Media Release (NZ)

Simply raising the age of eligibility is not the silver bullet many assume.  However, new modelling commissioned by Chartered Accountants Australia and New Zealand (CA ANZ) shows that allowing people to choose when they start receiving NZ Super could improve affordability, preserve universality and provide greater flexibility for older New Zealanders.

The New Zealand Institute of Economic Research (NZIER) modelling, commissioned by CA ANZ, highlight the benefits of flexible NZ Super uptake where eligible super annuitants could voluntarily delay uptake and in return receive an increased lifetime rate of NZ Super.

“When surveyed, nearly all our New Zealand members were concerned about the country’s ability to pay for NZ Superannuation in the future,” said CA ANZ New Zealand Country Head Peter Vial FCA.

The longer we wait to address the rising cost of NZ Super, the fewer options future governments and New Zealanders will have.

“NZ Super currently costs the country $26.5 billion each year and Treasury has forecast that this cost will increase to $72.8b by 2048, which will be unsustainable.

“The debate is too often reduced to a single question about raising the age. But our modelling shows that simply raising eligibility to 67, or later, does not substantially reduce the long-term cost of NZ Super – it just shifts the impact further out.

“However, enabling the flexible uptake of NZ Super could give people more options while maintaining universality – the concept where it’s available to everyone. It needs to be part of the bigger conversation.”

Across the scenarios modelled by NZIER, spreading uptake over the first five years of eligibility reduces the cost of NZ Super compared with the current Treasury projection.

“Under Option 1 - our preferred scenario, a person could take NZ Super at the earliest at 65 and receive 95 per cent of the current rate. Or, for each year they delayed payment, up to the age of 70, they could increase that rate by 2.5 per cent. The rate selected would then apply over the rest of their lifetime,” continued Mr Vial.

“This would increase affordability of NZ Super, by incentivising the people over 65 who continue to work to delay NZ Super uptake, at the benefit of a higher rate.”

If 40 per cent of eligible people delayed uptake, annual NZ Super expenditure in 2048 could be around $7.5b - or 10.4 per cent below - the $72.8b that Treasury estimates NZ Super will cost in its current form. Additionally, there could be cumulative nominal savings of more than $98 billion in the years between 2028 and 2048, in this modelled scenario.

The modelling provides an alternative to raising the age of eligibility for all and means people can still retire at 65 and receive NZ Super. It addresses the financial burden while preserving universality.

The modelling is designed to show the direction and approximate scale of the expenditure effects. It does not forecast how people would change their employment, retirement or saving decisions.

A range of retirement setting changes needed

Tax and Financial Services Leader John Cuthbertson FCA said that the flexible uptake model must work alongside a range of policy changes to make NZ Super more affordable.

“A flexible uptake is not a complete policy fix, but it broadens the conversation beyond simply increasing the age or introducing means testing,” said Mr Cuthbertson.

“It would need to form part of a wider package including indexing NZ Super to consumer prices rather than wages, and stronger incentives for New Zealanders to build their own retirement savings.

“A current issue is that as our economy grows – so too does the cost of NZ Super. We could address that by indexing NZ Super to the consumer price index – so recipients still get increases that cover the cost of goods. That way, as our economy grows, NZ Super becomes more affordable.

“In terms of increasing private savings, we like the option of salary sacrifice, where employee KiwiSaver contributions are made from pre-tax rather than post-tax income. This would put more dollars into savers accounts. Allowing salary sacrifice up to a set annual limit - for example $3,000 - would have a cost to the Government coffers, but it is worth considering as a practical way to lift private savings over the medium term.

“No single change will be enough. But a combination of flexible NZ Super uptake, more sustainable indexation and stronger private savings could make a meaningful difference while keeping NZ Super available to everyone.”

The research supports CA ANZ’s 6 for 26 election advocacy, which calls for a structured, cross-party review of retirement income settings. The review should be evidence based, address long-term affordability while preserving universality to the greatest extent possible, and consider eligibility, indexation and measures that make private retirement saving easier and more attractive.