Pensions widen, tighten with time
The idea of retirement kicking in at a certain age is a relatively modern idea. For most of history, it was work until you die or can work no more.
It wasn’t until the late 19th century that this age-old plan began to change.
Otto von Bismarck, a German statesman who masterminded the unification of Germany in
1871, was the first to break the mould by introducing a pension system in 1889. A conservative, Bismark wanted to head off the citizens’ growing interest in socialism; pensions provided a welcome middle ground.
The idea gradually caught on in the world’s advanced economies, with New Zealand introducing the Old-age Pensions Act in November 1898.
It was one of the major achievements of Richard Seddon’s Liberal government and provided a small meanstested pension to elderly people with few assets who were ‘‘of good moral character’’.
But unlike Germany, which ran a contributory state pension, New Zealand chose to fund the payments from general taxation; the first in the world to do so.
The amount pensioners received was at most £18 per year, about $3400 in today’s money. Only people with an annual income under £34 (about
$6500) and with property worth no more than £50 ($9500) received the full amount.
Proof was also required that the applicant was at least 65 years old, which disadvantaged the many Ma¯ori whose births had not been registered. All Chinese were also excluded, even if they met the requirement of having lived in New Zealand for the previous 25 years.
Overall, slightly more than one-third of people aged 65 or older qualified for the pension.
The relatively small scale of the scheme compared with today’s payments was further limited by the fact New Zealand did not have a lot of old people, and many died before reaching the age of eligibility.
Growing concern
In 1936, the Pensions Amendment Act ended the discrimination against Chinese and the practice of including Maori land in the asset test.
Then the 1938 Social Security Act came into effect and from it the ‘‘Age Benefit’’ in 1939. The new approach lowered the age for the means-tested pension to 60 and introduced a universal superannuation from age 65. The amount increased to £78 a year (about $7500 today).
Means testing was removed from age 60 in 1977, but rising costs forced a rethink of the scheme and in the 1990s the age of eligibility was phased higher until it was back at 65 in 2001.
Otto von Bismarck could not have envisaged a system that would support people for 20, 30 or even 40 years after they stopped working. But can New Zealand pull back from such a level of support?
The last National government outlined plans to increase the pension age to 67, a stance previously supported by the Commission for Financial Capability, which issues threeyearly reviews of retirement income policies.
But in the latest review, released early this year, acting commissioner Peter Cordtz said housing costs and job trouble meant too many New Zealanders were approaching the traditional retirement years in poor financial shape and it would be unfair to increase the age of eligibility.
Leaving the pension age at 65 was sustainable for the next two to three decades, he said.
In February, economist Shamubeel Eaqub countered by saying the pension should once again be means tested, as in the UK, US, Australia, Belgium, Italy, Austria, Hungary and Ireland, among other countries.
With the economic shock of Covid-19 continuing to ripple out, Kiwis of all ages will be watching closely for any change to this pillar of the welfare state.