Universal pension ‘faces watershed’

Superannuation will need to be means-tested if the country is to cater for a group of New Zealanders approaching retirement in a poorer financial position than earlier generations, one economist says.

Shamubeel Eaqub said the pension was not sufficient for people who did not own their homes.

The increasing number of people approaching retirement as renters and in less secure jobs, which made it harder to save, was an issue flagged by the Retirement Commissioner when he released the Commission for Financial Capability’s latest review of retirement income policy.

Eaqub said that meant there would be more pressure on the system. ‘‘The welfare burden of older folk is going to increase and not necessarily just because of super.’’

More would need the accommodation supplement and other top-ups, he said.

In 1996, New Zealand spent $5.1 billion on NZ Super, which had grown to $10.235b by 2012-13 and is projected to hit $16.33b in the 2020-21 financial year.

By 2059-60 it is predicted it will cost $125b of total gross domestic product (GDP) of $1586b.

Ministry of Social Development data shows there were 774,651 people receiving New Zealand Super in March 2019.

By 2068, that number is projected to be 1,838,100 – by that stage, people over the current pension age will be 28.21 per cent of the population, compared with 15.37 per cent in 2018.

Eaqub said that meant the country faced a ‘‘political watershed’’ and would be forced to make a decision.

The pension should be assettested, he said. ‘‘There is no point in giving money to people who have lots of money. Universality is a wonderful idea if everybody puts loads in and everybody takes some out but we have got the worst of both. We do not put enough in but we give universal access.’’

Means-testing is used in the United Kingdom, United States, Australia, Belgium, Italy, Austria, Hungary and Ireland among other countries.

Geoff Simmons, an economist and leader of The Opportunities Party, agreed.

‘‘There are big questions over how one might do that, some ways work better than others.

‘‘The ‘means testing’ they did in the 1990s was pretty bureaucratic and caused lots of perverse behaviour,’’ Simmons said.

Eric Crampton, chief economist at The New Zealand Initiative, said there could be unintended consequences.

‘‘Super as it stands means there is no disincentive to accumulate savings to fund your retirement; means-testing of super would distort that and discourage people, at the margin, from contributing to their Kiwisaver account. If saving for your retirement means you will get less in super, people will save less for their retirement. I am not sure that that is for the good.

‘‘It is better to address equity issues by making sure that super does not rise to take an unjust share of overall government expenditure – which means scheduling in increases in the age of eligibility while providing a medical-tested disability benefit for those who are unable to work before the age of eligibility.’’