Cutting cost of superannuation

SOMETIMES New Zealand can be too generous and naive. Such is the case with National Superannuation residency requirements. The 10 years at present is far too short and is part of far too big a burden for taxpayers.

This matters because every dollar spent on superannuation is a dollar not spent on a worthy cause. National Superannuation will become increasingly expensive as the population ages and as people continue to live longer. The strain on this country’s finances will become more and more acute.

There were moves to increase the eligibility age over time to age

67. Politically, this appears untenable at present, and former prime minister John Key made great play of keeping the age at

65. Winston Peters and New Zealand First are also implacable on this front, and Labour backed off its proposal in 2013 for increases to 67.

Internationally, that age is the norm.

Perhaps New Zealand can manage to stick with 65, but the increasing health costs as people age are just as big a strain as super.

Australia is in the process of moving its ‘‘pension’’ age to 67, and the coalition government has a programme outlined to take it to 70, although Australia’s pension is asset and income tested unlike in New Zealand. This transtasman age differential could cause issues with New Zealand because of migration and potential migration between the countries. The matter needs to be examined carefully and dispassionately. So, too, do various other aspects of superannuation, such as the nonqualifying partner option. Particularly challenging to tackle would be the scheme’s universality, which is generally accepted. It is for the rich and the poor, those who do not work and those who continue to earn wages and salaries. The percentage over 65 in some sort of paid work is now about 25%. These workers are important contributors to cover potential skills shortages and as contributors to taxes.

Putting aside the complications and difficulties — and the need for them to be reviewed — the residency requirements can be handled independently and in a way to help make the scheme more affordable.

Last month, a New Zealand First private members’ Bill in the name of MP Mark Patterson, who is based in CluthaSouthland, was put forward. It proposes increasing the minimum residency requirement from 10 to 20 years after the age of 20, so a childhood in New Zealand would not count. The current 10year law only stipulates five of those must be after the age of 50.

Given the last Nationalled government proposed an increase to 20 years, there should be sufficient support for a Bill to pass. Mr Patterson cites Berl research which says the change to 20 years could save $4.4 billion over 10 years.

But is even 20 years enough? The 2016 policy review by retirement commissioner Diane Maxwell recommended 25 years, noting an average in the OECD of 26. Any change would not apply to those living in New Zealand now. She calls for action now in part because of the time lag. Super annuation cost $30 million a day and that would rise to $98 million in 20 years’ time, she said.

The 10year rule goes back to 1972. Most migrants were from Britain and the UK state pension could be taken off NZ Super. But these days many come from the likes of China where there is no state pension. There is a clear monetary incentive for Chinese residents to try to bring out their parents under family reunification. After only 10 years they can be receiving this country’s state pension, as well as public healthcare.

It might be contentious just how unaffordable National Superannuation will become. What is certain, however, is that the number of elderly is climbing steadily along with commensurate health costs. Changing eligibility criteria to at least 20 years, and preferably to 25, is a specific way these costs can be trimmed.