Sting in tail of new Super plan

Older workers could be forced to raid their Kiwisaver accounts if they either lose their jobs or are forced out by by ill health when the new pension age kicks in.

Cabinet documents released yesterday reveal those workers may not be eligible for other social security benefits like the job seeker or disability allowance once they turn 65, even though they won’t qualify for superannuation till they are 67.

That’s because the age at which savers will be able to access their Kiwisaver entitlements will remain at 65, rather than rise to match the age of eligibility for superannuation, which will be pushed out to 67 in 2040. Those savings will count toward their income and assets, so will affect their access to other benefits.

‘‘It should be noted that allowing people to access their Kiwisaver funds in advance of the age of eligibility for NZ Super may compromise their eligibility for a social security benefit during that period, as eligibility for benefits can be subject to an assessment of that person’s income and assets, which would include assets available from a Kiwisaver scheme,’’ the documents note.

Finance Minister Steven Joyce proposes addressing the issue in a 2030 review on the transitional impacts on the change of the age of eligibility of superannuation.

The Government announced on Monday it was planning to extend the age of eligibility for superannuation to 67 from 65 by 2040, saving a potential $4 billion a year.

The last time the pension age was increased was in 1991 when it was raised from 60 to 65.

Monday’s announcement also extended the residency requirements for superannuation. Under current rules people must be resident in New Zealand for 10 years, of which five years must be since they were aged 50. The Government proposes extending that to 20 years. Treasury estimates savings of nearly $200 million by 2041 as a result of about 6800 fewer people qualifying. The savings are not greater because Treasury estimates that between 35 per cent and 50 per cent of people who would not otherwise meet the increased residency requirements might simply migrate earlier in order to meet the new rules.

Another 30 to 35 per cent of people will qualify for other social security benefits like Jobseeker Support or the supported living payment. Treasury estimates about 3100 people – or nearly half of those affected by the increased residency requirements – will qualify for either of those payments. That leaves 20 to 30 per cent of individuals who would not meet the increased residency requirements and would not be eligible for any benefits.

The documents underscore the rising cost of pensions as life expectancy increases – they also highlight a surge in the number of people choosing to work past 65, up from 11 per cent in 1997 to 45 per cent now. Currently a retiree at age 65 can expect to live 24.3 per cent of their life on average on NZ Super. With the change in the age to 67, those reaching retirement age in 2040 will spend on average 24.5 per cent of their lives on Super.