw the ambition and appreciated the idea of increasing contributions to KiwiSaver over time.
People often look to Australia as an example of a great compulsory savings regime, Willis said.
Over there, the current superannuation rate is 12% of your ordinary time earnings and your employer has to pay for you at least four times a year, every quarter.
But Willis said New Zealand First's proposal of a tax cut would cost roughly $15 billion a year.
When asked if the country could afford $15 billion in tax cuts, Willis said: “The key thing for me is, at the moment, every New Zealander does make a compulsory contribution to their pension. It’s just that we pay it through tax and that’s to fund our universal pension scheme, which Australia doesn’t have.”
Willis said the real question we’re left with was this: “If you're requiring a compulsory contribution to a private scheme while also requiring legal taxation needed to support a universal scheme, can you do both at once?”
“I’d suggest that ultimately, those of us who have to worry about fiscals would say there probably needs to be a more subtle combination of the two.”
Deputy Prime Minister and Minister for Regulation David Seymour also spoke at the conference.
When asked about healthcare in relation to superannuation, Seymour said “we have this 20th century system that is now coming under huge pressure in the 21st century environment”.
When it came to superannuation age, Seymour said changing the age just had to happen but there needed to be flexibility.
“I think having flexibility around when you can access KiwiSaver could be a really useful mitigation against some of the concern that people will have about raising the age of super which, in my view, is inevitable,” Seymour said.
31 Comments
If the issue is that NZ super is not affordable, I really cant see how increasing the cost of Kiwisaver can help with that. The government need to be reducing costs and/or increasing tax, I can't see how Winston can propose a massive tax cut.
Exactly, just politicking
No model is really maintainable.
Kiwisaver, indeed all share-holdings, all pension expectations, all held cash, all savings - they are all proxy bets on the future. Bets that there will be resources available in the future, and future energy to process said resources.
No economist sees it that way, but that is how it is.
And there has never been more people on the planet, chasing less remaining resources, than now. And doing so with less remaining energy, of lesser quality. We are entering a reconciliation-phase, which includes the misnamed 'costoflivingcrisis' (a trend is not a crisis) and increasing geopolitical tension.
There will be a reconciliation between the remaining planet, the competing cohorts, and the 1 quadrillion (current USD, I'm told) in bets already laid.
I agree PDK, except I feel like the declining resource is people not energy. Most of those future bets will fail if the working population decreases in proportion.
Then you don't agree.
I can't express it much better - but here I will try again. Human labour is about 4.5 continuous years (real labour) to a barrel of oil. Labour is mere noise - and if you think about it - try pushing your can home.
More resources per head, means more wealth per head. No resources means no wealth; no energy means you're dead. Give me less people every time.
The convenient narrative that "NZ Super isn't affordable" ignores the fact that political choices are always made on govt funding & spending:
"Wrightson added that NZ has the eighth lowest pension cost in the OECD (which has 38 countries as members) and NZ was in the lowest quartile for expenditure." (%of GDP)"
We also have one of the lowest tax burdens in the OECD. Maybe we could afford it if we taxed more?
Isn’t that because other countries are currently saving in advance for the boomers, while we are about to start paying for them. In theory their super costs will go down from here, ours will go up.
There should be no argument that we need to move to an Aussie model. We should also recognise that we are coming up to 20 years of Kiwisaver and that those retiring from now on who also have Kiwisaver will be materially advantaged. So the sooner a decision is made the better. However it is also not feasible or fair to increase the retirement age or decrease or means test those who are already retired or are retiring in the next few years and who have not had the time, ability or understanding to put themselves in a position to replace National Super.
Something like this:
- Make Kiwisaver compulsory
- Increase Kiwisaver contributions similar to Aus
- Gradually increase the NZ super age forever, until it is eventually phased out.
- Leave Kiwisaver age at 65
- Would need some kind of backup for those that genuinely run out of money / etc.
- Not sure how to prevent people blowing their Kiwisaver, maybe some kind of compulsory government annuity or similar.
I would have a good annuity from KiwiSaver, topped up by state if needed, for all. Get the rest as a lump sum from your KiwiSaver.
I’m fearful of annuities. Maybe needs to be government provided or backed.
I don't entirely disagree, but that's a pretty tough sell to the young. Not only do you need to continue paying tax to fund the retirement of the older generations, but you simultaneously need to save hard for your own as no-one is going to repay the favour.
I think this kind of policy would have to go together with some sharing of the pain with those receiving superannuation, most likely through income/asset testing. The above proposal gets quite painful when that youngster is slaving away to provide extra spending money to pensioners living in multi-million dollar houses and/or with sufficient independent income.
I do like annuities though and I was amazed they are barely considered here. The UK only quite recently (7-8 years ago maybe?) allowed the use of any strategy other than annuities, with accompanying fears that people would blow their lump sums and end up destitute.
I would means test super now for those earning over say $180k per year. A recent study, done with treasury, estimated this could save 3 billion a year. Give some of this to young ones to bolster their KiwiSaver acct’s when young so they know they will get it back in the future.
