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Dunne Speaks: All Aboard the Superannuation Merry-Go-Round

Crank up the pipe organ! The superannuation merry-go-round is starting up again. In 2014 Labour proposed lifting the age of entitlement to 67 years, but National was opposed to it. But in 2017, it was National wanting to lift the age to 67 years, with Labour opposed. Now, National has revived that promise, and the merry-go-round is whirring into life all over again, promising everyone under the age of 48, at least a two-year longer wait until they can collect their New Zealand Superannuation.

Generations of New Zealanders have been adversely affected by superannuation changes since the infamous 25% surcharge imposed by Labour in 1984, and its even tougher replacement regime introduced by National after 1990. There was a brief period of truce following the uncomfortable Accord negotiated by the two big parties in 1993, more to get superannuation and their pitiable records off the election agenda than to provide stability and certainty for retiring New Zealanders. Finally, universal non-means tested superannuation from the age of 65 years was restored in the late 1990s, but almost immediately there began to be whispers about long term-affordability and sustainability, culminating in the two big parties returning to their old tricks in the last few years.

Neither seems to realise they have no credibility anymore when it comes to superannuation. So, every time one or other of them raises the prospect of changes to superannuation they raise also the spectre of their mutual historic duplicity, with the consequence that no-one believes what they have to say.

It is time to draw a clear line, and rule out once and for all any further tinkering with the age of eligibility. At the same time, to address affordability and sustainability issues, two other steps should be considered.

First, now that most New Zealanders of working age are in Kiwisaver, it is time to make that a compulsory national savings scheme, with minimal exemptions. Boosting people’s Kiwisaver accounts would reduce the long-term pressure on New Zealand Superannuation as the major source of retirement income. In turn, that would enable governments to consider whether, from about 2040 or 2045 onwards, the value of New Zealand Superannuation could be reduced for new retirees, while retaining universality from the age of 65. If, as a result of changing work patterns, the age 65 cut-off for Kiwisaver was moved upwards, moving the age of New Zealand Superannuation upwards in line with that could also be considered, but only at that point.

At the same time, fresh consideration needs to be given to a scheme known as Flexi-Super to meet the particular needs of those who often do not enjoy long retirements – manual workers, Maori and Pasifika, for example. Flexi-Super is a voluntary scheme that allows people to take a reduced rate of New Zealand Superannuation from the age of 60, or an enhanced rate if they defer taking up their superannuation until the age of 70. In reality, that would mean those taking superannuation from the age of 60, would be paid about 66% of the full rate of superannuation for the remainder of their lives, and those waiting until 70 would receive about 130%. The scheme would not be compulsory, although once a choice had been made, there would be no option to review it.

The key point of Flexi-Super is individual choice. If one was unwell or utterly fatigued, the option of a lower rate of superannuation for what might only be a few years (and might not even be as far off as 65) would be very appealing, especially as there is virtually nothing for them at present.

Various polls have indicated Flexi-Super resonates with many New Zealanders, but three main arguments have been raised against
it, although none have a great deal of merit. The first is that it will have little impact on overall costs. By itself, that may be true to some extent, but if it was accompanied by compulsory Kiwisaver as proposed above, it would most likely see a steady voluntary increase in the uptake age of New Zealand Superannuation until around 67, thus reducing the long-term cost of New Zealand Superannuation.

Others say, that it would be politically unsustainable to tell someone who has opted for the lower rate of superannuation at age 60, they will remain fixed on that lower rate once they reach 65. That ignores the fact that they will have had an effective five-year advantage over those who wait till 65. Also, it has to be assumed that in reaching their original decision people would have been made fully aware of the long-term implications. People are used to having to make hard calls in life, and Flexi-Super would be no different. But it is only an option for people to choose, if it suits them, not a compulsory requirement.

The third counter-argument is the most novel and comes from the Treasury. It opposes Flexi-Super because it sees it as an incentive for everyone to opt in on the lower rate at age 60, bank the money as essentially free money and then derive the benefit at 65 or whenever, of what they see as a tax-free government retirement subsidy. They overlook two obvious points; first, in the most unlikely event their scenario were so, there would be no additional superannuation payable to those people from 65, so there would be no additional cost to the government, beyond what was paid out from age 60. And second, because people would be taking the discounted, not the full rate, of superannuation, the long-term costs to the government would actually reduce by about one third.

Compulsory Kiwisaver and Flexi-Super are the real superannuation issues we ought to be discussing and debating now, rather than scrambling back on the faded old inter-generational betrayal merry-go-round of ensuring today’s income earners continue to pay for their parents’ New Zealand Superannuation, with no lasting guarantee there will be anything there for them when they retire. That is the most short-sighted and unsustainable of all positions.

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