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G & J

New Zealand Superannuation – A Core Cost to Pay

The growing cost of New Zealand Superannuation is an issue that the Retirement Commissioner and media have raised as a concern. This week, current Prime Minister Bill English addressed the issue, with proposed changes to entitlement age, and increasing the residency length requirement for immigrants.

The current government proposes legislative changes to be introduced in March next year. This is after the election. What has been proposed is therefore a policy, and may not necessarily become law.

Under National’s proposal the age of entitlement for NZ Super increases by six months each year from July 2037 until it reaches 67 in July 2040. This means everyone born on or after 1 January 1974 will be eligible for NZ Super from age 67. Other settings such as indexing NZ Super to the average wage and universal entitlement without means testing will remain unchanged.

National’s policy also proposes doubling the residency requirements for NZ Super to ensure applicants have lived in New Zealand for 20 years, with five of those after the age of 50. People who are already citizens or residents will remain eligible under the existing rules. The increase from 10 to 20 years, brings it into alignment with the OECD average.

Currently, you are entitled to receive New Zealand Superannuation if you are aged 65 or over, you are a New Zealand citizen or permanent resident, and normally live in New Zealand at the time you apply. You must also have lived in New Zealand for at least 10 years since you turned 20. Five of those years must be since you turned 50. Time spent overseas in certain countries and for certain reasons may be counted for New Zealand Superannuation.

Given the large numbers of immigrants over the past eight years or so, it is the eligibility of these immigrants that is raising the most concern. The current ten-year rule seems very generous. Some will have paid little or no tax, except for GST, whilst in New Zealand. In the countries that some of these people come from there is no government super, so there is no top up from their governments to the New Zealand government to meet the payments. The Dutch and British governments make payments to New Zealand, whereas for example the South African government does not.

New Zealand Superannuation has always been discriminatory. Originally women received it at an earlier age than men, despite the fact that they have a greater life expectancy than men. And why should a couple only get 82% each of what a single person sharing a home with somebody else receives? After all, couples cannot combine their incomes for taxation purposes.

In the mid 1990’s there effectively there was a cross party consensus (apart from New Zealand First) reached on the amount that National Super should be. It will be very interesting to see what happens if there is a vote on the proposed changes. At previous elections, Labour campaigned on a similar platform.

If you want increased certainty about your retirement funding, the best way forward is to spend less and save more. Remember, Governments can change the goalposts. Fortunately, there tends to be a long lead in time.

Disclaimer

Steven Barton (FSP 32663) and Susan Pascoe Barton (FSP 32382) are Whakatane based Certified Financial Planners and Authorised Financial Advisers.  Their initial disclosure statements are available free of charge by contacting them on (07) 3060080 or they can be downloaded from www.pascoebarton.co.nz. This column is general in nature and should not be regarded as personalised investment advice.