Retirement income framework

Overview of the Australian and New Zealand superannuation and retirement income systems

in brief

  • Information on both Australia's and New Zealand's retirement income systems
  • The Australian retirement income systems consists of three pillars – government age pension, compulsory savings enforced through super guarantee and voluntary savings
  • Retirement income in New Zealand comprises of superannuation from the government and private income from pension plans and investment assets

The Australian retirement income system

Australia has a three pillar retirement income system:

  • A government-provided age pension
  • Compulsory savings enforced through the superannuation guarantee (SG)
  • Voluntary savings (both through superannuation and other sources).

What you should know

  • The government provided pension

    The Australian government age pension is a means tested pension available to retired Australians who meet the Government’s eligibility criteria. Its role is to prevent people in retirement from living in poverty.

    Around 65% of older Australians rely on a government pension or allowance as their main source of personal income at retirement. To qualify for the age pension individuals must satisfy age and residency requirements in particular be an Australian resident and in Australia on the day they apply for the age pension.

    An individuals’ eligibility for the age pension is calculated by taking into account how much income they receive (the income test) and how much their assets are worth (the assets test). The test that results in the lower pension rate will be the one that is paid.

  • Compulsory savings and contributions

    All employees must make superannuation contributions of 9.5% (proposed to gradually increase to 12% by 2026) of each employee’s (subject to some exceptions) ordinary times earnings. The contributions are paid directly to each employee’s nominated super fund, or a default fund on their behalf. Superannuation Guarantee (SG) is the official term for compulsory superannuation contributions made by employers on behalf of their employees.

    Individuals are entitled to super guarantee contributions from an employer if they are:

    • 18 years old or over; and
    • Paid $450 or more (before tax) in a month.

    It does not matter if they are full time, part time or casual, or temporary resident of Australia – they are still covered by superannuation entitlements.

  • Voluntary savings

    Voluntary savings through superannuation

    A part of the third pillar of the Australian retirement system is voluntary savings by individuals through either superannuation contributions made in addition to the employer SG contributions (detailed above).

    Voluntary contributions into superannuation are encouraged through a variety of tax concessions provided to superannuation funds and potentially the contributors.

    Voluntary savings through other sources

    Another part of the third pillar of the Australian retirement system is through voluntary savings outside of superannuation. The investments will either be held personally or via an entity such as a company or trust.

New Zealand retirement income system

Retirement income in New Zealand traditionally comprises of two parts:

  • Superannuation from the government known as New Zealand Superannuation
  • Private income from pension plans (the KiwiSaver scheme and other superannuation schemes) and investment assets.

What you should know

  • Superannuation

    New Zealand's public pension's, the New Zealand Superannuation (NZS), primary goal is to provide social protection rather than to replace earnings.

    New Zealand has not legislated for a compulsory retirement age and employers are not allowed to specify a mandatory retirement age in employment contracts however the non-contributory flat-rate pension is paid to all residents fulfilling the residence requirements at age 65 until death. The beneficiary must have lived in New Zealand for at least 10 years since turning 20 with at least five years spent in the country after the age of 50.

    NZS is maintained between 65% and 72.5% of average ordinary time weekly earnings. Benefits are reviewed each year and adjusted to take account inflation and wages. All benefits received under NZS are subject to income tax and the pension is financed from general tax revenues. The pension is paid regardless of whether the person is still employed or not.

    It is neither income nor asset tested.

  • KiwiSaver schemes

    KiwiSaver is a voluntary, work-based savings scheme intended to complement NZS and help increase overall retirement savings. From 1 July 2007 new employees are automatically enrolled, and have eight weeks in which to decide if they wish to opt-out. Existing employees may opt-in if they wish.

    An employee must choose the KiwiSaver scheme provider to where the savings should be allocated as well as how much to contribute. If an employee does not choose a provider, Inland Revenue or their employer will assign one.

    Contributions are deducted from pay at a contribution rate of either 3%, 4% or 8% (employees choose how much to contribute) calculated on gross salary. Employer contributions are voluntary and subject to a vesting scale.

    Employees with an existing, approved superannuation scheme may apply for exemption from automatic enrolment into the KiwiSaver.

    Employer contributions to the KiwiSaver scheme are tax-exempt up to a limit of either the employee's contributions or 4% of the employee's gross salary, whichever is lower.

    KiwiSaver savings cannot be accessed until an individual is entitled to New Zealand superannuation which is currently age 65 or if they joined over the age of 60 (until you have been a member for at least 5 years). Early withdrawal in part or full may be accessed when:

    • Buying a first home
    • Moving overseas permanently
    • Suffering significant financial hardship
    • Seriously ill
  • Other employer sponsored superannuation schemes

    A superannuation scheme is a scheme which is not a KiwiSaver scheme but is also established principally to provide retirement benefits, and is registered under the Superannuation Schemes Act 1989. When KiwiSaver commenced, existing registered superannuation schemes could choose to convert to a KiwiSaver scheme, establish a KiwiSaver scheme within an existing superannuation scheme, or continue to operate separately from KiwiSaver.