Retirement Commissioner David Boyle says if tackling the issues surrounding New Zealand Superannuation were simple, no one would be talking about it because it would have already been done.
“I think everyone in this room would agree that it’s a can being kicked down the road because it is so hard,” Boyle told the audience at the Financial Services Council (FSC) conference on Thursday.
“There is a fiscal element now that seems to be quite universal through all parties that are thinking around how do we find some something that's going to work for the majority because you're never going to get it perfect.”
Boyle made these comments as part of a panel on NZ Super with facilitator FSC chief executive Kirk Hope, chief executive of Mercer NZ Anna Scott, and political economist Leonard Hong.
The discussion comes at a time when the superannuation age, KiwiSaver and New Zealand's retirement system as a whole remain contentious topics.
The cost of superannuation
They've also become heavily politicised, with political parties proposing to increase contribution rates and bring in compulsion. Raising the age of superannuation eligibility has also been hovering around the edges with parties like Labour and NZ First against increasing the age, while the likes of National and ACT wants to see a lift from 65 to 67.
The cost of superannuation is also under the microscope. In February, Treasury’s forecast was that the number of people receiving superannuation will grow from 928,000 in 2024/2025 to 1,084,000 in 2029/2030. At the time, Treasury secretary and chief executive Iain Rennie said the growth was equivalent to the entire population of Tauranga in just four or five years.
“The extra superannuation in 2029/2030 of about $7.7 billion compared to 2024/2025 is equivalent to 22% of the growth in the entire tax revenue that we are projecting over that period.”
'Be careful what you wish for'
Part of the panel's discussion was on means testing superannuation.
The reason why Hong was not necessarily in favour of means testing is not because he didn’t understand the arguments for it.
“It’s true that it does mean that the state does not have to pay as much but there are negative labour market implications.”
When people assume, 'oh, here is a specific asset threshold where if I go beyond it, then I can't reach my Super' then they're not going to be incentivised to work," he said.
Hong said we needed to think about the benefits of the current system - it was easy to manage, everyone gets it and there are clear rules.
Hong, who is part of Gen Z, said he thought his generation’s view was that certainty and not adding so much compliance costs and confusion was important.
“So that's why I think, despite the benefits associated with means testing, I think I like the current system, and we just need to adjust it and make it fiscally feasible. I think that's far more important on a macroeconomic level.”
Scott said ultimately incentives drive outcomes.
“You could argue because [NZ Super] is universally available, it has meant that everybody knows it’s there as a safeguard,” she said, "and therefore have we all paid enough attention to our individual savings, knowing there's a backstop? Maybe we haven't."
“Right now, a lot of us are struggling with today so the fact that we know there’s a backstop there helps that general holistic feeling of wellbeing and being able to manage with what we’ve got.”
Boyle said means testing was one of the levers that could be looked at.
“But be careful what you wish for as well because of behavioural change.”
Is tax the elephant in the room?
In the lead up to the election, the Greens have released a suite of tax policies including a wealth tax while the Labour Party has put forward a capital gains tax.
On the long-term affordability of NZ Super, Hope, the facilitator, queried whether tax was the elephant in the room.
Hong said he was not in favour of taxes like a wealth or capital tax that undermined potentially the performance of funds and add a lot of compliance costs.
“Let's just think about the fundamentals and keep the system simple.”
Scott said this was something that didn’t have to be overcomplicated.
“I'll come back to incentives drive outcomes ... If we do want people to see this magic of compounding returns and to really see it grow, then perhaps at a certain level of income, you don't get taxed on those savings that are in a retirement structure, right? That are earning the money. So it's actually accumulating faster.
“There are other things that we can do without breaking the whole system, but to target certain areas,” she said. “What did the government call their fuel crisis [measures] … timely, targeted, and temporary … maybe those are good things here too to think about."
“What are we actually trying to achieve? How do we close some of those gaps in a targeted way? But we're not re-engineering the entire system.”
What about raising the age?
Asked what her thoughts were on the political challenges of raising the Super age and whether we actually need to or not, Scott said the political challenge could be seen by looking at the country’s history and the fact that no one’s touched it.
The reality was there were books to balance for the country, Scott said.
“If you look at some of those undeniable statistics of demographics and age, then you’ve really got to work backwards from that, and to say, ‘well, how are we going to protect that?’
“Now, on one hand, you could argue you don’t need to raise the age because if you’re encouraging more people to come into an individual scheme, then the tax take is going to be larger and then it balances out what you’re paying out.”
But at the same time, Scott said if you’re not incentivising and finding a way for people to be contributing to their individual retirement savings, then you’re never going to get that balancing act.
She said it was undeniably a complicated picture but she hoped that it would become a conversation that’s addressed.
In this period, the country was drifting because no one was making a conscious choice, she said.
“We're just defaulting to the status quo because that feels safer. But I just think that's not going to pay dividends in the end, is it?
“And so I think that we should be examining it, truly trying to get all those statistics out there and examine can we actually afford it? And then have a grown up discussion about what would happen if we raise it, and what does that look like?”
She acknowledged that it was difficult in the political age. “But I feel like everyone just is walking around the puddle at this point."
‘Too prescriptive’
Scott said no two of us are exactly the same, people did not have the same life experiences or the same genealogy and where we get to with our lives.
This was the part where “we’re too prescriptive” about the age and often linking NZ Super to KiwiSaver, she said.
“We're actually cutting down on people's choices there because we've decided where that threshold is, and that is when you retire. And I think that for our system to work better together as components that provide more flexibility, then we have to decouple some of those things that we've fixed together.”
“I think we need to have more choice for our people in how they plan their own retirement ... The more that we can give that flexibility and choice within the system, keeping in mind the outcomes and the guardrails that we want to place, the better will be,” Scott said.
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