Superannuation and health will be major drivers in government spending in the future, Finance Minister Nicola Willis says, meaning all parties “have a requirement to go into the next election with a policy setting out where they’re at on superannuation”.
Speaking at this year’s Bloomberg Address in Auckland on Friday, Willis told the audience: “As we all know, these are very long held things and we need to signal very clearly, very much ahead of people who aren’t even thinking about retiring now, what those settings will look like.”
This is a repeated call - at the Financial Services Council conference in September, Willis told the crowd no serious political party could go into next year’s election without a policy that tackles the rising cost of superannuation.
“We as a party have proposed changes in this area in the past. We haven’t committed to whether we would make changes in the future, but I think we have shown our hand at this recent budget by increasing those contributions to KiwiSaver,” Willis says.
At this year’s budget announcement, changes were made to KiwiSaver with mixed reception.
This included a rise to employer and employee contribution rates. These will increase to 3.5% from April 2026 and move to 4% in April 2028. It’s currently at 3%, KiwiSaver members can choose to stay at the current 3% rate and still be matched at this rate by their employer.
At the Bloomberg Address, Willis told the audience that increasing those contributions “shows a commitment, I think, from all three parties in the coalition that this is an important vehicle for New Zealand’s future savings".
Other KiwiSaver changes the government made includes allowing people aged 16 and 17 to be eligible for KiwiSaver so they can access employer and government contributions.
The Government decreased its contribution rate however, going down to 25 cents for each dollar a member contributes. This was previously 50 cents for each dollar, which meant receiving a maximum government contribution of $521.43.
And people with an income of more than $180,000 will no longer be able to receive the government contribution.
Willis says she’s proud employer and employee contribution rates were changed.
“I think it speaks to intent, speaks to our longer term vision,” she says.
Willis’ comments come after Treasury’s Long-Term Fiscal Statement repeated a key message it had mentioned four years ago, eight years and 12 years ago: the Government will run out of money to pay for pensions and healthcare if they don’t make some policy changes.
If policies are left unchanged, government spending per person will rise from $18,300 today to $35,900 in 2065 (not counting inflation). Tax revenue won’t be able to keep up and debt would explode to 200% of gross domestic product.
Treasury modelled a hypothetical scenario in which no corrections were made to policy until 2065, just to demonstrate the costs of drastic policy changes.
“Our modelling suggests if we delay tax increases to 2066, everyone born before 2030 is better off, but people born afterwards end up paying significantly higher taxes over their lifetimes and have lower after-tax pensions,” it wrote.
When it comes to this scenario, Willis says; “I think that’s a theoretical exercise that has no bearing on reality, because governments have proven that they do react to the circumstance in front of them”.
When it comes to the retirement age, National and Act have previously announced that they want to raise the age of eligibility.
Labour’s finance spokesperson Barbara Edmonds previously said the party would not be looking to change the superannuation age, but KiwiSaver was unfinished business.
New Zealand First has already put forward a proposal on KiwiSaver with leader Winston Peters announcing a policy to make KiwiSaver compulsory and to increase employee and employer contributions to 10%.
At the party's annual conference in Palmerston North, Peters said KiwiSavers and employers would receive tax cuts to cover the increases.
8 Comments
This article makes me frustrated and angry,
There is urgent need for cross-party agreement on future of superannuation provisions including the age of retirement. History has shown that there has been continual flip flopping with successive changes of government which includes erosion of both provisions for KiwiSaver and funds established to meet future retirement cost shortfalls. While each party continues to have their own individual proposal, as Willis and this article support, there will be no surety for people being able to effectively plan for retirement.
There is urgent need to have an accord to which all the major parties sign up to and agree to abide by. This will not be achieved while each party campaigns on differing policies.
"There is urgent need to have an accord to which all the major parties sign up to and agree to abide by. "
Knowing politicians do you expect any and all future administrations to abide by such an accord?
Any agreement will be short lived though we may convince ourselves otherwise.
LMBF: Not necessarily so.