Any annuity should be universal so NZ super becomes a top up as required only in the future.
The problems an aging population will bring are not financial they are in fact physical. Providing the spending capacity into a consumption based society is the least of our problems....ensuring the availability of the required goods and services however certainly do need to be addressed.
Good point and often forgotten. More people needing services, less people to offer them. Sounds inflationary.
At the same time less people needing financial assets, more people needing cash. Sounds deflationary for assets.
Agree you need younger people to look after us old, arthritic, forgetful types.
We are entering a century were we are going to have falling populations in a lot of countries, especially younger cohorts, and the young ones will have lots of choices - do they want to look after me and you or do a multitude of other things?
A new narrative not faced by the world for many centuries and there will be intense competition for young able hands and minds. We need to prepare for this now or make it very attractive to have children - and this could mean radical moves on housing, maternity leave and child support.
Need AI to do some of the work.
The Americans might find it hard to find someone to do the manual labour that Trumps bringing back.
Clearly there are serious questions regarding the continuing affordability of the current scheme. Added to this is that past experiences show that subsequent governments have flip flopped on strategies introduced to meet this and from a personal perspective there is no certainity as to the future. Erosion of KiwiSaver provisions is one such example, and twice funds have been established to meet future shortfalls but then the conditions have been subsequently eroded by following governments. Although it was prior to me turning 60, I saw the retirement age rise from 60 to 65.
For young to middle age workers there is considerable uncertainty as to what will be available when one retires and there is need to ensure that one takes individual responsibility.
During my working life I was in a salaried position and for the past ten years I have been retired and financially comfortable. I can afford overseas travel once or twice a year and can meet expensive health care costs. This is because I took personal responsibility to ensure this; I made sure that I was mortgage free, contributed to an employer superannuation scheme, additionally contributed to KiwiSaver when it was introduced for the government contribution, and from my early fifties when my children left home, I began investing. I have neither relied on, nor have received an inheritance.
I can be criticised as being a lucky boomer. However, that is at best only partially true and certainly is not true for all boomers. I recently read that 60% of people retiring do not own a home without a mortgage. In my coffee group of ten guys, I am the only one without a community services card and I don’t get a rates rebate. Many retirees are far worse off; none of the group get the accommodation supplement, provided with social housing, and because of their house is an asset, nor are they likely to get the residential care allowance if required. There are plenty of boomers struggling and in need of government financial support.
One can argue about superannuation as much as one likes, but the reality is that one cannot simply rely on government superannuation for a comfortable retirement and that is unlikely to change. If you do want a comfortable retirement, then there is need to take individual responsibility.
+1. I could say exactly the same.
If most of your generation struggled to get to retirement with anything, how can you expect the next generations to do any better with higher house prices, an ageing demographic to look after, taxes going up, working population declining, etc?
I'd vote for a surtax.
If you're working post-65 and earning good money then congratulations but you probably don't need the full benefit as well, so progressive surtax will make it fairer (the more you earn the less benefit you get)
Fairer for who? 25 years ago only 5% of 65+ kept working, now its 25%. Theres good economic reason for this increasing % & their incremental income tax also pays for their Super.
Fairer for the bulk of youngsters funding Super and unlikely to receive it themselves, struggling through a world that is far more financially hostile than the environment those retirees experienced.
My opinion is if older generations do not make reasonable concessions while they still have the wheel, more extreme concessions will be placed upon them by subsequent generations.
25% are capable, and I suspect most of the other 75% could. Why are we paying a benefit to people who can work?
Just increase the age and access anyone who can’t work like we would anyone younger who can’t work.
Fairer for me. Because I know damn well that when I retire I won’t get the same as you’re getting now.
Numbers are a bit old but 65+ contributed 5 billion to PAYE in 2020. Now maybe 7 billion tops. Super costs 12 billion a year and growing.
And like every other citizen, 65 plus consumes a range of other government services, and for healthcare much more than other groups.
It's just not true that their tax "pays for Super"
https://www.ird.govt.nz/-/media/project/ir/home/documents/oia-responses…
Just increase the age. People are living longer and hence need to work longer, simple really.
No and no.
See above.
My take from reading the comments posted here so far is that all commentators are comfortable about their retirement future income. However there are many people who have worked for low wages all their life, or weren't or aren't in employment while raising children, or women who have even lower incomes and savings than men, possibly or likely don't own a home. ... Two overseas trips a year... how about trimming that and investing in NZ productive enterprises that create jobs, and/or raise the incomes of younger working Kiwis so they afford to buy their first home and start a family. How about a large government overseas travel departure tax to help fund super for those who need it.
Any new scheme promoted should have a Political safe guard built in. i.e. no fiddling with it
Just look at Kiwi Saver, there has been so many changes by all Govt's
What is required is a pension Fund contract. what you sign up for is what you get
Extending the age of eligibility only means people who require financial assistance before say 67 will simple go on to another benefit. Nothing Achieved
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