The Australian superannuation policy established in 1992 has remained relatively intact over the past 33 years. Yes, there has been some tinkering to the compulsory employer contribution rate, but any changes to the scheme have been relatively minor.
Unlike Kiwis, Australians have far greater confidence and surety that in 20- or 30-years’ time that they will have an adequate superannuation.
There have been numerous changes to the Australian Super over the years...and would suggest that a contribution rate increasing from 3 to 12 % is a wee bit more than minor.
Even with this they have increased their pension age to 67
And over 20% of retirees live in poverty.
Agreements are always going to be subject to circumstance
We are told repeatedly that our universal pension scheme, NZ Superannuation, is rapidly becoming unaffordable, and that we must all put our savings into KiwiSaver to look after our own retirement.
People look enviously across The Ditch, wring their hands, and say 'If only we had a compulsory superannuation savings system like Australia's. Then we'd all be rich. Let's make KiwiSaver compulsory!'
NZ Superannuation provides a universal basic income in retirement. It will continue to do so as long as society is willing to be taxed enough to fund it. Yes, that tax could be going into private KiwiSaver savings instead, ensuring that the gulf between haves and have-nots throughout life becomes even more extreme in old age.
Or we can pay the tax, boost NZ Super to provide a more liveable bottom line for everyone who gets it ... and those who have been able to save extra through life will enjoy spending their savings anyway.
It's a moral choice: look after everybody, or look after me and bugger the poor.
The reason NZ Super is yearly becoming uncomfortably more expensive is because the surtax on recipients' other income was abolished in 1998, so NZ Super goes in full to those who don't need it, and costs the country a fortune.
Bring back some form of the surtax to restore NZ Super to being a universal basic income.
Okay, back to Australia. Is their compulsory universal superannuation savings scheme as good as we are so often told? Here's Geoff Carmody, writing a decade ago in the Australian Financial Review (not a socialist newspaper). He looks enviously at New Zealand's universal super, and reckons what we have is better, and fairer.
A response: 'Geoff Carmody is right: scrap [Australia's compulsory] super'
https://www.afr.com/policy/geoff-carmody-is-right--scrap-super-20160313-gnhrvy
Another: 'Scrap [Australia's compulsory] superannuation for a universal basic pension'
https://www.macrobusiness.com.au/2021/01/scrap-superannuation-for-a-universal-basic-pension/
And another: 'Scrap [Australia's compulsory] superannuation. It fails to meet the standards of a retirement income system. It is costly and inefficient, unnecessary, and incredibly unfair.
The age pension [equivalent to NZ Super] system is by far the most economically efficient retirement income system. Scrap superannuation. Expand the age pension. Boost the economy.'
https://treasury.gov.au/sites/default/files/2020-02/murray290120_0.pdf
And this:
2025may26: More criticism of the Aussie superannuation savings scheme that Kiwi find managers eye enviously
Bring back some form of the surtax to restore NZ Super to being a universal basic income.
While I agree with the surtax, I don't feel it would be anywhere near the panacea you speak of.
Means testing would be required to ensure those who have planned well for retirement and live in a greater level of comfort will do so on their own dime until such a time as they no longer have the means for the level they enjoy, and thus become eligible for NZS as, you say, a basic standard of of living.
Then regarding the surtax, there are accounting ways to bypass the income therefore we would likely see many funnel all of their income via companies, trusts etc to minimise personal income (as is already done for tax advantage) this making the surtax only so effective.
Our political parties systems - and culture! - encourage reflexive adversarialism, so the likelihood of bipartisan agreement is small.
That said, Australia isn't exactly known for peace and love in politics.
So, how did they achieve enough agreement to build their retirement savings to around 4 trillion dollars, and which has been used to underpin a lot of their infrastructure development?
Winston Peters announcing a policy to make KiwiSaver compulsory and to increase employee and employer contributions to 10%.
So workers get even less take-home pay, and businesses have even more costs. Take from working people and businesses and give to all. In other words another incentive to not be productive.
How about scrap the whole Superannuation, and make people responsible for their own lives instead of always relying on the state.
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